ESG in the GESB Asset Consultant's investment manager evaluation and monitoring process
The Asset Consultant's approach to evaluation, selection and monitoring of investment managers as it relates to environmental, social and governance (ESG) is described below:
1. Evaluation and Assessment
The Asset Consultant's approach to manager evaluation and selection is consistent across all asset classes:
- It seeks to understand a manager's philosophy in relation to ESG and how this translates to consideration of ESG factors in their investment process.
- It seeks to understand how a manager thinks about ESG irrespective of the language they use to describe their approach. In the Asset Consultant's experience, some investment managers consider ESG factors comprehensively but do not necessarily label their approach as 'ESG'. This is particularly the case outside of listed equity markets, where the terms are less commonly used.
- When assessing an investment manager, the Asset Consultant will look for consistency between the manner in which an investment manager considers ESG factors and their approach to all other factors that may influence investment decisions.
- The Asset Consultant will identify whether an investment manager is a signatory of the United Nations Principles of Responsible Investment (UNPRI) and/or a member of any responsible investment organisations. However, this will not be a sole determining factor in the assessment of a manager's credentials in relation to ESG risk management.
- An assessment of a manager's approach to ESG is an element of the Asset Consultant's formal manager evaluation process. Formal manager evaluation is conducted on a peer relative basis with consideration to the manager's asset class and strategy. This is an evaluation against expected contemporary standards of consideration of ESG issues relevant to the asset class rather than an assessment against or prediction of an expected impact of the application of these standards on investment performance.
- The selection of managers for investment portfolios will balance the manager's approach to ESG with other investment considerations.
- The Asset Consultant monitors all investment managers to ensure that client portfolios are managed in line with expectations of the investment approach and mandate.
- The Asset Consultant discusses ESG issues with investment managers on a regular basis as part of regular monitoring meetings.
- The Asset Consultant is of the view that discussing ESG as it relates to specific investments and decisions is the most fruitful means of understanding how integrated ESG is in a manager's investment process. This may include discussing ESG risks, opportunities or the manager's engagement and voting behaviour in relation to a specific investment.
- The Asset Consultant will have dedicated meetings to address ESG matters where it is considered relevant. This may include meetings with dedicated ESG personnel.
ESG factors are defined as any environmental, social, governance or other sustainability related factors, which have the potential to impact the risk adjusted performance of an investment. ESG factors may arise in relation to a range of investments, including but not limited to listed and unlisted Equities, Fixed Interest and Property. Where the investment pertains to a company, ESG factors can arise directly through the entity's own operations, or indirectly through those of its customers and suppliers, or may additionally relate to the industry or regulatory environment in which the company operates.
Potential ESG factors that may be relevant include, but are not limited to:
|Air and water pollution||Animal welfare||Anti-competitive behaviour|
|Biodiversity loss and ecosystem degradation||Community investment||Audit committee structure|
|Climate risk||Conflict and security||Board composition|
|Deforestation||Consumer protection||Bribery and corruption|
|Energy efficiency and greenhouse gas emissions reductions||Customer satisfaction||Business ethics and conduct|
|Natural capital depletion||Diversity and equal opportunities||Executive remuneration|
|Natural disaster risk||Financial and social inclusion||Legal and regulatory framework|
|Policy and regulatory change||Human capital development||Market conduct|
|Resource scarcity||Human rights||Regulatory compliance|
|Waste management||Improper land acquisition||Reporting and disclosure|
|Water scarcity||Indigenous rights and the application of free, Prior and Informed Consent||Stakeholder dialogue|
|Industrial Relations||Tax payment|
|Occupational Health and Safety|
|Population demographic change|
|Product safety and liability|
|Societal health and well-being|
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