ESG Integration in Manager Selection and Monitoring

Consistent with the United Nations-supported Principles for Responsible Investment (PRI), UTAM defines Responsible Investing as an approach to investing that aims to incorporate environmental, social and governance (ESG) factors into investment decisions to better manage risk and generate sustainable, long-term returns. 

We believe that considering material ESG factors as part of our investment decision-making process, with respect to both direct and indirect investments, along with other material investment factors is consistent with our fiduciary duty.

In December 2016, UTAM became a signatory in support of the PRI, which are a set of six aspirational principles designed to encourage and assist investors in integrating ESG into their investment processes.  In becoming a signatory, we have committed to the following statement from the PRI and its six Principles for Responsible Investment, which we have adopted as our own.

"As institutional investors, we have a duty to act in the best long-term interests of our beneficiaries. In this fiduciary role, we believe that environmental, social, and corporate governance (ESG) issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time). We also recognize that applying these Principles may better align investors with broader objectives of society. Therefore, where consistent with our fiduciary responsibilities, we commit to the six PRI principles."

The PRI will guide UTAM’s approach to responsible investing. Below, we have listed the six Principles for Responsible Investment and some of the actions we are taking, and intend to take, in support of these principles. We expect our actions to evolve over time as best practices emerge and as we enhance our processes.

Integrating ESG factors into our manager selection and monitoring process is a responsibility shared by all of our investment staff. While we have previously considered ESG factors when evaluating managers, we are now much more rigorous and systematic in our approach. The actions listed below describe elements of our current process that will be undertaken for all managers, where possible and relevant.

PRI PrinciplesUTAM Actions

Principle 1

We will incorporate ESG issues into investment analysis and decision-making processes.
  1. Evaluate ESG related risks across all portfolios.
  2. Integrate consideration of ESG factors into our investment and operational due diligence policies, and into other policies where relevant and material.
  3. Integrate ESG considerations into our manager selection process, where relevant and material.
  4. Support development of ESG-related tools, metrics, and analyses.
  5. Encourage academic and other research on this theme.
  6. Provide ESG training for investment professionals.

Principle 2

We will be active owners and incorporate ESG issues into our ownership policies and practices.
  1. Adopt a proxy voting policy that is ESG focussed and apply this, where possible, to all direct public equity investment mandates (i.e. where public equity securities are held in the name of Pension or Endowment), and to public equity pooled funds in which Pension and Endowment are the only investors (i.e. where pooled funds are held in the name of Pension or Endowment and these pooled funds, in turn, hold public equity securities).
  2. Encourage managers to adopt ESG focussed voting policies, where relevant.
  3. Support corporate and regulatory proposals which contribute to improved governance practices and more effective boards.
  4. Participate in collaborative engagement initiatives.

Principle 3

We will seek appropriate disclosure on ESG issues by the entities in which we invest.
  1. Discuss ESG risks in manager portfolios and in relation to particular securities held.
  2. Ask managers to undertake and report on ESG-related engagements with companies.
  3. Support collaborative initiatives promoting ESG disclosure by companies.

Principle 4

We will promote acceptance and implementation of the Principles within the investment industry.
  1. Encourage managers to become signatories to the PRI.
  2. Communicate ESG expectations to managers.
  3. Support the development of tools for benchmarking ESG integration.
  4. Support regulatory or policy developments that enable implementation of the Principles.

Principle 5

We will work together to enhance our effectiveness in implementing the Principles.
  1. Support and participate in networks and information platforms to share tools and pool resources.
  2. Collectively, with other asset owners and managers, address relevant emerging issues.
  3. Identify and support appropriate coalitions whose beliefs are aligned with the Principles.

Principle 6

We will each report on our activities and progress towards implementing the Principles.
  1. Disclose how ESG issues are integrated within our investment practices.
  2. Disclose active ownership activities (e.g. voting, engagement, and policy dialogue).
  3. Communicate with stakeholders on ESG issues and the Principles.
  4. Report on progress and achievements relating to the Principles.
  5. Make use of reporting to raise awareness among a broader group of stakeholders.

Our Approach to Integrating ESG Factors into the Manager Selection and Monitoring process:

Integrating ESG factors into our manager selection and monitoring process is a responsibility shared by all of our investment staff. While we have previously considered ESG factors when evaluating managers, we are now much more rigorous and systematic in our approach. The actions listed below describe elements of our current process that will be undertaken for all managers, where possible and relevant.

Selection of Managers

1.
Issue ESG due diligence questions, review responses and follow-up where appropriate.
9.
Communicate the type of ESG reporting we expect.
2.
Review manager‘s responsible investing policies.
10.
Evaluate the quality and coverage of ESG research used.
3.
Meet with responsible investment focussed staff and assess their skills and competence.
11.
Assess the manager’s ESG incorporation strategies and ability to identify and manage ESG issues.
4.
Discuss the manager’s governance and management of responsible investing activities.
12.
Review ESG characteristics of the portfolio.
5.
Discuss the manager’s involvement in collaborative initiatives and direct engagements with company management.
13.
Discuss how ESG issues have impacted specific investment decisions and, where relevant, stock and portfolio performance.
6.
Review the manager’s voting policy and processes (where UTAM would not direct the voting).
14.
Discuss securities that appear to have material ESG risks.
7.
Ask whether the manager is a signatory to the PRI and/or other relevant organizations.
15.
Include a section on ESG in our internal manager investment recommendation memos.
8.
Review responsible investing reporting to clients and/or the public.

Monitoring of Managers

1.
Issue ESG due diligence questions annually, review responses and follow-up where appropriate.
6.
Meet with responsible investment focussed staff and discuss any changes since the last meeting and current areas of research.
2.
Include responsible investment as a standard agenda item at annual performance review meetings.
7.
Review ESG characteristics of the portfolio.
3.
Highlight examples of good responsible investment practices by other managers.
8.
Request information on ESG incorporation in specific investment decisions.
4.
Encourage consideration of joining responsible investing initiatives/organizations or participation in collaborative projects with other investors.
9.
Discuss securities that appear to have material ESG risks.
5.
Review the manager’s responsible investing reporting.
10.
Include a section on ESG in our internal manager review reports.