It’s often said that investment beliefs provide the solid frame on which investment strategy can hang. Some of these Magna Carta’s are beguilingly simple, like ‘Costs Matter’. Others may enshrine beliefs like ‘A Long Term Investors Has Opportunities and Responsibilities.’ So, it was with keen interest that delegates at PRI in Person 2015, the annual conference for the UN-backed international network of investors working to put the Principles for Responsible Investment into practice listened to asset owners’ talk through their first steps in enshrining ESG within their own organisations.
“ESG beliefs now stand equal to our other investment beliefs,” says Anne-Maree O’Connor, head of responsible investment, at the N$29.6 billion New Zealand Superannuation Fund.
New Zealand Super set about articulating its investment beliefs with a long list of loose investment statements that the team subsequently divided into beliefs and facts, explains O’Connor.
It was “a very interesting process” out of which came a concrete commitment to ESG: That ESG represented an important opportunity, would help control risk and would result in a “payback”.
She describes the process, backed by a library of research and a visionary board, as “getting off the tracks and onto the train.”
O’Connor believes that enshrining ESG in the fund in this way gave the team the courage to “maintain its nerve in market crisis and volatility.” It’s also given a firm direction on ESG for employees and investment teams.
For some funds, the financial crisis hastened establishing investment beliefs around ESG: Confidence shaken, it was necessary to build a new set of beliefs.
“We started from a conviction that ESG will add value, but after the financial crisis we were asking what our role is? What is our risk? These very fundamental questions popped up and rather than looking in the rear view mirror to solve the puzzle, we realised we needed to look ahead,” says Marcel Jeucken, managing director, responsible investment, at the €186.6 billion ($204 billion) Dutch pension fund PGGM.
Similarly US fund CalPERS, “underfunded and climbing back from the horror of financial losses”, found the financial crisis concreted its ESG investment beliefs, says Anne Simpson, investment director at the fund.
At New Zealand Super, investment beliefs have affected how they choose managers since they are expected to have the same beliefs.
Investment beliefs have also become stronger over time since they evolve and become a framework for all big decisions, notes O’Connor.
“Over time we’ve become much stronger about our ESG mandate and expectations. Managers change and adapt – or not,” she says.
Similarly at CalPERS, Simpson explains that every asset class is now benchmarked against the fund’s investment beliefs.