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Lane Clark & Peacock LLP

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.

We help our investment clients understand the significance of environmental, social and governance considerations and integrate this into their investment processes and exercise stewardship of their investments as appropriate. We believe that this should deliver better outcomes for both our clients and other stakeholders.

We believe that good ESG practices are consistent with delivering better financial performance, so we see ESG factors as "mainstream" considerations and we help all our clients to benefit from good practice in this area, rather than only those who choose to "opt in". ESG is ingrained within the core investment services that we typically offer to our clients.

We assess the ESG and stewardship credentials of investment managers as part of our research process and take this into account when recommending managers to our clients. We also provide training, produce regular publications and help clients to understand and monitor their managers' activities in this area as well as the requirements and implications of regulatory change.

We have expanded on this answer in the relevant sections of our submission.

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

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

          Manager Research Operations Manual
        
          Responsible investment guidance
        

01.5. Additional information [OPTIONAL]

LCP has an Operations Manual for manager research that ensures consistency in our research of investment managers' approaches to responsible investment, including in relation to ESG integration. We also have an Office Standard (internal professional guidance) specifically for providing our clients with advice on RI.


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.

          UK Stewardship Code
        

02.2. Additional information. [OPTIONAL]


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.

We provide suggested RI wording for inclusion in our pension scheme clients' Statements of Investment Principles ("SIPs"), with several options reflecting typical client practices. This can then be tailored to clients' specific circumstances. Our suggested wording for clients allows them to set out their policies on financially material considerations, how any non-financial factors are taken into account with respect to their investments, engagement, how ownership rights (such as voting rights) are exercised, and how ESG-related risks are managed. Our clients review their SIP at least every three years, as regulation requires.

Our general approach to providing advice is to offer a tailored service to ensure that we are meeting the client's needs rather than to fit the client into a standard approach. We are therefore able to help clients with policies in all the areas indicated above where appropriate.

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

We help clients adopt good RI practices and integrate these into our investment advice.

We help clients to reach a consensus view on ESG factors (including their importance to financial performance) and implement their ESG policy.

Our biennial investment manager survey covers RI approach and resources. Our ongoing manager research meetings enable us to incorporate updates and fund-specific considerations. We use this information to help clients understand and question their managers' RI credentials, including any "red flags".

Our assessment of a manager's RI credentials forms part of our overall product grading for most asset classes, directly impacting whether we recommend them to clients.

We can help clients understand their exposure to climate-related investment risks and/or advise on specialist products eg sustainable, low carbon, impact and ethical funds.

We produce quarterly market commentaries for clients, covering ESG developments and topical issues for corporate engagement. We keep clients updated on RI topics through regular and ad hoc publications and training.

We provide bespoke manager updates to clients on request, including summaries of voting activity, reviews of stewardship practices and detail from our RI survey. We can also facilitate clients' RI discussions with their managers and help them report on RI matters.

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

          Executive Committee
        
Other heads of department
Dedicated ESG/RI staff
Other role, specify (1)

Please specify

          Responsible Investment Panel (strategic oversight)
        
Other role, specify (2)

Please specify

          Investment ProfCo (responsible for professional standards)
        
Other role, specify (3)

Please specify

          Investment department (in particular those that research investment managers and those providing client-facing advice)
        
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.

          Knowledge sharing, including through our internal social media network and intranet
        
          Dedicated “RI champions” within each of our asset class research groups, to help ensure that RI is truly embedded into our research process
        

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

04.6. Describe how you ensure that your employees incorporate ESG/RI into services through other mechanisms than ESG/RI linked incentives.

We embed RI in our standard materials and processes so that employees routinely incorporate RI into their work. For example, RI is a compulsory section in our manager research views and our Manager Research Operations Manual provides guidance on how this should be completed. The RI team issues “starter” client materials, including materials for advising on ESG investment beliefs, our RI survey of investment managers, fund-specific RI assessments, climate change, stewardship, RI in fixed income and specialist ESG equity funds.

