We have mapped each of the asset classes to which we ascribe an expected return against the following:
- is it possible to integrate ESG factors into investment decision making;
- it is possible to engage on ESG issues;
- it is possible to report on exposure to ESG factors?
This assessment is qualitative and is based on our interactions with asset managers. The framework is used by clients who have specific ESG requirements which must be reflected in strategic asset allocations.
In addition, in 2019 the Redington Investment Strategy Committee approved the adoption of the PRA's Climate Stress Tests for Life Insurers. All model portfolios are now assessed against the following climate scenarios: a sudden and disorderly transition, a long-term orderly transition and a “hothouse” scenario assuming no transition to a less carbon-intensive economy
We do not currently plan to quantitatively integrate ESG considerations into our expected return assumptions. We believe, given the data and modelling currently available to us, it is more appropriate to assess ESG and climate impacts alongside our our expected return framework. We use our Investment Risk Management Framework in order to help asset owners make strategic asset allocation decisions taking into account multiple factors, including ESG.
On a case by case basis we work with asset managers to model the impact of ESG tilts or exclusions on risk return assumptions and use these to inform strategic asset allocation recommendations.