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Pensions & benefits

Increasing
the focus on ESG

How we helped our client increase their focus on environmental, social and governance (ESG) factors through a restructure of their equity portfolio

Our client already had social and environmental sustainability embedded in their corporate culture, so a move to increase the emphasis on ESG factors in their investment processes was a natural next step.

The background

  • DB scheme sponsored by FTSE 350 business support services company
  • Scheme’s equity exposure was primarily achieved through derivatives (futures)
  • Social and environmental sustainability was embedded in corporate strategy and culture
  • Finance Director asked trustees to review their investment approach to ESG factors

Our solution

To help the trustees review their ESG approach, we provided tailored ESG training and ran an interactive session to explore their investment beliefs.

We arranged for three managers with contrasting ESG approaches to present to our client to illustrate the options available.

We advised on a restructure of their equity portfolio which reflected the trustees’ beliefs about the role of ESG and exercise of shareholder rights in delivering good financial performance.

Our advice led to a switch to physical equities and the appointment of managers with strong ESG credentials. This included two funds with a specific ESG focus.

The results

Using this approach, the trustees now have a well thought out approach to ESG which reflects their investment beliefs and is consistent with the corporate culture.

The increased emphasis on ESG allows them to benefit from potential upside, while downside risk was limited by having only a modest initial allocation to ESG-focused funds.

The increased use of physical equities also allowed the trustees to exercise their shareholder rights with the aim of improving long-term financial performance.

Ultimately, with pension investment now aligned with corporate strategy and culture, it was an all-round win.

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