Portfolio managers consider ESG issues as part of the overall evaluation of the prospective investment before making the decision. In certain cases, the most opportune time for influencing the asset manager’s and target fund’s principles of operation is the moment when the investment is made.
Basically, VER expects the portfolio funds to commit to ESG principles, integrate these issues in its investment decisions and report on its ESG performance to investors. VER prefers funds in which the asset manager has signed the PRI – or is otherwise, on the strength of the evidence provided, deemed to act responsibly – and is thus committed to monitoring the portfolio companies’ compliance with the Global Compact platform. Many asset managers provide ESG reports voluntarily already when marketing their products, and often the information so disclosed meets VER’s ESG requirements.
VER invests exclusively in funds whose asset management company is located in a jurisdiction that is committed to acceding to the OECD’s Automatic Exchange of Information (AEOI) convention no later than 2018. The United States is deemed as one of these jurisdictions as it has signed bilateral tax agreements pursuant to the Foreign Account Tax Compliance Act (FATCA).
ESG issues are discussed at meetings between VER’s portfolio managers and fund asset managers even after the investment is made. If any of the companies in the fund’s portfolio fails to meet the ESG standards applied by VER or if its ESG performance raises questions, VER initiates talks with the asset manager or takes other action to influence the fund’s operations. VER may also exit the fund if its portfolio companies fail to satisfy VER’s ESG standards. However, quick exits from private equity, real estate, infrastructure and private credit funds are not usually possible.