At 27four we believe that in the long term, high standards of corporate responsibility generally makes good business sense. Whilst we are focused on maximising risk adjusted returns across our investment offering we understand that ESG issues have the potential to influence these returns meaningfully over the short, medium and long term and as such recognise that a formalised approach towards evaluating them and integrating them into the portfolios we manage is important. ESG risks are highly diverse and often difficult to identify and quantify. As such, we are aware that strategies to actively mitigate risk are not always possible in the context of appropriate portfolio diversification. Nonetheless, by formalising the assessment of these issues, we build into portfolios an element of insulation from ESG risk. Further, we believe that given our positioning within the industry, we can play an important role in influencing our asset managers to manage ESG risk exposures through encouraging them to pursue engagement and active stewardship.
Underlying Asset Managers
Our expectations from our asset managers on the integration of ESG into investment analysis includes the following:
- Company specific research
- Management engagement
- Proxy voting and active ownership where feasible
- Investigation of thematic ESG issues with investment impact
- ESG integration into formal analysis, best in class approaches and portfolio construction
- Performance attribution from an ESG perspective
- Collaboration within the investment industry
This is achieved through the implementation of the following process:
Our asset manager due diligence process includes an assessment of the manager’s commitment and attentiveness to responsible investing and ability to implement ESG analysis into their investment decision making framework. We seek concrete examples around ESG integration and evidence of the effectiveness of their ESG practices. This includes an interrogation of ESG idea generation and analysis, identification of consistency of application of ESG principles and interventions and the results thereof and the evaluation of flexibility of ESG processes to different circumstances (asset classes, geographies, materiality, regulatory environment etc.).
Asset manager mandates include terms and conditions related specifically to ESG such as proxy voting and engagement, monitoring of the identification of and intervention made on ESG issues as well as requirements around subscription to codes, principles or industry initiatives.
Appointed asset managers provide regular reporting on proxy voting activity and engagement. Asset managers’ portfolios are continuously assessed for alignment to agreed ESG principles and processes as well as an understanding of the material risks and opportunities to which the portfolios are exposed. We seek to understand the status of any ESG issues exerting influence on portfolio performance and the interventions in place to manage them. The impact of these interventions and their outcomes in valuation and portfolio construction should be measured via a performance attribution process. Specific issues and interventions are further interrogated during asset manager report backs.
27four is a signatory to the United Nations Principles for Responsible Investment (UNPRI). In 2007, 27four became a signatory to the United Nation’s finance initiative known as Principles for Responsible Investment. The Principles for Responsible Investment were developed by an international group of institutional investors reflecting the increasing relevance of environmental, social and corporate governance (ESG) issues to investment practices. The process was convened by the United Nations Secretary-General. In signing the Principles, 27four publicly commits to adopting and implementing these Principles, where consistent with our fiduciary responsibilities. We also commit to evaluating the effectiveness and improving the content of the Principles over time. We believe this will improve our ability to meet commitments to beneficiaries as well as better align our investment activities with the broader interests of society. We encourage other institutions to adopt the Principles.