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Cambridge Associates

Service Providers Framework 2020

You are in Strategy and Governance » Policy on ESG beliefs

Policy on ESG beliefs

SG 01. Responsible investment policy

01.1. Describe how your organisation’s philosophy incorporates environmental, social and governance factors, and the link to your business offerings.

At Cambridge Associates, all client portfolios are constructed in a customized manner, reflecting each client’s specific objectives. Given our focus on helping our clients add long-term value to their portfolios, we recognise that material environmental, social and governance (ESG) factors can impact the performance of investments. We also recognize the importance of aligning investments with the specific values and mission goals of our clients. We therefore view environmental, social, and governance (ESG) considerations as being integral to the future of investing, for risk management, long-term value creation and alignment with values.

 

ESG and Responsible Investment Integration

The importance we place on ESG and Responsible Investment is reflected in our business offerings. Having been originally founded to serve mission-driven, non-profit organizations, Cambridge Associates has developed expertise here over the last several decades. We therefore offer deep specialized capabilities to help clients pursuing specific ESG and Responsible investment goals while also more broadly integrating ESG across our business offerings.  

 

We also acknowledge that the field continues to evolve and we aim to be at the forefront of innovation. We are committed to:

  • Continuing to expand our ESG resources, with a particular focus on manager research.
  • Further embedding ESG analysis across our firm-wide research platform.
  • Deepening our subject matter expertise in key impact investing themes, through both thematic and manager research.
  • Continuing to evolve our impact and ESG reporting. We have developed a customized approach to such reporting and will continue to upgrade this over time, particularly incorporating any best practices that emerge from the field.

 
Our ESG work is customized and reflects our core principles

Our approach to integrating ESG is not prescriptive and focusses solely on the specific needs of each client. It also reflects the core principle of the firm since its creation over 40 years ago that our interests must be aligned with those of our clients, and we have diligently adhered to that standard ever since by strictly observing the following guidelines:

  • We do not accept fees from investment management firms for recommending their products to clients.
  • We do not offer any off-the-shelf investment products.
  • We do not have any brokerage operations or affiliations.
  • We do not charge managers to participate in our databases or client searches.
  • We do not allow managers to sponsor our client conferences.

01.2. Indicate whether you have policies that formalise the incorporation of your ESG beliefs in your business offerings.

01.3. Indicate the components/types of your internal policy and provide the URL and/or an attachment of the document/s if they are publicly available.

Policy components/types

Public availability

          Commitment to expanding our ESG resources in our core investment business - manager research, ESG analysis, impact investing
        

Public availability

          Commitment to alignment with the interests of our clients.
        

Public availability

01.4. Indicate how these are put into practice internally across the organisation.

          Substantial dedicated resources to RI/ESG investment offerings to best serve our clients provides depth of expertise, while systematic integration across platform provides breadth.
        

01.5. Additional information [OPTIONAL]

The Policy setting out our overall ESG/RI approach is available to clients and prospects.

Reflecting our origins serving non-profit endowments and foundations, we have been working with mission-focused investors for more than 40 years. The focus on ESG now also reflects the needs of private clients and pension clients and remains of strategic importance to the firm and how we deliver the best investment advice to our clients.

 


SG 02. Norms used to develop policies

02.1. Indicate what frameworks and guidelines you have used to develop your organisation’s policies. Tick all that apply.

          TCFD
        

02.2. Additional information. [OPTIONAL]

We reference global norms when developing our investment policies and capabilities in RI/ESG. When further enhancing our systematic ESG integration processes as a formal and early step in manager selection and monitoring during this reporting period, we used multiple frameworks and guidelines. Aligning our detailed ESG DDQs for public and private managers across asset class with the UN PRI’s framework and ESG DDQ’s is one example. Additionally, a director of our ESG team was on the working group for the UN PRI Hedge Fund ESG DDQ, giving further insights.

We also have enhanced data collection on climate risk metrics during this reporting period, and frameworks like TCFD, and the related new UN PRI module were both useful. We have onboarded new tools for assessing climate risk (e.g. Value at Risk analysis of phsical and transition risk). We have also used the PACTA scenerio analysis tool for analysing manager and client portfolios.

