UK - The London Pension Fund Authority (LPFA) is considering screening potential investment managers against environmental, social and governance (ESG) criteria, and expects to have a responsible investment manager in place by September.
Mike Taylor, chief executive of the LPFA, said in the past when the organisation has appointed new managers, "where appropriate" it has put in a "weighting towards ESG criteria" in the tender process.
One such example was the appointment of a global property manager in July last year, as part of the LPFA's strategy as a long-term investor, to take full account of ESG issues and seek to reduce carbon emissions.
As a result, Taylor said "this is something we are considering using more in the future" but pointed out the decision would be up to the trustee board, particularly as the LPFA is not in a position to appoint any more equity managers - which would be the easiest area in which to implement this.
That said, Taylor highlighted if screening managers was to take place the LPFA would "expect to pre-check shortlists of managers on ESG criteria, such as whether they have signed up to the UN Principles of Responsible Investment (UNPRI)".
However, he said the organisation has "no firm policy" on the issue and would have to review the process with each appointment, although he added: "the Board takes this very seriously and would expect any managers that we appoint to take it equally seriously".
Taylor has already developed a RI self-assessment template for pension funds - in partnership with the UK Social Investment Forum (UKSIF), the Local Authority Pension Fund Forum (LAPFF) and the Chartered Institute of Public Finance and Accountancy (CIPFA) - which is based on four key lines of inquiry.
The third of these focuses on procurement processes, investment management agreements (IMA) and also fund manager selection in which to reach the third level pension fund trustees should "incorporate ESG issues in fund manager and other supplier selection processes".
However, level four appears to be where the LPFA is now aiming for, as at this stage the template requires trustees to "only shortlist fund managers and other suppliers with pre-determined ESG credentials".
Taylor confirmed long-term responsible investment (LTRI) and ESG issues are already part of the focus of the LPFA quarterly meetings with managers, but confirmed that it is currently in the process of appointing an RI manager- to be in place by September - to "provide the board with more resources" and is also considering investments into an LTRI segregated fund.
In addition, Taylor suggested the LPFA is looking into setting annual performance targets in the future, and may seek to renegotiate IMAs to include ESG as well as carry out an RI audit.
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