Co-Sponsor Media Partners #ESGMS
Welcome to ESG in Manager Selection 2016 12 th October #ESGMS
Plenary 2: Out of Many, Eight. 10:00 11:10 Jill Davys, Assistant Director, Client Management, London CIV Jane Firth, Principal Investment Manager, South Yorkshire Pensions Authority Richard Savage, Investment Manager, Global Equities, Local Pensions Partnership Owen Thorne, Investment Officer, Merseyside Pension Fund Faith Ward, Chief Responsible Investment and Risk Officer, Environment Agency Pension Fund Moderator: Dawn Turner, Chief Pensions Officer, Environment Agency Pension Fund #ESGMS
Alone we can do a little;; together we can do so much. Helen Keller Cross Pool Group for Responsible Investment Dawn Turner Jill Davys Jane Firth Chair of CPG- RI London CIV Border to Coast Richard Savage Owen Thorne Faith Ward LPP Northern Brunel
Dawn Turner Cross Pool Group Responsible Investment
CPG- RI Ø Collegiate but flexible - one size does not fit all Ø Share and shape best practice for the LGPS Ø Increase consistency and collective action Ø Identify risks and opportunities Ø Support UK Stewardship Ø Support ESG investment solutions
Asset Pooling Ø 8 Pools Ø All have designated RI lead/s Ø Work together CPG-RI Ø National Framework Stewardship Services Ø Higher expectations Ø LGPS investment regulations
Pressure on LGPS Millions of UK public sector pensions 'exposed to risky fossil fuel investments Guardian 24 September 2015 Increase our ability to Ø Assess risks Ø Respond effectively Ø Engage with stakeholders
LGPS Investment Regulations Ø Investment Strategy Statements April 2017 Ø ESG considerations in selection, non-selection, retention and realisation of investments - must take proper advice and act prudently Ø Policy on the exercise of the rights (including voting rights) Ø Not appropriate - pursue boycotts, disinvestment and sanctions against foreign nations and UK defence industry Ø may also take non-financial considerations not involve significant risk of financial detriment views of pension board and other interested parties Ø Explain approach to social investments
Jill Davys
London CIV Ø London Collaboration started in 2012 Ø Opportunities to deliver fee savings where there were common mandates Ø 29bn AUM Ø 33 London Authorities Ø FCA Regulated Ø Already operational Ø External managers Ø RI wide range of views across London
London CIV Approach to RI What are we doing in the RI space? Ø RI Officer working group Ø Stewardship and RI Member working group Ø Stewardship Code Ø Global Equities Tender dedicated Sustainable Equities Lot Ø ISS working closely with authorities to agree some broad principals Ø Work to be done.
National Frameworks Ø LGPS Wider collaboration National Frameworks Ø Stewardship Advisory Framework Ø Suppliers of services in this area Ø Lot 1 Voting Services Ø Lot 2 Engagement Services Ø Lot 3 Voting and Engagement Services Ø Stewardship Research and Data Services Ø Stewardship-related Project Services Ø Objectives to: Ø Make it easier for funds to procure services Ø Raise the profile of RI and engagement
Jane Firth Out of Many, Eight
Border to Coast Pensions Partnership Ø 13 Funds Ø AUM > 36 billion Ø Like minded funds Ø ACS structure Ø FCA registration Ø Internal management
BCPP s Approach to RI Ø RI Approach part of submission Ø Common voting policy at Pool level Ø Stewardship Code Ø Communication & reporting Ø Training
Moving Forward Ø More detailed policies Ø RI resource at Pool level Ø Shared intelligence Ø Consolidation of external managers
Expectations Ø Increased focus on Pool Ø Greater expectations of managers Ø ESG integration by internal & external managers Ø Improved reporting by managers on RI Ø Transparency and accountability
Richard Savage
Owen Thorne
Faith Ward
Brunel Pension Partnership Forging new futures by working together 3.9bn 2.9bn 1.9bn 2.2bn 1.7bn 1.6bn 1.5bn 3.4bn 1.8bn 2.3bn