On some occasions this may be client specific - for example our expertise in selecting and researching managers complying with global norms like the UN Global Compact. More generally, we have found the UN SDGs to be a strong framework to reference as we have developed our own policies and capabilities around impact measurement for investments.

More generally, we recognize that the field of responsible investment is evolving fast and many investor groups and associations have been leaders developing best practices globally. Through active participation in strategic partnerships with such organizations, Cambridge Associates contributes to the dialogue on how investors can incorporate RI/ESG strategies into their overall investment portfolio and on the many opportunities that exist today to pursue goals here. In addition, we benefit from the peer exchange of knowledge and ideas as we develop our own policies and capabilities. In addition to being a UN PRI signatory, we are members/signatories of:

  • Global Impact Investing Network (GIIN)
  • Mission Investors Exchange
  • US SIF
  • UK SIF
  • Asia Venture Philanthropy Network
  • Confluence Philanthropy
  • Intentional Endowments Network
  • Interfaith Center on Corporate Responsibility (ICCR)
  • Task Force on Climate-related Financial Disclosures (TCFD)

SG 03. Policy offerings to clients

03.1. Indicate whether you offer standard, off the shelf, policies to clients as part of your product offerings, and/or whether you create tailored versions for individual clients.

Off the shelf
Tailored
Asset class-specific RI guidelines
Sector-specific RI guidelines
Screening/exclusions policy
Engagement policy
(Proxy) voting policy
RI guidelines set out within the Investment Policy Statement (IPS)
RI guidelines set out in a freestanding RI policy
Multi-year RI implementation project plan
Conflict of interest management policy
Stockbroker allocation policy
Securities lending policy
Other, please specify (1)
Other, please specify (2)
Other, please specify (3)
None of the above

03.2. Provide a brief description of the key elements, any variations, or exceptions applying to these policies.

As a firm we do not offer any off-the-shelf investment products. All our work is tailored to the requirements of the specific client. This includes working with clients to develop the above policies to suit their individual needs.

 

With regards to "Engagement policy" and "Proxy voting policy" sections above, we have no investment fund (or fund of fund) products of our own, nor do we offer engagement or voting services. With regards to these stewardship issues, given we invest through third party managers we analyse the robustness of their stewardship (voting and engagement) policies, implementation and reporting as part of our manager due diligence. For private investments, we consider how ESG initiatives are actively supported in underlying holdings.

 

This allows us to be completely independent when giving tailored investment advice to our clients on where they should invest. This includes ESG and RI advice. Rather, our work here involves advising clients on developing relevant policies here (e.g. around their minimum requirements from managers on engagement or voting) and then assessing the robustness of manager policies here as part of our ESG investment due diligence during manager research.

03.3. Additional information. [OPTIONAL]


SG 04. ESG/RI in business offerings

04.1. Briefly describe how you include ESG/RI factors as part of your business offerings.

Business area

Investment Consultancy

How you include ESG/RI factors

  1. We have deep and dedicated resources for manager research focused solely on researching and monitoring ESG/RI and impact investing strategies across assets classes. We believe that thorough due diligence is the foundation of a successful ESG/RI investment program. These professionals are integrated within the broader Global Investment Research (GIR) capabilities of the firm and often partner with GIR asset class experts.
  2. We embed ESG analysis in our firm-wide research platform: our proprietary manager database includes ESG analysis for all actively monitored public managers in our database (not just explicitly labelled ESG funds). Our private investments due diligence process similarly includes ESG analysis as a formal part of the process.
  3. We have RI/ESG subject matter experts working directly with clients to meet their ESG integration objectives in a customized manner . We have strong capabilities to assist clients on the development of RI/ESG policy, and then advise on implementation. We use a range of analytical tools for practical implementation and monitoring of bespoke ESG strategies includes portfolio screening and scoring on a range of ESG characteristics (e.g. ethical business involvement screens, carbon metrics, impact measurement).
  4. We aim to catalyze adoption of ESG/RI, hosting client conferences and publishing research on key topics.

04.2. Indicate the roles in your organisation, and indicate for each whether they have oversight and/or implementation responsibilities for ESG/RI within the organisation.

