LACERA evaluates the extent to which a manager has a defined approach or policies regarding ESG integration practices, integrates material ESG considerations into the portfolio construction process, and evaluates performance in searches. The assessment is incorporated into the overall evaluation and scoring of the manager’s investment process and the quality thereof.
LACERA has developed a multivariate "manager scorecard" by which LACERA measures and monitors external asset managers' quality and performance. The scorecard tracks four core pillars of each of LACERA's external managers:
(1) Performance of Individual Investment Mandate
(2) Operational Strength (including investment process, risk management and internal controls, and talent management)
(3) ESG Integration (assessing the extent to which material ESG factors are identified, assessed, and incorporated into risk/return analysis and portfolio construction and intended to reflect the continuum of emerging and evolving ESG best practices)
(4) Relationship Quality (including value added services and proportionality of LACERA's mandate to the firm's assets under management)
(5) Fees (relative to benchmark of median fees by asset category and/or investment structure)
To monitor the manager’s investment process, manager agreements incorporate an obligation on the part of the manager to report to LACERA on their ESG practices.