The Fund includes questioning and disclosure on ESG in its assessment of Process. This is a scored section of a tender RFP. The other scored areas are People, philosophy, corporate capability and fees.
Typical wording would be as follows;
Please describe your investment process in detail as it would apply to the management of this mandate, outlining exactly how your global equity portfolios are constructed, from idea generation through to the purchase or sale of individual positions and the management of risk. Your response should cover:
Sources of company/sector research including any use of screening or quantitative techniques;
Your ESG resources and how these will be incorporated into managing this mandate (note that the Strathclyde Pension Fund is a signatory to PRI);
The interaction of research and portfolio construction in respect of the proposed strategy; how investment decisions are made; and how scalable the proposed strategy is and whether you have set hard or indicative capacity limits.
Additionally the Fund includes a scored section Fair Work Practices in tender RFPs. Typical wording would be as follows;
Question – Fair Work Practices
Please describe how you will commit to Fair Work practices for workers (including any agency or sub-contractor workers) engaged in the delivery of this contract (maximum of 250 words).
Question Guidance :
In your response you may wish to extract some of your employment policies, highlight practices and provide some relevant examples to the extent that they apply to the delivery of this contract that will evidence that you adopt a positive approach in respect of maintaining a well-managed, motivated and properly remunerated workforce (e.g. by demonstrating your commitment to paying staff the Glasgow living wage and that you do not exploit staff through the inappropriate use of zero hours contracts). Your response need not be limited to or reflect any of the examples given above.
ESG is addressed in manager agreements. The Fund dedicates an entire section to this as experience tells us that hardwiring compliance is always helpul in getting later mandate compliance. Typical wording for an equity manager contract clause would be;
The Client believes that, where they may be relevant to shareholder value, social, environmental and ethical considerations are among the factors which the Manager should take into account when selecting investments for purchase, retention or sale. Accordingly, the Manager is expected to initiate a process of active engagement on these issues with companies in which they have invested on behalf of the Client, where appropriate, and to report back to the Client on any engagements undertaken and progress made on a quarterly basis.
The Client’s expectation is that the Manager will exercise votes, on behalf of the Client, on all UK equities held in the portfolio, taking into account the UK Stewardship Code. Votes attached to overseas investments should be exercised where the Manager reasonably considers economically viable.The Manager should report back to the Client on its voting activity on a quarterly basis.
As regards monitoring, managers deliver a quarterly report to the Fund which will include or have in addition a responsible investment and voting report. GES provides an overlay report to this.