ESG on the mind

Five institutional investors proffer their thoughts on one of the biggest talking points of the moment across alternatives – environmental, social and governance – and what action they want to see from GPs.

“We look for a documented, rigorous process to evaluate ESG. With a lot of managers, it seems like it’s slide 45 in the pitch deck. I get reports from managers where they’ve got little vignettes each month about what they’re doing on ESG. That is a substitute for having a thorough analytical approach.

“Essentially, we’re after a repeatable process, rather than just talking to infrastructure operators or owners of underlying assets. The repeatable process is the issue, rather than just talking about it.”

Bill Watson, chief executive of First Super, the Australian superannuation fund, wants to see a more consistent approach from managers toward ESG matters

“The challenge is that [ESG data are] qualitative and not quantitative, but so long as we keep asking [for data from GPs] and saying it is important, and the regulator keeps saying that it is important, we will keep the ball rolling.”

Maria Sanz Garcia, managing partner of Yielco Investments, is after more data from GPs

“At some point, we may look at formalising some sort of ESG policy. But today, it’s simply that we review managers’ approach to ESG on their prior investments, just as we’d evaluate their responsible use of leverage or the reasonableness of the valuation decisions they make.”

Marcus Frampton, chief investment officer, Alaska Permanent Fund Corporation, believes evaluating ESG is “qualitative as opposed to formulaic”

“Our asset class teams individually are responsible for evaluating all material risk factors as part of their due diligence. The WSIB has not adopted a singe position or practice regarding various ESG ratings or metrics systems.”

Chris Phillips, spokesperson for the Washington State Investment Board, says the $139.6 billion pension fund doesn’t rate the formal ESG ratings when evaluating a manager

“The most important thing in my mind is for managers to incorporate it into normal due diligence on any infrastructure asset under consideration, and then communicate those ESG efforts consistently and diligently to their investors throughout the year. We also encourage managers to subscribe to ESG principles, as we do believe it demonstrates that a manager realises the importance of ESG in the formation and management of a portfolio.”

Paul Shantic, director of inflation sensitive at California Teachers’ Retirement System, says communicating ESG to investors is key