Eight ESG questions to ask your fiduciary management provider 

Investors looking for fiduciary management services will be relying on their provider’s approach and will also need to be aware and comfortable with its application on their behalf. It is fundamental that investors are asking the ‘RITE’ ESG questions to understand what they do. Below we cover the top eight ESG questions investors should be asking their fiduciary management provider.  

It is important that your fiduciary manager’s views align with your own in order for them to best fulfil their fiduciary duty to you. A good starting point when looking for fiduciary management services is to ask them to present their views on responsible investment and sustainability before reviewing them periodically to ensure they align with your beliefs. 

Asset managers and investment advisors are able to join working groups and initiatives that aim to drive change and progress ESG issues at the industry level. When you are considering questions to ask a fiduciary management provider, their participation and involvement in these initiatives is a helpful assessment of their commitment to responsible investment beyond the call of duty.

Given their position in the markets as significant asset owners, institutional investors are facing an increased regulatory burden related to ESG requirements. As a consequence, they are at a high risk of legal challenge or fines should they fail to meet these. Your fiduciary manager should be well-placed to keep you compliant with regulatory requirements, and ahead of a constantly changing and developing area.

It is essential that your fiduciary management provider can articulate and illustrate the impact of implementing their beliefs throughout the investment process. Any investment approach should be optimised to consider the risks and opportunities presented by material factors. Therefore, your fiduciary manager should make clear to you where, when and how they are considering and integrating ESG factors in the investment analysis and decision-making process.

Climate change poses a systematic risk and investors should consider the potential financial impacts of both the associated transition to a low-carbon economy and the physical impacts of different climate outcomes.

Given this materiality, when considering what questions to ask about fiduciary management services, you should seek transparency from your fiduciary manager on how climate change risks and opportunities are implemented in your portfolio, and the wider impact of your investment. 

Implementing a responsible investment approach is most effective when it is integrated throughout the asset allocation and investment process, thus providing additional layers of insight and oversight. There is an added level of complexity to this when using fiduciary management services, given the moving parts involved. Fiduciary management providers should be expected to clearly demonstrate:

• The analysis and tools they are using to facilitate the investment decisions process, for example, climate stress testing for when considering climate change temperature deviation scenarios.
• Whether there are dedicated sustainability-driven investments and if not, why not.
• Their assessments of the underlying managers’ ESG capabilities.
• The processes and monitoring of key ESG-related metrics in place for portfolio managers.

In the case of most fiduciary managers, voting is delegated to the underlying third-party investment managers or proxy voting agencies. It is fundamental that fiduciary management providers are transparent in this process and that they are able to evidence what influence they have over the managers to leverage their beliefs. They also need to be able to provide information to their investors on the activity that has happened on their behalf. 

The focus on ESG is only likely to increase in the near future, so it is essential that you ask a fiduciary management provider how ESG considerations are integrated throughout your investment decision-making.

Fiduciary managers should be utilising all the tools at their disposal to ensure your portfolio is seizing all the opportunities and managing all the risks presented by ESG factors, whether its investment in dedicated sustainable investments, relationships with asset managers, involvement in industry initiatives, or utilisation of the many ESG data platforms available.

Ultimately, fiduciary management will continue to provide transparency and effective governance at a time when it is needed most as investors need to comply with an ever-increasing number of regulatory requirements. A fiduciary manager will have the tools to help you navigate this area of investment seamlessly and remain ahead, but be sure to continuously review the alignment of your beliefs with theirs.

If you want to know how well you are currently integrating ESG considerations into your overall decision making and identify areas for intervention that will deliver a positive impact for your investment portfolio, visit our Responsible Investment Total Evaluation webpage or contact Helen Hope.