Industry Voice: Figuring out whether your money is funding issuers that are effective stewards of their corporations, society and the environment starts with asking your asset managers pointed questions about how they incorporate environmental, social and governance (ESG) concerns into their processes.
Based on the inquiries we're receiving, institutions across the globe have shown a growing interest in learning more about the details of management firms' investment processes and evolving ESG priorities, beyond just their written ESG policies.
Here are some of the most thought-provoking questions we've seen recently from clients.*
1. Have you trimmed, sold out of or increased your exposure to an asset due to ESG considerations? Which ones?
Talking about ESG is one thing; acting upon it is another. Clients want to know when their manager has made changes to their portfolio based on ESG concerns.
2. How would portfolio allocations have differed over the past year if ESG hadn't been factored into the investment decision-making process?
Clients want a detailed assessment of how their investment manager balances ESG concerns and alpha generation. Comparing existing portfolios to those in a world without ESG is a helpful litmus test.
3. List the five securities in your strategy that score the lowest on ESG metrics. What's the rationale for including these securities?
Even in a portfolio that takes ESG concerns very seriously, there are always entities that rate higher than others on sustainability measures. Asking about the lowest-rated investments is a quick way to zero in on the most potentially vulnerable parts of a portfolio or strategy.
4. What are some examples of your engagement with companies on ESG issues over the past year? Please outline the issue and what you hoped to achieve, whom you spoke to, how many meetings you had and the outcome.
Choosing which assets to buy and sell is only one part of responsible investing. Active managers can often spot problematic practices before they're widely recognized, and clients want to know how they engage with management teams to address these concerns.
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