Environmental, Social, Governance (“ESG”) investing is a rapidly growing area of focus for investors, particularly among the sovereign wealth, public and corporate pension, and endowment and foundation communities.
ESG due diligence is, however, an emerging discipline. As ESG matures, investors are seeking a new solution - which sits between the overly precise (a public company with a 73%, not a 72% or 74%, ESG "score") and overly vague, where ESG questionnaires ask broad, open ended questions rather than gather specific, actionable data.
Castle Hall firmly believes that the investment process has changed. More and more investment activity is directed by pension and sovereign wealth entities, where the assets invested belong to pension beneficiaries - or, in the case of a SWF, to everyone in a society. There is an increasing groundswell of sentiment that the investment process should be guided by the objectives and priorities of the owners of plan assets, which are not limited solely to financial performance. Do investment strategies generate forward looking environment benefits? Are investments made with asset managers who demonstrate a diverse business model, actively inclusive across gender, race, and sexual orientation? Should portfolios be invested in tax havens, potentially reducing tax revenues which would otherwise benefit the broader society?
Castle Hall does not have the answers to these issues, but recognizes that investors will ask provocative questions, and expect transformational answers, over the next five years.
How do investment managers incorporate ESG into their own businesses?
In light of changing expectations, Castle Hall will shortly launch ESGDiligence, a dedicated tool to assist investors in exercising ESG oversight over their external asset manager relationships.
ESGDiligence has two components:
Castle Hall has developed a questionnaire to enable investment managers to communicate their own ESG policies to investors considering allocation to their funds and strategies - or to those investors who have already allocated capital to a manager organization.
Investor sensitivity around #metoo, employee claims and actions, and gender diversity can be addressed through a manager's responses to the survey. Castle Hall also gathers a broader range of ESG data, across eight areas:
Contact us if you are an investment manager and would like to complete our ESG questionnaire.