The RI team provides regular training and ongoing support to staff and partners to ensure that RI is considered where appropriate. Our Investment ProfCo (professional committee) has issued internal guidance about advising pension scheme trustees on meeting the UK requirement to consider and state their RI policies in their Statement of Investment Principles. The RI team tracks the provision of RI advice to our clients, including compliance with the SIP requirements.

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.

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.

We offer both generic and bespoke training services. Twice a year, we run a full day generic Funding and Investment training course for pension scheme trustees that includes consideration of RI. We often run bespoke training sessions and include RI in these where relevant. We have several sets of training slides that we can use for dedicated ESG/RI training sessions for pension scheme trustees or company representatives. These training slides will normally be tailored to the individual client, based on their areas of interest, existing knowledge, and their current investment practices (including their investment strategy and choice of investment managers). We can also provide training to other parties, such as regulatory bodies, companies that sponsor pension schemes and charities, on RI requirements and practices for asset owners.

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

          We do not “sell” products during training or educational sessions. However, we may agree next steps with the client which involve providing additional services (such as a review of their managers’ RI credentials, consideration of alternative investment funds to implement specific RI objectives or updates to their Statement of Investment Principles).
        

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.

Our RI policies linked in SG 01.3 set out how we apply the PRI principles. This includes producing educational RI materials for our clients and updating them on RI/ESG developments. We explicitly mention the PRI principles where relevant. For example, we subdivide the results of our biennial RI survey of investment managers between PRI signatories and non-signatories, and not being a PRI signatory is one of the "red flags" we highlight to clients when we report on their managers' survey results. We have written to some managers that are not currently PRI signatories to encourage them to sign up.  We can also assist clients in signing up to the PRI principles themselves.  Our RI team follows the evolution of the PRI, shares key news items with relevant colleagues, and takes part in relevant PRI consultations.

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.

          Blogs and videos on our website, media interviews
        

08.2. Additional information. [OPTIONAL]

We encourage investment managers to adopt the PRI by asking them whether they have adopted them.  Where they have not, we have highlighted this to clients as a negative indicator (“red flag”) in our RI assessment of them, and have written to those managers with significant mutual client assets to encourage them to become PRI signatories.


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.

We highlight climate change to clients as an important factor to consider when reviewing their policies on ESG considerations. We explain how climate-related risks and opportunities may affect our clients' investments in our training and educational materials, in addition to general consideration of the potential impacts of ESG issues. We are developing a set of climate scenarios that will help our pension scheme clients understand how climate-related factors might affect their assets and liabilities over the coming years and decades. We include questions on climate change in our biennial survey of investment managers, so we understand their approach to climate risks. We also research a number of specialist investment funds that have reduced climate risk exposure (eg low carbon tracker products) or invest in climate opportunities.  In addition, we are working with an investment manager on the design of a new low-carbon passive equity fund, due to be launched mid-2020, that we believe meets our clients’ needs better than the pooled funds that currently exist.  This enables us to take account of climate risk when advising clients on investment strategy implementation.

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

We offer to model “resource scarcity” as a standard part of any scenario analysis to help our clients understand the potential risks.


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

Frequency

Frequency

Frequency

          Conferences , webinars
        

Frequency

10.3. Additional information. [OPTIONAL]

Both the frequency and type of interaction we have with our clients is determined on a client-by-client basis, according to their requirements and preferences, reflecting our tailored approach to working with our clients.


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.

​Our defined benefit pension scheme clients typically invest to meet long-term liabilities, predominantly paying members' benefits. Our Defined Contribution ("DC") pension scheme clients invest contributions on behalf of members to provide them with retirement income. Our charity clients invest to further their charitable purpose, usually for the long-term or in perpetuity. In all cases, to achieve these aims efficiently, long-term returns must be maximised whilst maintaining appropriate levels of investment risk.

Generating long-term sustainable investment returns requires stable, well-functioning, well-governed environmental, social and economic systems. We therefore believe ESG issues should be considered throughout the investment chain, so we incorporate them in client advice. We expect investment managers to take account of ESG issues, at least to the extent that they are financially material, and we encourage clients to appoint managers with strong RI practices.

