Wespath Investment Managers Incorporate Sustainability into Investment Decision-Making
Organizations endorsing the United Nations Principles for Responsible Investment (PRI) commit to incorporating “ESG (environmental, social, and governance) issues into investment analysis and decision-making processes.” The General Board of Pension and Health Benefits was a founding signatory of the PRI in 2006, and its investments division, Wespath Investment Management (Wespath), continues as an active participant. Currently, more than 20 investment managers retained by Wespath (accounting for more than 80% of our $21 billion in assets under management) have joined this initiative. Five of these managers recently reported specific examples of how they integrate ESG factors into their investment analysis.
Manager 1 has a seven-member ESG committee that oversees the company’s ESG analysis. The committee works with the chief investment officer to facilitate and enhance the integration of ESG issues into the investment process. Major ESG issues include:
In addition, the investment team evaluates whether companies under consideration for investment face any material ESG issues, operate in a country (or in an industry) with specific ESG concerns, or have an ESG policy or code of conduct.
Manager 2 regularly discusses ESG issues with the management of companies in its portfolio. The manager recently endorsed Japan’s first Stewardship Code, a set of principles outlining institutional investors’ responsibilities to promote long-term shareholder value through engagement and dialogue with companies. (A similar Corporate Governance Code currently is under development.)
The manager also reports it is hiring additional corporate governance staff to strengthen internal ESG analysis.
Manager 3 has developed a quantitative “sustainability scorecard,” which it uses to evaluate the ESG risks of the companies in which it invests. Companies are evaluated and ranked within their industries and the manager is able to track year-on-year progress.
Not surprisingly, the manager is noted for its robust environmental engagement program and is currently engaging 17 companies on a variety of issues, including:
Greenhouse gas emissions
Manager 4, like Wespath, is an active member of SIRAN, the Social Investment Research Analyst Network. The manager recently engaged Microsoft on several sustainability issues. In addition, Manager 4 organized and hosted a webinar during which the Electronic Industry Citizenship Coalition, the electronic industry’s leading organization on conflict minerals, presented its strategic initiatives.
Manager 5 reports that in 2014, it voted nearly 100 ESG-related shareholder resolutions, supporting 62 and opposing (or abstaining) 35.
In recent company engagements, Manager 5 challenged security firm G4S’ silence on several ethical controversies and sought clarification from Hyundai Engineering & Construction concerning allegations (identified by Amnesty International) of human rights violations at the Hamad Medical City Hospital construction site in Qatar.
Wespath believes that incorporating ESG analysis into investment decision-making is essential to preserving and promoting long-term shareholder value. We commend the efforts of these five managers for considering such analysis and encourage them (and all of our managers) to continue to find ways to integrate ESG analysis into the investment process.