As a public sector entity, ERAFP can only select providers such as asset managers through public Request for Proposal (RfP) processes.
This selection process comprises of two main stages:
1/ ERAFP first strives to assess the candidates' capabilities (financial and IT capabilities, human resources, experience, etc.) to meet ERAFP's requirements, notably in the area of SRI. At that stage, the ESG elements which are taken into account include:
- SRI policies and formalization of commitments
- the size and experience of the team in charge of SRI analysis and management,
- the quality and coverage of external ESG research sources,
- IT tools that have been developed in order to combine the different external and internal ESG databases,
- engagement, voting capabilities and measures of ESG's impacts.
2/ the second stage of the selection process aims at assessing the quality of the proposals made by the candidates who have passed the first stage. With regard to SRI, ERAFP focuses on the investment process proposed by the candidate (How will ERAFP' SRI issuer selection criteria be integrated? What kind of adaptations to the standard process will be necessary to respect ERAFP best in class approach? What are the innovations proposed?).
Overall, the weight of ESG criteria in the process to select asset managers is about 12%.
Of note, ERAFP's SRI policy is part of the mandates signed with asset managers and is thus contractually binding.
During the appointment, ERAFP formalizes its expectations on ESG to each asset managers. For most of its mandates, it requests to compare the ESG performance of the ERAFP's portfolio with a benchmark. ERAFP expects a better ESG performance for its portfolio than the benchmark. ERAFP also focuses on ESG progress of its portfolio. Asset managers have to lead engagement with issuers, especially with those suspected of breaches of certain international standards or non-compliance with environmental or socially responsible principles, to encourage them to adopt best ESG practices. Finally, ERAFP send a service order listing the SRI reporting requested to each asset manager monthly, semi-annually and annually.
With regard to monitoring, the investment companies which have been selected to manage ERAFP's segregated mandates provide us with thorough half-yearly reports on the implementation and the effects of the ESG processes defined on the basis of ERAFP SRI Charter. At the same time, our ESG research provider produces an independent report, covering each portfolio individually. This enables us to engage a meaningful dialogue with the asset managers, aimed at maintaining a process of continuous improvement of the ESG policy's implementation. We also receive monthly SRI ratings.