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Service Providers Framework 2020

You are in Investment Consultancy » Strategic asset allocation

Strategic asset allocation

IC 07. ESG incorporation into strategic asset allocation

07.1. Indicate whether you incorporate ESG into your strategic asset allocation process.

07.2. Indicate how you incorporate ESG into your strategic asset allocation services.

07.4. Additional information. [OPTIONAL]

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.

IC 08. Scenario analysis and/or modelling (Private)

IC 09. Demonstrating value on asset allocation

09.1. Describe how you measure, track or otherwise demonstrate your value on asset allocation activities.

          A primary aspect of a consultant's role is to help the asset owner achieve their objectives by proposing appropriate investment strategies: this is the primary measure of our success. Our clients tell us that the Investment Risk Management Framework (“IRMF”) we construct with them is a vital tool helping to guide and monitor investment strategy, and one which helps them make (sometimes difficult) decisions. Ideally, all key stakeholders “sign off” the objectives and constraints at the outset so all parties are aligned. Objectives cover funding objectives (for pension schemes); risk budget; hedging strategy; liquidity and collateral; and responsible investment. Responsible Investment metrics can include carbon intensity; targets against climate stress tests; percentage of funds targeting impact outcomes The IRMF is used to define and monitor the most meaningful risk measures for the Scheme, and to track additional objectives relative to agreed targets. The “Status” column highlights any “calls to action” (or discussion) via a Red, Amber, Green traffic light when a key objective/constraint is “off track”.

09.2. Additional information. [OPTIONAL]