An innovative approach to ESG

The challenge

The Government recently implemented regulation to increase the requirements placed upon pension scheme trustees to ensure that assets are invested in the best interests of members and beneficiaries, while considering wider social and environmental factors.

Our client was interested in embedding Environmental, Social and Governance (ESG) considerations into their investment beliefs, ensuring that all funds within their portfolio met strict minimum ESG criteria, as detailed in their Statement of Investment Principles (SIP). They wished to understand how their investment strategy could incorporate more ESG focused funds without negatively impacting the risk and return profile of the strategy.

The solution

Our approach:

  • Via trustee meetings and subsequent conference calls we worked hard to fully understand the balance between the objectives of the trustees to (a) ensure that the assets are invested in the best interests of members and beneficiaries and (b) the interests of wider social and environmental considerations.
  • We arranged meetings to discuss the prevailing ESG practices with the six current investment managers to understand which funds met the client’s strict ESG criteria and where fund and/or manager changes may be required. Extensive market research was conducted to identify suitable new managers and funds with a specific and suitable ESG focus.
  • Following extensive analysis it was recommended the scheme allocate to a new investment class – private equity – with the focus on an ESG friendly fund. The fund selected was an environmental technologies fund, a good fit for the technology focus of the employer, the immediate scheme cash-flow requirements, and also the required risk / return profile.

The outcome

The Trustees now have an allocation to a private equity fund which has an investment focus on backing companies delivering sustainability through innovation.

This has ensured that the Trustees’ ESG requirements were met and their SIP, soon to be placed on a publicly available website, has a strong ESG focus through the investment in this particular fund as well as clearly defined ESG criteria for all funds.

In addition it diversified the portfolio away from the traditional markets and the size of the investment ensured that liquidity risk was managed.

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