Better returns for business.pdf - Oxfam New Zealand

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THIRTY FOURInstituting proper incentives and oversightA consistent message from the asset managerswho participated in the Better Returns in aBetter World project is that the attitudes oftheir clients – in particular, pension funds– are a critical influence on the importancetheir organizations assign to responsibleinvestment. A recurring theme was that theabsence of clear client demand and interestsignificantly weakened the business case forinvesting resources in this area. Clients werealso seen as important in setting the agendafor asset managers’ research and, in particular,engagement activities.This picture of the critical importance of pensionfunds in helping institutionalize responsibleinvestment across the investment industry leadsto our second conclusion: namely that assetowners need explicitly to reward investmentmanagers who take particularly proactiveapproaches to responsible investment. Clearly,the specific approaches adopted will dependon the particular assets being managed andthe responsible investment strategies thatcan be applied, but there are three key areaswhere asset owners should be looking to buildresponsible investment into their processes:(a) in the asset manager appointment andreappointment processes, (b) in their assetmonitoring processes, and (c) in their reporting.In relation to appointment and reappointmentprocesses, the fund managers’ commitment to,and track record on, responsible investmentshould be a critical factor in these decisions.This may be implemented by requiringfund managers to meet certain responsibleinvestment performance requirements in orderto be appointed (i.e. responsible investmentcapability is a minimum requirement), or byassigning a specific weighting (of the order of10 or 20 per cent) to responsible investmentcapability and track record as part of the fundmanager selection process.Clearly, some work is required to definethe criteria against which fund managerscould be assessed, but these should includeconsideration of:• The fund manager’s resources for responsibleinvestment (number of staff, experience andseniority of staff, other resources such asresearch).• The fund manager’s commitment to responsibleinvestment (as set out in policies) and thedegree of alignment between these and theclient’s policies.• The fund manager’s commitment to ESGintegration and evidence that ESG issuesinfluence the investment decisions made.• The fund manager’s commitment toengagement and voting, and evidence of thelevel of activity in these areas (e.g. number ofvotes cast, number of meetings with companies)and the outcomes achieved from theseprocesses.• The fund manager’s commitment tocollaboration, both in terms of the collaborativeinitiatives participated in and the specificcontribution made to these initiatives.• The quality of the fund manager’s reporting,both to clients and to wider society.THERE ARE THREE KEY AREAS WHEREASSET OWNERS SHOULD BE BUILDINGRESPONSIBLE INVESTMENT INTO THEIRPROCESSES: IN THE ASSET MANAGERAPPOINTMENT AND REAPPOINTMENT, INASSET MONITORING, AND IN REPORTING.
THIRTY FIVEThe second part of the process is to buildresponsible investment into performancemanagement and monitoring processes.This starts with making compliance with thepension fund’s policies an explicit contractualrequirement. It then requires that the pensionfund formally review the fund manager’simplementation (e.g. investment researchand decision-making, level of engagementand voting) as a standard part of the routinemeetings with the fund manager. Pension fundsshould also use these meetings to raise theirown concerns and to highlight issues that theyare particularly concerned about. They shouldensure that, as appropriate, these are built intothe research and engagement activities theinvestment manager carries out on the pensionfund’s behalf.PENSION FUNDS SHOULD MAKECOMPLIANCE WITH THEIR RESPONSIBLEINVESTMENT POLICIES AN EXPLICITCONTRACTUAL REQUIREMENT.Finally, as an integral part of their reportingto beneficiaries and clients, pension fundsshould explain how they have ensured thattheir responsible investment commitmentsand concerns are being addressed by theinvestment managers they have commissionedto manage their investments.Disclosure requirements for pension fundsand other asset ownersThere is a general consensus that therequirements for pension funds to set out theirpolicies on responsible investment that havebeen introduced in countries such as France,Germany or the UK have played a critical role inputting responsible investment on the agendaof institutional investors. It is also clear thatthe absence of requirements to report on howthese policies have been implemented haslimited the effectiveness of these requirements.The absence of disclosure has also meantthat it is virtually impossible for beneficiaries orstakeholders to hold pension funds to accountfor the delivery of their policy commitments.Therefore, our recommendation is thatgovernments introduce regulation (or modifyexisting legislation) that not only requirespension funds – and other asset owners – tohave a policy on responsible investment, butalso to publish details as to how they intendimplementing this policy, and to report regularlyon the social, environmental and financialoutcomes they have achieved as a result.Creating demand throughgovernment-sponsored fundsIt is striking that much of the debate aroundresponsible investment has focused on privatepension funds, insurance companies and assetmanagers. Relatively little attention has beenpaid to government-sponsored retirementfunds and other pools of capital. It is clearthat, if these pools of capital were to adoptsimilar responsible investment policies andframeworks to those we propose above forasset managers and owners, the debate aroundresponsible investment would be transformed.There would be a real and immediate needfor asset managers to significantly enhancetheir approaches to responsible investment.
Page 4: 1. Introduction“We can’t afford
Page 7 and 8: SEVENThe fact that the project was
Page 9 and 10: NINEOxfam is a rights-based organiz
Page 11: ELEVENWhile the debates around acce
Page 15 and 16: FIFTEENRole 2: Stock selectionInves
Page 17: SEVENTEENRole 4: Influencing public
Page 21 and 22: TWENTY ONE4.1 Introduction4.2 Struc
Page 24 and 25: TWENTY FOURThe lack of transparency
Page 26 and 27: TWENTY SIXBox 5. Integrating living
Page 28 and 29: TWENTY EIGHTConsensus around perfor
Page 30 and 31: 5. Conclusions and recommendations
Page 32 and 33: THIRTY TWOTO CREATE DEMAND AND IMPR
Page 36 and 37: THIRTY SIXGovernment leadership of
Page 38 and 39: THIRTY EIGHTThe other issue that wa
Page 40 and 41: FORTYAs a final reflection on the q
Page 42 and 43: FORTY TWOCivil society organisation
Page 44 and 45: FORTY FOUREndnotes1 See www.busines
Page 46: FORTY SIXOxfam acknowledges the con

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