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Frontier Advisors

Service Providers Framework 2020

You are in Investment Consultancy » Manager selection and monitoring

Manager selection and monitoring

IC 12. ESG in manager selection, appointment and monitoring

12.1. Indicate whether you incorporate ESG factors into your manager selection and monitoring services.

Manager selection service

Manager monitoring service

12.3. Additional information. [OPTIONAL]

Responsible investment considerations are formally integrated into Frontier’s investment manager assessment, monitoring and engagement processes. The objective of integrating responsible investment in Frontier’s investment manager research effort is to positively impact long-term investment outcomes by identifying, assessing and communicating the relative credibility and capabilities between investment products with respect to ESG.  Manager research is primarily undertaken by Frontier’s Research Teams as the materiality of ESG factors will differ across asset classes and types of investment product.  Where relevant, a Research Team may draw on externally-produced responsible investment intelligence to supplement its proprietary analysis.  Under Frontier's current process, each product is assigned one, three or five stars which communicates the Research Team’s summary view on the investment manager’s capability in responsible investment relative to its peers. 

The number of stars assigned correspond to the following definitions:

  • One Star: no or very weak ESG consideration in the investment process. 
  • Three Stars: ESG considerations are broadly in line with peers.
  • Five Stars: the manager is above peers in considering ESG in its investment process.

Responsible investment considerations are formally incorporated into annual reviews of investment products.  The objective is to review, update (as required) and/or re-confirm the Research Team’s current assessment of the investment manager’s responsible investment capability with respect to the product.  A focus of the review is to document the evolution of the investment manager’s responsible investment approach over the prior 12 months.  The review also accounts for the evolution of responsible investment integration in the product’s peer group over the same period to determine the Manager’s relative level.

Responsible investment considerations are also integrated and recorded where relevant within investment manager interactions outside the formal annual review cycle, e.g. update meetings, ESG surveys.    

Research Teams actively engage with investment managers on an ongoing basis to encourage improvement across all facets of their operations.  This formally includes the integration of responsible investment considerations.  The objective is to have investment managers continually deliver progressively better services to Frontier’s clients over time.

As part of the ongoing monitoring of investment products, the Research Teams document their responsible investment engagement activities over time.  The relative progress of such engagement activities for a given investment manager compared to peers may ultimately impact the number of stars a product is assigned for its responsible investment capabilities.

Frontier is currently in the process of developing a more robust, transparent and structured ESG assessment framework which is expected to be in use before the end of 2020.

 


SELECTION

IC 13. Manager selection activities

13.1. Indicate what activities you undertake during the process of selecting a manager.

Research and screening

Strategy

ESG people/oversight

Process/portfolio construction

Selection process and reviewing documentation

13.2. Indicate whether you use any of the following scores or targets in your manager selection process.

13.3. Additional information. [OPTIONAL]

 

 

 


IC 14. Incorporating asset owners’ investment principles in selection of manager

14.1. Describe how you incorporate asset owners` investment principles into the manager selection process.

          Given that the responsible investment beliefs and principles of our clients differ, our advice with respect to manager selection will be tailored accordingly.  For instance, for clients wishing to exclude particular investments/sectors, we will work with them in identifying the most suitable manager that can apply the relevant exclusion list.

Once the key ESG/RI characteristics are determined with the client, we seek to identify potential managers.  Naturally, ESG/RI capabilities only form part of the rationale for appointing a fund manager and Frontier assists each client by undertaking due diligence across the full spectrum of such considerations including business structure and ownership; team strength; performance track record; investment process and fees amongst others.  It is key that the fund manager ultimately appointed is determined as being able to meet all objectives, be they return/risk outcomes, ESG/RI objectives or even impact.  Our experience is that ESG/RI as a consideration for investor Trustees is quickly sidelined should a fund manager be underperforming versus its return/risk objectives.
        

14.2. Additional information. [OPTIONAL]


IC 15. ESG in selection due diligence

15.1. Briefly describe how you include ESG factors in your due diligence process for manager selection.

          Consistent with Frontier's broader investment product rating process, the responsible investment assessment process is multi-faceted, drawing on a range of quantitative and qualitative inputs determined as being material by the relevant Research Team.  Such inputs are sourced variously as needed, although direct discussions and case studies with the investment manager are a standing element of the process as these support a greater depth of understanding relative to sole reliance on manager-supplied documentation.

The required commentary to be provided in support of the number of stars assigned, is incorporated as a boilerplate in Frontier’s product ratings template to ensure consistency in coverage across research teams.  The number of stars assigned and supporting commentary are reviewed, updated and confirmed as part of a periodic refreshing of the ratings document.

Typical areas of assessment include the following, with individual Research Teams determining the materiality of each with respect to the specific product.  Emphasis is placed more on the appropriateness and suitability of the investment manager’s responsible investment approach in the context of its overall strategy rather than on strict and potentially arbitrary metrics. Research Teams also integrate asset class/product-specific responsible investment considerations where deemed material.

Responsible Investment/ESG Philosophy and Policy 
Responsible Investment Resourcing 
Integration of Responsible Investment into the Investment Process 
Active Ownership
Collective Activity 
Climate Change 
Reporting and Client Service
        

15.2. Additional information. [OPTIONAL]

The following is a (non-exhaustive) list of Frontier’s areas of assessment with respect to the responsible investment capabilities of investment managers.  Not all will be applicable for all products.

