The investment manager’s approach to RI and engagement is assessed as part of the selection and due diligence process. External managers will not be appointed unless LGPS Central is satisfied with the manager’s approach to RI including incorporation of ESG factors. We expect managers to incorporate ESG factors, including climate change, into investment decision-making where those factors are financially material within the context of the investment mandate. Financial materiality is expected to be determined using an evidence base of objective data, including for instance factors relating to climate change and the effects of climate policy response where relevant. We want to see an approach where RI/ESG is considered in tandem with other performance drivers, rather than a ring-fenced or stand-alone RI-function. We seek fund managers whose approach to integrating ESG investment factors increases the likelihood of the manager meeting the mandate instructions, and whose approach is well suited to their investment style and strategy.
RI expectations are inserted into the procurement process, for example at Selection Questionnaire, Request for Proposal and Interviews. The process will be executed with input from the RI and Engagement team as well as other members of the Company’s Investment Team as appropriate. Once appointed, we require external fund managers to complete a quarterly ESG questionnaire. Some disclosure items are "by exception" (for example alerting us to changes in ESG process or personnel) and others are mandatory. LGPS Central receives quarterly data from external fund managers on the number of engagements undertaken and the weight in portfolio. We set expectations regarding the volume and quality of engagement, and we assess climate risk including portfolio carbon footprint, and exposure to oil, gas and coal producers. In order to send a unique voting signal to investee companies LGPS Central votes its shares - whether externally or internally managed - according to one set of Voting Principles. Whilst the ultimate voting decision rests with LGPS Central, we have a procedure through which we capture intelligence and recommendations from external fund managers.