Asset managers are really starting to impress wealth management teams with their ESG credentials, implementing research teams and net-zero plans, said Sam Turner, head of responsible investment at St. James’s Place.
Turner, who has oversight of the 47 segregated mandates run in SJP’s responsible investment portfolios, said fund groups are stepping up in terms of engagement and decarbonisation, and “best practice is emerging”.
Here, he answers ESG Clarity’s questions on his role, portfolio construction and changes in the ESG industry.
Describe your role.
I have been at SJP for six years and for the past three years I have predominantly focused on responsible investment (RI).
My remit is twofold: half is integration into investment proposition, so process and framework. The second half is outward facing, turning jargon into real-world language for our clients and adviser community.
Explain the portfolio construction for the responsible investment portfolios.
We hold 47 different funds around the world, from large to boutique, from plain vanilla to private equity. They are run through segregated mandates for all of SJP funds. We continually research and monitor those managers and we can terminate if they are not adhering to the mandate.
In 2014, we started to integrate ESG processes and due diligence asking the asset managers about their approaches.
At the time, it was from a risk perspective – a hygiene exercise if you like as a lot of firms had started to sign up to the PRI in 2018 and the industry begun to evolve from ethical fund screening and divestment to forward looking sustainable funds.
We laid the foundations in 2014, but we really ramped it up in 2019 and embedded that into the process. We formed the responsible investment team, and Rob Gardner joined us as investment director.
What was the catalyst for this, what changed in 2019?
We were seeing increasing demand from partners and clients for ESG and, crucially, it was no longer a ‘nice to do’ compliance topic but a fundamental way for asset managers to be running money. It was being embedded into their mission statements.
We felt managers should be aware of ESG risks across all of their funds and put in place three lines of defence:
First, we put minimum standards across all the funds. Every single fund manager must be a signatory to PRI – we felt that is a good baseline policy to have in place and the nine managers that hadn’t signed up at the time signed up within a year.
Second, that 2014 ‘hygiene’ exercise on ESG was made a key pillar in our ongoing monitoring of asset managers to hold our fund managers to account. We give them what we call a ‘good, bad or ugly score’ and those that don’t score well are given targets and timeframes to adhere to.
The final layer of oversight is third-party data, providing us with another lens to challenge the fund managers. On a daily basis, we can look at the carbon footprint of every single fund and that is not just the responsible investment team’s job, it’s integrated across the investment team.
Who carries out the ESG assessments and what have been their key findings since putting this into place?
The analyst team is responsible for the monitoring and research, the team members are the ones doing that ESG assessment.
We are really there to set the framework and be the thought leadership. The conversations are really positive – the jury was still out five or six years ago on ESG, but our fund managers are in a different space now. It’s not about the ‘why’, it’s about the ‘how’ as well as the application. Climate change and net zero is at the forefront of asset managers’ and owners’ minds.
What’s SJP’s approach to decarbonisation?
We made a net-zero commitment in 2020 and are part of the Net Zero Asset Owners’ Alliance (NZAOA).
In 2021, we looked through our framework and principles and as part of NZAOA we have to set interim targets. We have made a commitment to reduce emissions by 2025. We prefer to do this through engagement with fund managers, we don’t want to reach this by implementing a big portfolio turnover, it should be done organically through all asset classes and managers.
What have been the big changes in terms of asset managers’ approach to ESG over the past decade?
2050 is the North Star to aim for; we know there is climate risk and opportunities in all asset classes and the conversation has changed to the data we need, the principles we need to follow.
Asset managers are coming into their own in terms of where they can make the biggest difference.
We recently partnered with Robeco and it is providing us with direct engagement services.
Some asset managers are really excelling – we have seen UK fund managers talking to the oil and gas providers and Robeco is talking to lots of sectors on climate. Best practice is emerging.
Asset managers are also impressing us with their climate research with groups such as Ninety One and Wellington partnering with academics and research centres to really bring it to life in their teams. Groups are starting to specialise and have strengths in really different areas, they are all on a journey.
What have been the challenges for asset managers?
One of the challenges we have as an industry, is the time horizon. What’s happened with Russia and Ukraine and the cost of living highlights the long-term need to diversify your energy mix – it has never been more important.
We have seen Germany lighting up coal fired power stations to meet demand and we do still have a massive challenge short term, but some of this will need a long-term view to tackle this stuff.
Tackling climate change and looking at these ESG issues are not going to be solved overnight. It is going to take years and years of tiny bits of progress and cultural change within firms. Everyone needs to start embedding this into their process and governance – we still have a long way to go.
What about the challenges for your clients?
Definitions are definitely a challenge. We have ethical, green, sustainable, Article 8 or 9 funds … it is hard to make sense of what these are doing, what the differences are.
Some of the stuff the FCA is looking at at the moment will be a game changer in the UK market.
There is also a big opportunity for advisers in the UK. This ESG stuff is complicated and nuanced, we need to think about it in the realms of holistic advice conversation. Everyone has their own goals and if you overlay that with the ESG conversation it can be quite complicated. It really helps to have an individual that can you walk you through it and we have been running an educational programme on ESG for three years.
There is lots of stuff coming out though: TCFD, the Stewardship Code, FCA labelling, SFDR… all of this has a place in preventing greenwashing and improving disclosure, but the challenge for me is when we have 850,000 clients and need to try to boil down a 150-page TCFD report into something easier to read – that’s the challenge.
But it’s where advisers and wealth managers can come into their own. Easy, simple reporting is an opportunity as clients want it all in one place where it is easy to read alongside their financial information, but the challenge is making sense of that.
That will be a focus for us – turning these lengthy but valuable reports into bite-sized, manageable information, it can make the biggest difference.