Some of our clients have other ESG/RI-related goals, eg ethical-0based exclusions, and we reflect these goals in our advice.  For our charity clients, this may extend to identifying investments which are aligned with their charitable objectives whilst alos seeking a market-competitive long-term rate of return.

For DC clients, we encourage our clients to offer options that allow members to invest in ESG and/or ethically-focussed funds.

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.

As a consultancy, we provide tailored advice to our clients based on our views and their particular goals.  In most cases, clients adopt our advice due to our tailored approach, but, on occasion, they may make different decisions.

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.

Clients have the opportunity (and do) feed back to us on RI/ESG services, for example in our regular client satisfaction surveys and one-to-one “client care” meetings.  We continue to see an increase in client interest in this area and have significantly increased resourcing in this area to take account of this increase in demand.


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.

LCP believes that potential or actual conflicts of interest must be identified, understood and managed effectively. Our Conflicts and Ethics Committee is responsible for developing and maintaining our policies in relation to conflicts of interest. Issues around potential or actual conflicts are brought to this committee and discussed with senior and experienced partners in the firm.

We carry out regular awareness training on professionalism and ethical issues that includes practical discussions of managing conflict situations and identifying problematic situations in advance.

We always check for potential conflicts of interest carefully before accepting a new client appointment and will not accept appointments unless we and the clients concerned are confident that any potential conflicts can be managed appropriately.

Conflicts of interest can arise in various circumstances, for example:

  • When advice is provided to a pension trustee board and the sponsoring employer, if transparent arrangements are not in place to deal with each party's needs.
  • When advising on the selection of a provider (such as an investment manager or insurance company) for whom we provide separate consultancy services.
     

We are experienced at providing advice in such situations and have rigorous and robust procedures for identifying any such conflicts of interest. Where necessary, we agree structures and working practices with the client that offer the appropriate degree of separation.

We do not provide fiduciary management services, whereby trustees delegate or outsource the majority of investment decisions. We provide guidance and advice and do not manage money for clients or offer our own investment products.

We do not advise investment managers on their investment services (although we may collaborate with managers, on a non-remunerated basis, to design products that we believe will be of value to our clients). This enables us to offer clients unbiased, unconflicted advice on the selection and monitoring of investment managers.

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 address this in three broad ways:

  • Membership of professional bodies

Many of LCP's partners and staff are members of professional governing bodies (e.g. Institute and Faculty of Actuaries, Pensions Management Institute, Chartered Financial Analysts, Chartered Insurance Institute etc) and are required to practise under those bodies' relevant codes of ethics / standards of professional conduct. We supplement these external codes with various internal policies, extensive professional guidance and a strong culture of professionalism. Our Conflict and Ethics Committee provides advice and assistance to our partners and staff when considering their professional duties or ethical issues that arise in the course of their careers. In particular, the Conflicts and Ethics Committee is available to assist individuals in applying their own profession's ethical standards to practical situations.

  • Personal account dealing

In summary, in order to ensure that the purchase, transfer, acquisition or sale of shares or exchange-traded investments by partners and staff on their own account does not disadvantage our clients, all LCP partners and staff are required to seek approval from a member of the Compliance team before doing so. Furthermore, if a partner and/or member of staff is denied permission to enter into a transaction on their own account, they must not procure any other person to enter into such a transaction or provide information which may result in that person entering into such a transaction. Rules concerning personal account dealing are set out in the Staff Handbook and the Compliance Manual and are available to all partners and staff on LCP's intranet.

  • "Fit and Proper Person" declarations

We believe that the maintenance of fit and proper standards is essential to ensuring that business activities are conducted with high standards of market practice and integrity. All LCP's partners and staff are required to complete a "Fit and Proper Person" declaration on an annual basis, confirming that they have complied with relevant policies and procedures (including those in respect of buying/selling investments).

14.4. Additional information. [OPTIONAL]


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