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Investors to Press Managers on ESG Claims

Representatives from the world’s largest pension funds will debate best practice in environmental, social, and governance investment at the UN’s annual responsible investment conference.

  • Joe McGrath

Investors from the world’s largest pension funds will question asset management firms this week on how effectively their approaches to sustainable investment are shaping the behavior of major companies.

The California Public Employees’ Retirement System, Church of England Pensions Board, Swedish national pension fund AP2, the U.K.’s Environment Agency Pension Fund, and California State Teachers’ Retirement System are just some attending the annual Principles for Responsible Investment conference in Berlin September 25-27.

Getting companies to take more action on climate change will likely feature among the hottest topics at this year’s conference, given an uptick in engagement requests from investors, according to asset managers.

In November of last year, HSBC’s U.K. pension scheme asked Legal & General investment Management to run a multi-factor fund with a climate change tilt for HSBC to use as an equity default option for its defined contribution plan. Then in May, BlackRock and Vanguard voted against the board of oil giant Exxon Mobil in favour of annual climate risk reporting.

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Therese Niklasson, global head of ESG at Investec Asset Management, said institutional investors are increasingly keen to quiz fund managers on how they can include climate change factors into their investment strategy.

“The questions have been slightly mixed,” she said. “Smaller pension funds have been asking what is the right thing to do to mitigate carbon in the portfolio. Exclude fossil fuel companies? Or become more efficient, regardless of sector? They know that it is an issue but they are not entirely sure how they want to tackle it.”

Other topics high on the agenda for investors include heightened scrutiny of board director pay packets and growing interest in how to diversify portfolios through sustainable investment policies.

Last week, Aviva Investors and several partners launched the World Benchmarking Alliance, an organization to rank companies on how they fare against the UN’s sustainable development goals. The project was launched in response to demand from asset owners for a better way to scrutinize the behaviour of companies in which they invest.

Steve Waygood, chief responsible investment officer at Aviva, said that while good investment performance remains the top priority, his clients want to invest with integrity.

“While a client’s first concern is to make money, the vast majority don’t want to do that at any cost,” he said. “They don’t want to exploit the planet and they don’t want to exploit their fellow human beings.”