Roles present in your organisation
Oversight/accountability for ESG/RI
Implementation of ESG/RI
Board
Directors
Chief Executive Officer (CEO), Chief Financial Officer (CFO)
Chief Operating Officer (COO), Chief Information Officer (CIO)
Other chief-level staff

Please specify

          Chairman Emeritus Sandy Urie plays a key role in oversight and thought leadership for ESG/RI
        
Other heads of department

Please specify

          The various Heads of Client practices (Pension, Endowments and Foundations, Private Clients)
The Head of the Impact and ESG Investing Research
        

Please specify

          The various Heads of Client practices (Pension, Endowments and Foundations, Private Clients)
The Head of the Impact and ESG Investing Research
        
Dedicated ESG/RI staff
Other role, specify (1)

Please specify

          We have formed a dedicated Mission Related Investing Council, chaired by two senior ESG practitioners for oversight and implementation of ESG initiatives
        

Please specify

          We have formed a dedicated Mission Related Investing Council, chaired by two senior ESG practitioners for oversight and implementation of ESG initiatives. Latter includes integration and training.
        
Other role, specify (2)
Other role, specify (3)
None of the above

04.3. Indicate how you ensure ESG/RI expertise for the roles where there are RI oversight/accountability or implementation responsibilities.

04.4. Indicate whether your organisation has any ESG/RI linked incentives for its employees.

04.5. Describe the ESG/RI linked incentives.

The Mission Related Investing (MRI) Group is solely focused on ESG/RI work and their personal development goals, and related incentives, are in the most part related to delivery versus KPI's and goals related to our ESG/RI business offering.

The same will apply to key client facing directors working with our large body of clients with ESG/RI goals in their investment objectives.

04.7. Additional information [OPTIONAL]


SG 05. Outsourcing of services (Private)


SG 06. Providing training/education

06.1. Indicate whether you provide training/educational services on ESG/RI. Tick all that apply.

          Training/Education for our clients - e.g. dedicated annual Impact Investing Conference and thought leadership research papers on key ESG/RI issues.
        
          Cambridge, though our own events, research and collaboration networks aims to be a thought leader in education around key ESG/RI issues globally.
        

06.2. Describe the main components of your training/educational services on ESG/RI and any variations depending on the group you provide training/education to.

As part of our key advisory offerings on ESG/RI, we work closely with our clients on developing and implementing RI/ESG investment programs. This often includes educating stakeholders (including boards/trustees) on key issues here. We are privileged to work with many clients that are true thought leaders in the field and such work is therefore often highly collaborative. We also collaborate in partnerships and networks aiming to drive improved knowledge of ESG/RI issues more generally. Our specialists frequently speak at conferences on a broad range of topics. We also host our own dedicated ESG/RI events for our clients, including an annual Impact Investing Conference.

We also publish numerous research papers for clients and the public providing insights and guidance on key ESG/RI issues.

Recent examples include:

  • A Summary of Climate Change Science for Investors (2019)
  • Pathways to Sustainable Investing: Insights from Families and Peers (2019)
  • Mission-Related Investing — Insights and Perspectives (2018, a deep dive on our survey into ESG and impact investing practices amongst asset owners)
  • Social Equity Investing Righting Institutional Wrongs (2018)
  • Gender Lens Investing: Impact Opportunities through Gender Equity (2018)
  • Navigating the “Alphabet Soup” of Mission-Related Investing (2017)
  • Newly Issued Guidance for UK Pension Schemes Emphasizes Need to Consider ESG Factors
  • Considerations for ESG Policy Development (2017)
  • The Financial Performance of Real Assets Impact Investments: Introducing the Timber, Real Estate, and Infrastructure Impact Benchmarks (2017)
  • The Value of ESG Data: Early Evidence for Emerging Markets Equities (2016)
  • The Foundation of Good Governance for Family Impact Investors (2016)
  • Risks and Opportunities From the Changing Climate: Playbook for the Truly Long-Term Investor (2015)
  • Introducing the Impact Investing Benchmark (2015)

Case Study: Recognizing the need for transparency and education in the growing field of impact investing, in 2015 we partnered with the Global Impact Investing Network (GIIN), a nonprofit field building organization for impact investing, to create the first-ever private impact investing performance benchmarks. The goal of this work was to construct the first comprehensive analysis of the financial performance of market-rate private equity and venture capital impact investing funds, while leveraging our long-time experience in creating and managing private investment benchmarks across multiple traditional asset classes. In 2017 we expanded the impact benchmark to include Real Assets Impact Investments (Timber, Real Estate, and Infrastructure). This benchmark data is made available publically, not just to our clients, in order to improve understanding of impact investment returns in the wider ESG/RI community. During 2019 we also used our granular privates investments data to make insights about the evolution of returns in the cleantech investing space.

