Charities Responsible Investment Network

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Managing for good

A review of the Responsible

Investment policies & practices of fund managers used by the Charities

Responsible Investment Network

Charities

Responsible

Investment

Network

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About ShareAction

ShareAction (formerly FairPensions) is a UK registered charity that exists to promote an investment system which serves savers, society and the environment. In particular, we work to encourage

institutional investors to be active owners of listed companies, and to integrate long-term environmental, so-cial and governance (ESG) risks into investment analysis and shareholder engagement.

Fairshare Educational Foundation (ShareAction) is a company limited by guarantee registered in England and Wales number 05013662 (registered address Ground Floor, 16 Crucifix Lane, London, SE1 3JW) and a registered charity (number 1117244).

Author: Bethan Livesey

Disclaimer

This publication and related materials are not financial or investment advice. ShareAction makes no repre -sentation regarding the advisability or suitability of investing in any particular company, investment fund or other vehicle or of using the services of any particular fund manager for the provision of investment services. A decision to invest in any such investment fund or other entity or to use the services of any fund manager or investment adviser should not be made in reliance on any of the statements set forth in this publication. Whilst every effort has been made to ensure the information in this publication is correct, ShareAction and its agents cannot guarantee its accuracy and they shall not be liable for any claims or losses of any nature in connection with information contained in this document, including but not limited to lost profits or punitive or consequential damages or claims in negligence.

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Introduction and methodology

The Charities Responsible Investment Network was established in Spring 2013. Through the Network, members aim to:

• Secure public benefit through the judicious use of shareholder engagement with investee com-panies.

• Develop and share best practice in Responsible Investment across the foundation sector.

• Build skills for Responsible Investment amongst foundation investors.

• Achieve positive change cost effectively by work-ing collaboratively.

Responsible Investment involves the integration into investment practices and decisions of environmental, social and governance (ESG) considerations which may affect financial performance. The recent media interest in the Church Commissioners’ investment

in a payday lending company1_{highlights the}

im-portance of Responsible Investment for charitable organisations and the risks which are presented to them by the widespread lack of transparency in the investment chain.

Where charitable clients rely on fund managers and other service providers for their Responsible Invest-ment practices, it is essential that a relationship of transparency and collaboration is established so that their charitable objectives can be promoted, and protected, through their managers’ investment strategies.

This survey addresses the Responsible Investment practices and policies of the managers used by the

members of the Network2_{. A questionnaire was sent}

to the managers3_{, asking about important}

Responsi-ble Investment concerns, including:

• The information managers make available on their voting and engagement practices.

• The managers’ Responsible Investment policies and how these are implemented in practice. • The managers’ approach to engagement with

investee companies.

Members of the Network have, when selecting their

managers, already made their own assessment of the suitability of the services offered for their needs as charity investors. The purpose of the survey is to build understanding amongst charity investors not only about their fund managers’ current practices but also about what may be possible or desirable in terms of the service offered. Well-informed clients will articulate the approach to Responsible Invest-ment they want and this will help managers to deliver a better and more client-centred approach.

Once the survey responses had been analysed, we sent the managers a draft of the report to ensure that their positions had been fairly represented. Previous ShareAction surveys have included rankings of par-ticipants against each other. It was not felt appropri-ate to do a ranking for this survey as the managers were chosen solely on the basis of having Network members as clients. We also note that the selected group does not include some of the largest

manag-ers of UK charity assets4_.

Managers surveyed

The following managers were surveyed: • Alliance Trust Investments

• CCLA

• The Co-operative Asset Management (TCAM) • F&C

• First State Stewart

• Generation Investment Management • Jupiter Asset Management

• Rathbone Investment Management Ltd • Rathbone Greenbank Investments • Sarasin & Partners

• Schroder Investment Management

A further manager was surveyed but did not wish to be referenced in our report. Its responses were used in our analysis.

Managers’ approaches to the survey

The managers were sent the survey on behalf of their relevant clients. The survey addressed the general or house policies and practices of the managers, in order for their clients to build a better understanding of their managers’ approach to Responsible Invest-ment. Some managers tailored their responses to also address how they provide a service for their

1. http://www.bbc.co.uk/news/business-23459932

2. The managers were surveyed in relation to their management of equity investments. 3. A list of the questions asked is included in the appendix to this report.

4. For example, the 5 largest charity fund managers (by funds under management) as ranked by Charity Finance magazine (November

2012) were BlackRock, CCLA, Newton Investment Management, Sarasin & Partners and Schroders (emphasis shows are included in this report).

