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Evidence of integration key in Aon ESG fund manager rating system

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Aon has developed a rating system to assess how well managers integrate environmental, social and corporate governance (ESG) considerations into their investment decision-making processes.

The ESG ratings, which apply to the consultant’s buy-rated investment strategies, also reflect Aon’s assessment of managers’ levels of “active share ownership”, their engagement with companies in relation to ESG risk factors, and their collaboration with the wider responsible investment community.

The ratings were based on a variety of qualitative factors starting with a proprietary due diligence questionnaire completed by the fund manager, said Aon. 

This was followed by a review of the manager’s responsible investment-related policies and procedures.

Tim Manuel, head of responsible investment for the UK at Aon, said the assessment of an ESG rating was mainly about “determining whether the manager’s process is credible, robust, consistently applied and repeatable”.

Speaking to IPE, he said the consultancy was placing emphasis on managers being able to provide evidence that ESG integration policies and procedures were filtering through into portfolio-level decisions.

“If I was being generous, for some managers it’s a case of they are doing it, but the systems haven’t quite caught up with being able to systematically provide the evidence,” said Manuel. “But in a lot of cases it’s just shop talk.”

The ratings are assigned on a scale of 1 to 4 (4 being the best).

Mette Charles, senior investment research consultant at Aon, said the average rating was 2.

“To get a 3 you really need to be pretty active and there’s not many managers who make that bar,” she said. “Equally to get a 1 you have to be doing nothing, and it’s pretty hard to find a manager who’s doing nothing.”

Aon said its ESG assessment process was consistent with the UN PRI’s investment manager reporting framework.

Helpful for trustees

Last year Aon added its voice to the investment consultancies pledging to promote trustees’ engagement with the subject of ESG integration. This was in response to an initiative by the Association of Member-Nominated Trustees (AMNT) and the UK Sustainable Investment and Finance Association.

Aon’s Manuel said the consultancy had emphasised its ESG rating system in a recent report to the AMNT on how it had been delivering on its commitment.

“It’s an important part of working with trustees to help them understand what managers are doing in this space,” he said, noting that interest in ESG investing had “ramped up massively” across Aon’s client base in the past 12 months.

The consultancy’s clients would now be seeing ESG ratings as part of the quarterly manager updates they received from Aon, he said.

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