Responsible Investment/ESG Philosophy, Policy and Culture 

  • Evolution and articulation of responsible investment beliefs and/or philosophy
  • Evidence and composition of a formal responsible investment policy
  • Evidence and nature of a responsible investment culture
  • Expected future responsible investment developments/strategies
  • Internal responsible investment governance, leadership and reporting structure

Responsible Investment Resourcing 

  • Responsible investment roles and responsibilities
  • Experience and skill of responsible investment personnel
  • Evolution and composition of internal responsible investment resourcing
  • Alignment structures relating to responsible investment objectives
  • Level of collaboration across investment personnel and ESG personnel
  • External responsible investment resourcing
  • Procurement and use of responsible investment data sources

Integration of Responsible Investment into the Investment Process 

  • Articulation of responsible investment rationale and objectives
  • Processes to determine ESG factor materiality
  • Evolution and nature of responsible investment integration (as applicable) in:
  1. Idea sourcing and generation
  2. Research, analysis and valuation
  3. Decision making
  4. Investment execution
  5. Portfolio construction
  6. Asset management
  7. Risk management
  8. Performance attribution
  9. Other investment process steps as required
  • Adoption/use of existing responsible investment frameworks (e.g. Sustainable Development Goals, Sustainability Accounting Standards Board)
  • Expected future responsible investment process enhancements
  • Evidence of depth and consistency of responsible investment integration
  • Evidence of value add arising from responsible investment integration

Stewardship 

  • Articulation of engagement strategy
  • Articulation of asset management strategy
  • Composition of proxy voting policy
  • Use of external proxy voting resources
  • Articulation of approach to measure outcomes of stewardship activity

Collective Activity 

  • Evolution and articulation of collective activity approach
  • Details of responsible investment-related memberships and/or affiliations
  • Nature of main obligations as a member and/or affiliate
  • Evidence of/examples illustrating nature of participation in collective activity
  • Articulation of approach to measure outcomes of collective activity

Climate Change 

  • Articulation of climate strategy and policy
  • Evolution and nature of climate integration in investment process steps 
  • Adoption of existing climate frameworks (e.g. Taskforce for Climate-related Financial Disclosures)

Reporting and Client Service 

  • Evolution of responsible investment reporting
  • Evidence of/examples illustrating responsible investment reporting capabilities
  • Capability and capacity to generate tailored responsible investment reports (e.g. impact)

IC 16. Monitoring investment managers on ESG

16.1. Indicate whether you set any of the following to measure compliance/progress, or use the following information to review and evaluate the investment manager.

Setting measures for the investment manager as part of the monitoring process

Reviewing and evaluating information from the investment manager as part of the monitoring process

16.2. Describe how you raise and manage concerns when monitoring investment managers on ESG factors.

          Concerns with respect to an investment manager's ESG credentials and capabilities are raised directly with the manager as part of Frontier's standard process of providing feedback.  In order to drive positive change at the fund manager level, Frontier aims to maintain open and transparent dialogue with managers across all facets of its due diligence including ESG/RI, which is in keeping with its status as a PRI signatory.
        

16.3. Additional information. [OPTIONAL]

Research Teams actively engage with investment managers on an ongoing basis to encourage improvement across all facets of their operations.  This formally includes the integration of responsible investment considerations.  The objective is to have investment managers continually deliver progressively better services to Frontier’s clients over time.

As part of the ongoing monitoring of investment products, Frontier's Research Teams document their responsible investment engagement activities over time.  The relative progress of such engagement activities for a given investment manager compared to peers may ultimately impact the number of stars a product is assigned for its responsible investment capabilities.

In line with our evolving, more granular approach to investment manager ESG assessment, Frontier will increasingly be able to clearly articulate peer relativities on ESG capabilities through our dialogue with managers, identifying practices considered market-leading and commercially innovative.  We believe that this feedback process will encourage managers to undertake their own reviews of best practice in the market and where aligned with their investment strategy adopt them, thereby raising standards across the industry.


IC 17. Reporting back to asset owners

17.1. Indicate whether you report back to asset owners on your manager selection and/or monitoring activities.

17.2. If yes, describe how you report back and the frequency.

          All contact with managers is documented, with clients having access to the meeting notes from the manager meetings.  Managers are met with as part of the regular reporting requirements as set out in client contracts and we will also meet more frequently on an as needs basis.  As part of the sector annual review process, separate manager reviews are also completed and provided to clients.  The ESG ratings of managers are available on Frontier’s database, to which all clients have access.
        

17.4. Additional information. [OPTIONAL]

On an annual basis, Frontier's Research Teams survey and review fund managers on a range of ESG/RI factors including (but not limited to) updated ESG integration approaches, considerations on climate risk and opportunities in their portfolios, and exposure to modern slavery in their portfolios.


IC 18. Demonstrating value on manager selection, appointment and monitoring

18.1. Describe how you measure, track or otherwise demonstrate your value on manager selection and monitoring services.

          Frontier measures the performance of our Buy and Neutral Plus managers across the various asset classes.  We also monitor the performance of standard mandates relative to those with ESG exclusions.
        

18.2. Additional information. [OPTIONAL]


IC 19. ESG in manager selection, appointment and monitoring (Private)


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