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particular client. Alliance Trust provided a response relating to its Sustainable Future fund range, with the explanation that “we consider this to be the most ap-propriate for charitable assets (and this is where [our client] has invested). These assets represent approx-imately 70% of Alliance Trust Investments’ assets under management.”

Members of the Network use Rathbone Investment Management Ltd and Rathbone Greenbank Invest -ments, both of which completed the survey. The dis-tinction between the two is that Rathbone Brothers plc largely comprises Rathbone Investment Manage-ment Ltd (of which Rathbone Greenbank InvestManage-ments is the specialist ethical and sustainable investment unit) and Rathbone Unit Trust Management (which manages a range of equity and bond unit trusts, in -cluding the Rathbone Ethical Bond Fund).

Rathbone Investment Management is a provider of discretionary investment management services: individual investment managers construct bespoke portfolios for direct clients, according to their spe-cific financial, risk and ethical preferences. Central functions, including strategic committees on asset allocation and stock selection, exist to support this independent approach to portfolio management. However, the group as a whole does not apply a generalised investment policy, as it does not group clients together or run collectivised funds outside of those managed by Rathbone Unit Trust Management.

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Summary of responses

Criteria Alliance Trust CCLA TCAM F&C First State Stewart Gener -ation Jupiter Rathbone Invest -ment Manage -ment Rath -bone Gr een -bank Sarasin & Partners Schr od -ers

Has a specific RI policy aimed at addr

essing each

category of envir

onmental, social & gover

nance

(ESG) issues

Responsible Investment policy covers each catego

-ry of ESG issues in detail

Member of PRI

Complies with UK Stewar

dship Code

1

Makes full voting disclosur

e * 2 2 2 2 2 Pr

ovides full engagement r

eports* 3 3 3 3 3 3 3

Reviews its Responsible Investment policy / ap

-pr

oach annually or mor

e fr

equently

4

Seeks clients’ views when deciding engagement

priorities

Open to client-dir

ected engagement on ESG issues

5 5 5 5 5 5 5 5

Open to clients dir

ecting voting (segr

egated funds)

6

Open to clients dir

ecting voting (pooled funds)

6

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Key

fulfils criterion

fulfils criterion in part (see notes below) does not fulfil criterion

question not applicable to manager (see main report for further details) Notes

* Managers who make full public disclosure of the information consistent with our requested criteria were awarded a “green”. Managers who make disclosure of some, but not all, information either publicly and/or to clients were awarded a “yellow”. Managers whose clients obtain the information consistent with full disclo-sure (whether through client-only reports as a matter of course, on request or through a combination of public and client-only disclosure) were awarded a “yellow” and flagged with a number. Managers who do not meet the criteria were awarded a “red”.

[1] Rathbone Investment Management and Rathbone Greenbank flagged that only Rathbone Unit Trust Man -agement is a signatory to the Code as this is the only part of the group to which it applies. However, the wider group’s corporate governance policies have been designed to comply

[2] See note at [*] above [3] See note at [*] above

[4] The frequency of review depends upon the particular client: some clients will have their policies reviewed at least annually whilst others will be reviewed less frequently.

[5] The manager would be willing to consider engagement even if there is no strong investment case for it. [6] TCAM stated that it has no segregated mandates. CCLA explained that it is a client-owned mutual and voting is done at asset owner level (see main text for further details). For Rathbone Investment Management and Rathbone Greenbank, the question on pooled funds was not relevant as all clients have segregated port -folios.

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Responsible Investment policies

Rationale for this question:

We would expect all the managers to have a policy addressing Responsible Investment which covers all three categories of ESG issues: doubts as to the fi -nancial relevance of environmental and social issues, as well as governance concerns, should have been removed by events like BP’s Gulf of Mexico oil spill and the PPI mis-selling scandal.

However, the existence of a policy is not in itself sufficient. The best Responsible Investment policies will outline specific ESG issues which the managers consider to be priorities as well as managers’ expec-tations regarding corporate ESG risk management processes.

What we found amongst surveyed fund managers:

All of the managers said that they have a specific policy or policies addressing Responsible Investment that covers ESG issues for all funds made available to clients (however, as explained below, our analysis of these policies showed that there are shortcomings in some of these policies).

