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Evaluating the ESG evaluators

A number of asset managers have been increasing their ESG capabilities, but are these hires senior enough to help drive investment decisions?

Just last week, BNP Paribas Asset Management appointed Gabriel Wilson-Otto in as head of stewardship for Asia-Pacific. Also this month, Aviva Investors has appointed Paul LaCoursiere as global head of ESG research. Last year, Fidelity named Michael Gibb as head of stewardship and sustainable investing. All three roles are newly created.

The effort to increasing ESG-related staff is positive for the industry, according to Jayne Bok, Hong Kong-based head of investments for Asia at Willis Towers Watson. However, this does not automatically mean that a firm is serious with the effort.

“How senior is that person? If you are going to hire them in a position where they have no executive power, then they are really just an addendum with no decision-making power.

“If you ask an asset manager, ‘who is the most senior person in ESG, who does that person report to, are they on the executive board, can they veto a deal, who was involved in the process of coming up with your ESG philosophy’, then you will get a better sense of how much work has been done,” she told FSA.

Other investment entities — such as institutional investors making direct investments — may not have a dedicated ESG team, but instead use an advisor who ensures sustainable practices are part of the investment vetting process, Bok said.

Luba Nikulina, the firm’s London-based global head of manager research, noted that while active managers have been putting in more effort into ESG integration, passive ESG-focused fund managers haven’t followed.

“Part of the call for action is to actually increase more people dedicated to this area,” she said, adding that there are even fewer resources dedicated for emerging markets investments than for passive funds.

Marketing screens

Evaluating the sustainable practices of a fund house is largely a qualitative exercise, she said. Handing out questionnaires on ESG practices or counting a firm’s ESG accolades are superficial methods.

For example, asset managers who report that they have become a signatory to the UN Principles for Responsible Investing (UNPRI).

“Sign up to the UNPRI and all of a sudden, you are a star of ESG advancement. It doesn’t work like that because now everyone is a signatory.

“The only way you could actually understand what happens behind those marketing screens is actually to engage with those managers,” she said.

Nikulina said discussion of case studies and situational interview questions are key.

One example of a case study question is when an asset manager is reported to have voted against the remuneration of executives of an invested company.

“You start discussing why exactly they voted against it. Was it because everyone else voted against it or they genuinely did a certain comparison there and understood that for this particular business, that would be an unfair way to remunerate executives?

“You cannot really collect that kind of detail and colour through a questionnaire.”

Part of the Mark Allen Group.