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We ask all managers whether they have any contractual commitments with investors around ESG requirements (standards or reporting or other). Where ESG incidents cause material changes to the risk-reward of a position or the portfolio outcomes, we would discuss these with managers either as part of our ongoing monitoring or annual review process
Provide additional information relevant to your organisation`s monitoring processes of external managers.
Cardano's monitoring process operates as part of its overall investment monitoring process and methodology. The lead analyst on each Coverage Team is responsible for monitoring ESG in respect of each invested manager. ESG is monitored through two core processes:
1. Day-to-day Investment Monitoring process: we speak and meet with managers regularly, tracking different elements of risk and or return (quantitatively and qualitatively) as part of our overall monitoring process. Part of this will include discussing ESG where required and periodically. These interactions are documented on a central data-base.
2. Annually, Cardano's tailored ESG questionnaire is circulated to managers, together with guidance and re-emphasising Cardano's expectations.
All information generated by these two sources are assessed, with ESG ratings for each position amended (to the extent required), driven by new information.
Managers with strategies that Cardano deem to have higher financial risk-return impact are designated as High Focus positions. High Focus managers require a higher level of monitoring and focus. Likewise, the rating methodology applied to High Focus is more stringent. Poor ESG ratings from High Focus managers are scrutinised closely and engagement levels are increased. ESG matters are incorporated at an early stage of our new approval process. There is a minimum standard expected and, as discussed earlier, the Manager Research Committee will debate the ESG rating and rationales prior to investment.
The Manager Research Committee would consider redemption / reducing exposure to a strategy should the risk-adjusted return become unattractive, for ESG reasons.