A stitch in time...

For us, it’s a question of ‘evolution not revolution’ when it comes to building out our ESG infrastructure. The last year has been a really exciting period as we’ve made great strides towards formalising ESG considerations within our processes.

Quilter Investors was created in mid-2018 and by early 2019 we were already engaging with Jane Goodland, Quilter plc’s group head of responsible investment, for more resources.

The immediate outcome was funding for a year-long professional research project into how best to integrate ESG considerations. The process took a huge leap in early 2020 when Eimear Toomey joined as Quilter Investors’ head of responsible investment.

Since then, Eimear’s assembled a team that includes the existing engagement and voting specialist in our fund research team and two new hires: a dedicated senior ESG analyst, focused on embedding ESG practices and data integration across the business; and a full-time ESG data analyst to manage our new data feeds from Sustainalytics and Morningstar and the ESG dashboard tool we’ve created.

In March, another new ESG research analyst joins the team; they’ll be working closely with myself and the team generating ESG fund research and helping us to develop our new range of ESG solutions.

Elsewhere, we’ve also incorporated ESG responsibilities into key roles across a range of business functions including compliance, product development, due diligence, investment risk and project management, creating local ESG specialists who now collaborate closely with the responsible investment team.

We’ve done this by undertaking extensive industry training. Our entire executive committee and investment team have already completed a bespoke ESG training course while I and numerous teammates are pursuing the ESG CFA certificate.

The investment fund research team, which supports our business, already has a dedicated ESG lead but each team member is also tasked with specific ESG analysis of their recommendations.

We’ve accomplished an impressive team build out since 2019 while investing in new data and research tools to drive the analysis we need.

Importantly, ESG is also now embedded in how portfolio managers are remunerated – we’re assessed on how well we’ve supported our CIO, Bambos Hambi, in embedding ESG throughout our processes, and our compliance with Quilter Investors’ responsible investment and engagement policies. We must also evidence that we adequately assess ESG considerations in our manager selection.

This is how it should be and a sign that ESG considerations now go right through our business from top to bottom.

By engaging with both our underlying managers and the external managers with whom we invest, we’re increasingly able to help tailor their approaches to be more in line with current best practices in the field and with our own requirements.

We also get to learn and to improve our own processes through the engagement we have with world-leading investment houses and specialist boutiques. This greatly expands the resources available to us; it’s an iterative approach, not something that happens overnight.

This is important as it means we can bring our underlying managers into line gradually while also demonstrating the benefits to our existing investors – most of whom signed up for the optimal return for their chosen level of risk.

That said, we have an advantage over many portfolio managers in that our scale means we can create segregated mandates that are run by leading managers. Within these mandates we can tailor the requirements to meet the criteria we set to ensure we are comfortable, be that excluding some investment instruments or putting restrictions on certain exposures.

There’s also a process of natural renewal. When one manager comes to the end of their tenure, for whatever reasons, we’re in a position to ensure the replacement has a well-established ESG philosophy and process.

On other occasions, it can be more about encouraging individual managers to make more use of the ESG research already being done by their own companies.

Numerous fixed-income managers are also making ground. As an example, managers such as Fidelity are increasingly targeting ‘green’ and reduced-carbon bonds as a way to encourage better climate practices.

We have no immediate plans to exclude any asset classes. Our initial approach is based on the belief that our existing clients would rather see us engaging via the ‘best of breed’ managers in each space and trying to affect change from within, rather than excluding large parts of the market.

In this respect, we already have leading ESG managers such as Janus Henderson Investors and BlackRock. The former manages our natural resources mandate while the latter manages our precious metals fund mandate. These are naturally very high-risk ESG areas, but both managers take an engagement-led approach with portfolio companies.

Janus Henderson, for example, currently doesn’t invest in some major names such as Glencore, but it continues to engage with the company to outline the improvements it needs to see before considering investment.

We think using specialist managers with strong ESG credentials in a higher-risk area can lead to better outcomes than relying on a generalist with little specialist insight into such sectors; specialist managers tend to ‘live and breathe’ their engagement.

That said, we’re already developing more stringent ESG portfolios to cater for investors with more demanding requirements.

The last year or so has seen us make great progress. The hope is that in a year’s time we’ll be in a position to highlight portfolio decisions and report on the successes that were driven by ESG considerations.

In five years’ time, we hope that we’re not even talking about ESG considerations; by then we’re hoping that it simply becomes part and parcel of the industry’s investment process.

As a leading multi-asset portfolio manager with extensive access to all echelons of the fund industry we hope to play a role in shaping the current focus on such issues within the industry by helping to develop a common language and commonly accepted tools.

We take our responsibility for the active stewardship of our investors’ funds very seriously and we hope that by using our influence as a major fund selector and engaging with managers of all shapes and sizes we can help them foster the same principles for managing client money.