06.3. Describe whether these training/educational services include any commercial elements.

          Our work with our clients above is integrated in the overall service offering to them.
        

06.4. Additional information. [OPTIONAL]


SG 07. Applying, advancing and promoting the PRI principles

07.1. Describe how your organisation applies, advances and promotes the PRI Principles.

We will incorporate ESG issues into investment analysis and decision-making processes.

We have substantial dedicated resources incorporating ESG into our investment analysis and decision making processes. This includes the Mission Related Investing Group addressing client ESG/RI investment needs and researching RI/ESG investments (approximately 1,000 ESG/RI strategies tracked). We have also systematically incorporated ESG considerations across our investment research platform for all asset classes, with further enhancements to this a major project of our investment research team in 2018 and 2019. We use a variety of ESG tools for investment analysis, for example, considering climate change we use detailed carbon and climate analytics covering emissions, scenario analysis, value at risk etc. to analyse portfolios.

We will be active owners and incorporate ESG issues into our ownership policies and practices.

Consideration of ESG issues is fully integrated in our investment research and monitoring platform. We frequently work with asset owner clients to drive better stewardship of assets and active ownership policies in the managers our clients use. We actively research and recommend investment managers who are market leading innovators in the field of active ownership and ESG. Where we have seen gaps in the market here, we frequently facilitative the creation of new ESG strategies by managers in order to best serve our client’s ESG/RI needs.

We will seek appropriate disclosure on ESG issues by the entities in which we invest (on behalf of our clients).

Our research and monitoring platform collects data on ESG issues for investment managers across asset classes and we will continue to seek more disclose on these issues going forward on behalf of our clients. We also frequently engage with managers on behalf of our clients to drive better disclose on a range of ESG issues such as voting and engagement policies and activity, ESG integration, climate risk, diversity and social and environmental impact reporting.

Our pioneering work creating the world’s first comprehensive impact investment benchmarks, to provide greater transparency on this growing field, is just one example.

We will promote acceptance and implementation of the principles within the investment industry.

Given our privileged status working with many of the leading asset owners in the field of responsible investment, we have often facilitated the creation of, and helped clients to seed, specific new products from investment managers aligned with the principles. Recent examples include an innovative fossil fuel free, low emission emerging markets equity fund, smart beta tilts to global indices incorporating new ESG data, thematic clean energy ESG funds, and socially responsible share classes in multiple hedge funds.

We have also engaged with investment managers to promote implementation of ESG. For example, we had constructive discussions on improving voting practices on climate change related resolutions during this reporting period. We also used our own ESG data collection efforts to prompt more ESG integration and better reporting from a large number of managers with whom we have strong relationships ibn 2019.

As above, we publish numerous reports promoting the principles of responsible investment, host and participate in numerous industry events, and support our signatory clients wherever possible in their own responsible investment goals.

We will work together to enhance our effectiveness in implementing the principles.

Including the UN PRI, we are members of 9 collaborative responsible investment networks. Through these strategic partnerships, Cambridge Associates works with leading signatories and practitioners to improve the industry’s effectiveness in responsible investment. In addition to being a UN PRI signatory, we are members/signatories of:

  • Global Impact Investing Network (GIIN)
  • Mission Investors Exchange
  • US SIF
  • UK SIF
  • Asia Venture Philanthropy Network
  • Confluence Philanthropy
  • Intentional Endowments Network
  • Interfaith Center on Corporate Responsibility (ICCR)
  • Task Force on Climate-related Financial Disclosures TCFD

We will each report on our activities and progress towards implementing the principles.

While the UN PRI service provider framework is an important step here, we are also proactive on reporting on our activities and initiatives through industry events, our own client events, and our research publications.

