Case study

Incorporating ESG factors into a bespoke fund

Investment Responsible investment ESG

How we helped our client select an investment manager that would create a market-leading fund that reflected its investment beliefs.

The background

One of our defined contribution pension scheme clients wanted to integrate ESG factors more thoroughly into the investment process. In particular, the client wanted to review the diversified growth fund used in the default strategy.

Our solution

We started by helping the Trustee to decide its key responsible investment priorities through a series of interactive sessions, so that the chosen investment manager could reflect these. The Trustee also considered member views, which were obtained through a survey of members that we helped to coordinate.

The priorities that we identified were:

  • integrating ESG considerations within all underlying asset classes, not just equity;
  • taking stewardship seriously, with the investment manager demonstrating this through voting and engagement activities in portfolios;
  • excluding controversial weapons holdings, or holdings with particularly poor ESG credentials;
  • taking meaningful action to mitigate climate change;
  • a preference to align with the goals of the Paris Agreement and the UN Sustainable Development Goals; and
  • a willingness to amend the portfolio going forward to take into account changes to the Trustee’s SIP or beliefs, in particular in relation to its net zero stance.

We facilitated a manager selection exercise for the Trustee, whereby a short-list of established investment managers was asked to design a proposed portfolio, set out their approach to responsible investment, and describe their innovation in this area. A series of follow-up discussion meetings were held with a subset of these investment managers, and they were asked to provide further written information, much of which related to responsible investment.

At the end of this process, the client was able to select and appoint an investment manager who scored well across both financial and responsible investment criteria.

The outcome

The thoroughness of the manager selection process, including the important first step of establishing the client’s specific responsible investment priorities, meant that the Trustee was able to appoint an investment manager that strongly aligned with its responsible investment beliefs and would meet both its financial and responsible investment objectives.