Brunel Company Ø Circa 23bn with 1% kept outside the pool Ø Investment principles agreed Ø Collective Investment Scheme (not CIV/ACS) Ø Client focused delivery Ø Regulatory best practice Ø 22 Portfolios consisting of 1 provider or 2-5 external managers Ø RI integrated into all portfolios Ø Transparency and accountability
Principles Ø Long term Ø Responsible investors Ø Best practice governance Ø Expertise and knowledge Ø Evidence and research Ø Leadership and innovation Ø Right risk for right return Ø Full risk evaluation Ø Responsible stewardship Ø Cost effective solutions Ø Transparent and accountable Ø Collaborate
Transparency and accountability
Plenary 6: A New Dawn for RFPs? 16:05 17:00 Howard Sherman, Executive Director, MSCI ESG Research Jens-Christian Stougaard, Director, PensionDanmark Lars Meuller, Senior Portfolio Manager, Investment Partnerships, Canada Pension Plan Investment Board Moderator: Rob Lake, Principal, Rob Lake Advisors #ESGMS
People Purpose Performance Long Horizon Investing in Liquid Markets - LTVC Index Lars Meuller, PhD Senior Portfolio Manager October 2016
Investment thesis A liquid vehicle to capture longer term sources of excess returns Underlying Investment Thesis: Companies that are oriented to the long term will, on average, generate higher and more sustainable long- term corporate value than those that are not. Long- term investors in such companies can benefit thereby, while also encouraging longer term behaviour in companies and markets. 28 Copyright 2016. Canada Pension Plan Investment Board. All rights reserved.
Collaborated with S&P Dow Jones Indices and RobecoSAM on the development of the S&P LTVC index. Identifies companies with above average potential for long- term value creation. A global well- diversified portfolio of approximately 250 stocks that rank above average on both Quality and Economic Dimension scores. Focus on the G in ESG and constituents weighted in vintage holding periods CPPIB has allocated CAD 1 billion to an internally managed fund that tracks the S&P LTVC Global index. 29 Copyright 2016. Canada Pension Plan Investment Board. All rights reserved.
Vehicle for exposure focused on the long term Excess return of the LTVC Index relative to the LMC Index Note: Backtest period is Jan 03 Jan 16. Live since February 2016 What drives the performance of the LTVC index? 30 Copyright 2016. Canada Pension Plan Investment Board. All rights reserved.
LTVC Factor Exposure - Fama and French Equity Risk Factors Sample: 2003-2016 Risk Factor Intuition Return Risk IR MaxDD 1 Market 2 Size Systematic risk from the market portfolio will explain a portion of stock returns. Small market capitalization stocks will outperform large market capitalization stocks. 8.6% 15.3% 0.56 55% 2.4% 5.2% 0.46 16% 3 Value Value stocks will outperform growth stocks. 1.5% 5.3% 0.28 18% 4 Profitability Stocks with robust profitability will outperform stocks with weak profitability. 2.8% 4.0% 0.71 8% 5 Investment 6 Momentum Companies with conservative investment plans will outperform companies with aggressive investment plans. Stocks that outperform in the past will continue to outperform 1.5% 4.6% 0.33 14% 4.2% 11.9% 0.35 44% Note: Fama and French (1993), "Common Risk Factors in the Returns on Stocks and Bonds". Journal of Financial Economics and Fama and French (2015), A five-factor Asset Pricing Model, Journal of Financial Economics 31 Copyright 2016. Canada Pension Plan Investment Board. All rights reserved.
LTVC Factor Exposure Estimates Decomposing returns of the LTVC Index into underlying risk factors. LTVC performance is driven by: Excess returns (Intercept) Market Profitability Note: Backtest period is Jan 03 Jan 16. Live since February 2016. Models regress the returns of the LTVC Index on the returns of the Fama and French equity risk factors. 32 Copyright 2016. Canada Pension Plan Investment Board. All rights reserved.