How do you know if a manager is integrating ESG?


This quarter, we updated our preferred list in US investment grade credit space. As it’s 12 months since we formally incorporated  Environmental, Social and Governance factors into our manager research process, I thought it was a good time to share our findings.

During this process, we looked for clear evidence of an ESG philosophy from asset managers.

We looked for a philosophy that is not limited to marketing jargon but integrated with the portfolio management process and issuer underwriting. It was surprising how well written most of the responses around ESG integration where at the RFI stage. This gave us an initial feeling of euphoria while reading them, but it was short lived…

Our key findings

As my British colleagues say: “the proof is in the pudding”. Long story short, the key lessons we picked up were:

  • There are managers with a strong ESG equity process. But, this does not necessarily mean that ESG is integrated into fixed income.
  • Presentations are not a guide for assessing a manager’s ability in this space. They are a good starting point but often the language sets the bar too high. Lengthy and detailed descriptions can be deceiving.
  • We found it was crucial to question, challenge and ask for examples to prove the thought process.
  • Focus your line of questions to the people who manage the strategy. They are the ones responsible for implementing it!

We found US firms are behind integrating ESG into fixed income when compared to their UK counterparts.

There were only a few US managers with a strong European presence that could demonstrate integration of ESG into their investment process. During our conversations, most managers showed a genuine interest in understanding ESG factors. US asset managers have a long way to go, but we planted the seed. The consultant’s part in this process does not stop here.

We’re more than happy to work with managers and help them create an investment philosophy that accounts for ESG risks. This is how we can raise the bar in this space and better align asset managers’ interests with our clients’. The journey will be long with plenty of speed bumps, but worthwhile.

For more on how Redington deal with ESG, check out the Q3 Asset Class. It contains more insights and our process for ensuring clients are investing responsibly.

 

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Author: Christoforos Bikos

Redington is a unique organisation where culture and mission are not marketing jargon but manifest themselves in our work. I try to stimulate my brain and take a break from my job of manager selection by being a part-time farmer in Greece.

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