The fund managers with whom we choose to invest are a key part of how we help our clients achieve their goals and are important partners for us within our industry. While the investments themselves that our managers choose to make are of obvious importance, the way they choose to operate their own business and their approach to environmental, social and governance (ESG) and climate considerations and handling of diversity, equity and inclusion (DEI) issues are also key components of our understanding of potential opportunities and risks of working with a given manager.
Why Engaging with Fund Managers Matters
We believe that the alignment of interests between the firm and our managers is a fundamental requirement for delivering sustainable long-term returns. To this end, we choose to work with managers whose objectives align with our own and those of our clients. We believe all investments have impact – both positive and negative – and seek to identify investment managers that understand how to manage both financial risks and opportunities as well as non-financial risks and opportunities. We integrate ESG, diversity and climate considerations into our investment processes because we believe that such factors can be accretive to portfolio outcomes by either minimizing corporate risks or enhancing return on capital.
For impact managers, we also look for impact alignment throughout the value chain – not only within the underlying investments themselves but also with our managers; we look at their business practices and operations and how investment decisions are made and by whom, understanding that these factors can have a material effect on investment performance. This allows us to better identify areas of potential opportunity and risk and to help us enable clients to meet their impact objectives.
Our relationships with the managers with whom we invest also give us a unique opportunity to not just understand their business through the lens of impact, but also to engage with them to help identify areas of opportunity and to offer resources and support as they take on the work of continuous improvement. We believe that we have a responsibility to our industry, our communities and the environment to use our knowledge and resources and to share what we’ve learned from others to help our managers support all stakeholders.
Finding Opportunities and Offering Support
Since 2018, we have been surveying our investment managers annually about their ESG policies and practices, how they foster greater diversity, equity and inclusion within their firms and the investment industry and how they assess climate- and nature-related investment opportunities and risks.
Manager Survey Results
As a natural extension of this work, we began utilizing the survey results as a tool for deepening our collective impact by actively supporting our managers’ continuous improvement along these ESG, DEI and climate dimensions. We began implementing this formal manager engagement program in 2022, which we expanded in 2023 to our full slate of managers. The program employs a framework to assess, engage with and measure the progress of our investment managers over time. The framework is designed to enable us to better understand our managers’ current ESG, DEI and climate policies, practices and accountability while identifying longer-term opportunities for improvement. In 2023, we achieved a 97% response rate to the 96 surveys we sent out. We sent formal response letters to 100% of our responding managers, outlining our assessment and recommendations for improvement and offered resources to support them in doing so. Based on the survey data as of 12/31/22, 34% of our managers did not require engagement. In addition, we successfully engaged with 24% of our managers to help support improvement in some of the areas identified by our survey and assessment. We are currently reviewing survey data and beginning the process of engaging with our managers for 2024.
Through the program, we proactively support our managers in pursuing continuous improvement by providing targeted recommendations and resources for achieving clear milestones for ESG integration, DEI progress and climate action. Focusing on identifying actionable goals and helping our managers achieve them allows us to meet our managers where they are and offer our perspective and support to managers at any point along the impact spectrum. We have engaged managers who were earlier in their DEI journeys who started with more vague or aspirational commitments and supported them through the process of defining and implementing concrete DEI policies. We have also helped managers with more robust policies and practices already in place identify areas of opportunity, such as improving transparency and governance to ensure that these policies are implemented to best effect. These results are often the outcome of engagement over months and years, not of a single conversation. This is a highly collaborative process, and our relationships with our managers allow us to have ongoing conversations to help enable meaningful and long-term change. We are here to offer resources and support, not to impose rules or enforce deadlines.
Engagement Yields Results
We are pleased to have already seen progress in the information reported by our managers since we began the program two years ago. We saw year-over-year improvement in internal scores based on our analysis of our survey across all three individual areas that we measure – ESG, climate and DEI – and in aggregate scores, representing broad-based improvement. Excitingly, we have seen notable improvement not only by our impact managers, who usually start from a stronger foundation in many of the areas we measure, but also a significant improvement by our traditional managers. For example, we saw a 97% increase in DEI scores across the entire cohort of managers who responded and a 76% increase in climate scores, thanks largely to a 196% improvement in DEI and a 289% improvement in climate by our traditional managers.
Note – our internal scores and baseline assessment are not determinative and do not drive decision-making. The assessment also does not affect our managers’ or their strategies’ role within our client portfolios. Rather, the assessment and internal scores provide us with a mechanism for gauging our managers’ directional and longitudinal progress over time.
These efforts reflect our commitment to field building and a culture of continuous improvement and our desire to amplify our impact beyond that of our capital alone. We are excited to partner with our managers and offer support as we all work to deepen our collective impact, foster greater DEI within the investment industry and accelerate climate action together over time.
