EUROPE - Clarity is crucial when it comes to implementing environmental, social and governance (ESG) into RFPs.
Asset owners should start at the beginning by revising, clarifying and elucidating their beliefs and bringing their Statement of Investment Principles (SIPs) up to date when incorporating ESG into their investment decision-making process, according to Frank Curtiss, head of corporate governance at the UK's Railpen Investments.
Speaking at the 'Incorporating ESG Information into RFP Responses' conference in London recently, Curtiss said asset owners should bring ESG into the very early stages of the manager-appointment process by asking stewardship questions at the beginning when they have the most leverage in the early selection process.
They should also make use of publicly available frameworks, such as the UN Principles for Responsible Investment (UN PRI) and the UK Stewardship Code.
But publishing statements is only a first step, according to Curtiss.
Railpen is closely monitoring how its external fund managers implement the codes in practice and encourages its managers to submit examples of stewardship.
But Curtiss added: "Remember this is a step-by-step process. Don't be overly optimistic or unrealistic about what fund managers are actually doing."
Speaking at the same conference, Tim Currell, head of sustainable investment and corporate governance at Aon Hewitt, said pension funds were looking for an understanding of ESG in their fund managers; signs of integrating ESG rather than treating it as a separate issue; and commitment, such as signing up to relevant codes and groups.
Managers, on the other hand, should avoid placing too much emphasis on ESG generating alpha and not enough on risk avoidance, according to Marc Brammer, head of business development for Northern Europe at MSCI ESG Research.
Other mistakes for managers to avoid is not knowing their client's values, underestimating their own needs for resources, mistaking one ESG strategy for another, not knowing their own portfolio from an ESG perspective and not addressing fiduciary responsibility.