07.2. Highlight whether there are any ways that your organisation would like to engage further with the PRI. [OPTIONAL]


SG 08. Actions taken to promote responsible investment

08.1. Indicate which of the following actions your organisation has taken to promote responsible investments during the reporting year, independently of collaborative initiatives.

08.2. Additional information. [OPTIONAL]


SG 09. Long term trends

09.1. Indicate which of the following long-term trends are addressed in your product outputs.

09.2. Explain how this long-term trend affects your product outputs.

Investment Research: Changing demographics are a critical factor to consider in much of our manager research, especially for sustainable investment approaches and private impact investing strategies. Many strong ESG focussed managers carefully consider changing demographics as a core factor in their investment process.

 

09.2. Explain how this long-term trend affects your product outputs.

Investment Research: We believe climate change presents material risks for investors, and opportunities through investment mitigation and adaptation. We closely analyze climate risk embedded in portfolios (e.g. emissions/emission intensity and exposure to fossil fuel reserves, scenario analysis) and research new investment opportunities aligned with the transition to a low carbon economy. Examples of work during this reporting period include:

  • Building bespoke private investment mandates specifically targeting measurable impact around climate change avoidance.
  • Worked with an active equity manager to facilitate the creation of a new innovative global climate change mitigation/adaptation public equity fund: our clients seeded the launch of the UCITS vehicle following our research.
  • Researched numerous private investment opportunities spanning sustainable infrastructure, venture and private equity.
  • Conducted analyses of climate risk and alignment for client portfolios.
  • Project to further enhance our ESG data collection added new detail on climate risk considerations.
  • We signed up as supporters of Task Force on Climate-related Financial Disclosures (TCFD) during 2018.
  • Thought Leadership: We have published a paper during 2019 laying out how climate change science should be intepreted by investors:

https://www.cambridgeassociates.com/insight/a-summary-of-climate-change-science-for-investors/

 

09.2. Explain how this long-term trend affects your product outputs.

Investment Research: We have conducted diligence on numerous new investment strategies proactively focusing on resource scarcity and associated resource efficiency solutions. This has spanned numerous asset classes, with particularly attractive investments in sustainable infrastructure, venture capital and private equity.

09.2. Explain how this long-term trend affects your product outputs.

Investment Research: We look at this issue across asset classes, considering both the disrupted and the disruptors from technology developments. For example, in the ESG space, we have dedicated substantial resources to technology themes in impact investments during the period – clean tech and education tech investments for example. We have also analyzed new bespoke data on cleantech return trends in private markets.


SG 10. Interaction with asset owners

10.1. Indicate whether you interact with asset owner clients.

10.2. Indicate the typical frequency and type of interactions with your asset owner clients.

Type of interaction

Frequency

          This depends on the individual client's requirements, but such meetings are typically quarterly.
        

Frequency

          This depends on the individual client's requirements, but such meetings are typically quarterly.
        

Frequency

Frequency

          This depends on the individual client's requirements, but such meetings are typically held regularly around Board/IC meetings.
        

Frequency

10.3. Additional information. [OPTIONAL]


SG 11. Aligning approach with investor goals

11.1. Describe how you typically align your organisation’s philosophy and approach to ESG/RI with your investor clients’ goals.

At Cambridge Associates, all client portfolios are constructed in a customized manner, reflecting each client's specific objectives. Given our focus on helping our clients add long-term value to their portfolios, we recognize that material environmental, social and governance (ESG) factors can impact the performance of investments.

We also recognize the importance of aligning investments with the specific values and mission goals of our clients. This is particularly important given that we work with many of the world's leading endowments, foundations and charities, while pension and family clients are also increasingly focused on ESG/RI goals. We recognise the growing importance placed on ESG by many stakeholders.

We therefore view environmental, social, and governance (ESG) considerations as being integral to the future of investing for our clients, for risk management, long-term value creation and alignment with values. ESG is therefore of key strategic importance to our firm and our product offering.

11.2. Additional information. [OPTIONAL]


SG 12. ESG recommendations not aligned with investor goals

12.1. Describe what steps you take, if any, when your ESG recommendations are not in line with your investor clients’ goals.

Our approach to integrating ESG is not prescriptive and focusses solely on the specific needs of each client. It also reflects the core principle of the firm since its creation over 40 years ago that our interests must be aligned with those of our clients, and we have diligently adhered to that standard ever since by strictly observing the following guidelines:

  • We do not accept fees from investment management firms for recommending their products to clients.
  • We do not offer any off-the-shelf investment products.
  • We do not have any brokerage operations or affiliations.
  • We do not charge managers to participate in our databases or client searches.
  • We do not allow managers to sponsor our client conferences.

 

We therefore work solely in the interest of our clients. We will make specific ESG recommendations that we believe are appropriate for our clients needs. 

We take steps to educate and assist our clients on assessing the appropriateness of ESG recommendation and the associated materiality of ESG issues. Education around climate change and structural changes as we transition to a low carbon economy is one example. 

12.2. Additional information. [OPTIONAL]


SG 13. Seeking feedback from clients

13.1. Indicate whether you seek feedback from clients on your RI/ESG services and product offerings

13.2. Describe how you use this feedback in your RI/ESG services and product offerings.

This is extremely important to our aims to provide customized RI/ESG services to our clients.

We conduct a detailed annual client survey on RI/ESG issues and the firm's leadership spend considerable time interacting with stakeholders at clients to get feedback on RI/ESG services and to better understand their requirements here.

We are also fortunate in having some of the world's leading asset owners in the ESG space and welcome their feedback. For example, on a recent project to enhance the systematic collection of ESG data for the selection and monitoring of managers, we were able to consult with such clients and incorporate very useful feedback.


SG 14. Managing conflicts of interest

14.1. Indicate whether your organisation has a policy for managing potential conflicts of interest.

14.2. Describe how you manage potential conflicts of interest.

For more than 40 years, we have built our business on the core tenet that alignment with our clients will help us to drive better investment results for them. We have purposefully made several business decisions to avoid conflicts of interest and give our clients confidence that we are incentivized only by their portfolios’ investment success.

We do not have fee arrangements with investment management firms. We do not accept fees from investment management firms for including their products in client portfolios, and we do not charge managers to participate in our databases or client searches. We do this so you can have confidence that we are selecting managers for your portfolio only because we believe they will drive outperformance for you.

We do not offer off-the-shelf investment solutions or funds-of-funds. We believe that maximizing portfolio performance requires a very wide net to source and evaluate the best investment options around the globe. Investment firms that offer investment products can be incentivized to place their own funds into client portfolios to generate additional revenues, regardless of fund performance. They can conversely be demotivated to source and evaluate a robust number of additional investment options so that there is less investment competition on their “open architecture” platform. 

Firms offering proprietary funds-of-funds often have further incentive to place a higher allocation of their “best ideas” in their commingled products rather than into clients' portfolios, limiting their clients’ access to those investments on a separately managed basis.

We do not have any brokerage operations or affiliations. We have avoided offering brokerage services so that clients can trust that we only suggest moves in their portfolio because we believe the changes are in their best interest, not because we receive transaction commissions. 

14.3. Describe how you ensure that company employees do not derive any personal gain from the use of information collected during your work process.

We have a written Code of Ethics that establishes high standards for the professional conduct of our staff. Each year, all employees are required to read and confirm their understanding of the Code in writing. The general principles of the Code are as follows:

  • The firm and each of its employees have a fiduciary obligation to all clients. This obligation means, in part, that each individual has a responsibility to give unbiased advice that is based solely on a client’s needs and best interest.
  • We do not accept any gifts of more than a de minimis value from the investment management firms that we recommend to clients.
  • All employee personal transactions in securities must conform to the Code and be conducted so as to avoid any actual or potential conflicts of interest.
  • No individual of the firm shall behave so as to benefit or appear to benefit inappropriately from any client relationship.
  • The financial, non-public information of our clients is highly confidential and may not be revealed except as required in order to provide the desired services, or with the prior knowledge and consent of the client.

The firm’s Chief Compliance Officer, and the compliance team are responsible for monitoring and enforcing staff compliance with our conflict of interest policies and the Code of Ethics.

14.4. Additional information. [OPTIONAL]


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