It is not the case that all managers approach Respon-sible Investment in the same way. Some have a dedi-cated document setting out their approach, whilst others have set this out across a number of docu-ments or disclosures. Rathbone Investment Manage-ment and Rathbone Greenbank explained that there is no uniform group-wide Responsible Investment policy covering environmental and social issues as their investment approach to these is “bespoke” and therefore determined by each client’s preferences (there is a governance policy which applies across Rathbone Investment Management and Rathbone Greenbank). Clients of Rathbone Greenbank will also be provided with a detailed Ethical Questionnaire which allows them to select the environmental and social issues of concern to them, effectively deter-mining their own comprehensive Responsible Invest-ment policy.

Generation answered “yes” to this question and in its explanation stated that “while we don’t have a formal policy as such, through each stage of our investment process, the relevant and material sustainability fac-tors are incorporated”. As explained above, Alliance Trust’s policy applies to its Sustainable Future fund range. However, it also provided a governance policy which covers all its funds. CCLA’s approach to Responsible Investment is to undertake detailed projects focussed on key areas of concern, including all three categories of ESG issues, the outcomes of which are then integrated into its wider approach to become standard practice.

We looked at the level of detail in the policies or infor-mation provided by the managers. We were look-ing for detailed policies which covered each of the categories of ESG issues. Our previous research in this area has shown that managers’ policies are often most detailed in relation to governance issues. In this survey, this finding was true of Sarasin & Partners, Rathbone Investment Management, Schroders and Jupiter. These managers provided policies which mainly focus on governance concerns, with less be-ing said on environmental and social issues.

TCAM’s Responsible Investment policy is embed-ded in its Annual Review. It is a good example of a detailed Responsible Investment policy which addresses environmental, social and governance issues. It comprehensively sets out TCAM’s policies and approach to ESG concerns in one place, which is helpful for clients.

CCLA’s project-based approach enables it to ad -dress in depth across its holdings key ESG concerns, including companies with high unmitigated ESG risks and corporate governance issues. It is also set to address in detail the issue of climate change.

What we asked:

How often do you review your Responsible Investment policy?

Responsible Investment is an evolving and dynamic area. For example, public and legislative expectations of how investors deal with the question of executive pay have changed substantially in the last couple of years. Similarly, climate change is now widely rec-ognised as an issue which should be addressed by asset owners and managers. We believe that regular (ideally annual) review of Responsible Investment policies is necessary.

What we asked:

Do you have a specific policy or policies addressing

Responsible Investment that covers environmental, social and governance (ESG) issues for all funds available to clients (and not only dedicated ‘SRI’ funds)?

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7 managers review their Responsible Investment policies / stance on an annual or more frequent (e.g. on-going) basis (Sarasin & Partners, F&C, TCAM, Jupiter, CCLA, Generation and Alliance Trust). The frequency of review for Rathbone Greenbank will depend upon the particular client. The remaining managers review their policies every 1 to 3 years.

What we asked:

Are you a signatory to the United Nations’ Principles of Responsible Investment (PRI)?

Do you comply with the UK Stewardship Code?

Rationales for these questions:

The PRI are a set of voluntary principles devised by the investment community and backed by the UN. They encourage investors to adopt Responsible Investment practices. Membership of the PRI rep-resents a cost for managers, but it provides useful tools to facilitate good practice on Responsible Investment, for example its Clearinghouse provides a platform for collaborative engagement which can be particularly effective for smaller fund managers.

Managers’ membership may also be useful for their clients. Signatories’ Responsible Investment Trans-parency Reports, setting out how they attempt to comply with the Principles, are published on the PRI website and may provide insight into managers’ prac-tices. The PRI is also developing an “Assessment Report” which will score signatories and rank them against their peers. Once the scheme has been tri-alled (in the 2013/14 reporting cycle), signatories will

be able to publish their Assessment Reports5_,

provid-ing clients with a way to assess how their managers perform against peers.

The UK Stewardship Code, overseen by the Finan-cial Reporting Council, sets out the standards of good engagement practice to which investors should aspire, with the intention of enhancing “the quality of engagement between asset managers and compa-nies to help improve long-term risk-adjusted returns

to shareholders”6_{. The practices set out in the Code}

include activities such as public disclosure of policies on stewardship and conflicts of interest, clear poli -cies on voting and disclosure of voting activities and reporting on stewardship and voting. It operates on a “comply or explain” basis and the FCA requires UK authorised asset managers to report on whether or not they comply with the Code.

Of the 12 fund managers surveyed, only 1 was not a signatory to the PRI.

Where applicable, all of the fund managers address

the UK Stewardship Code7_.

5. http://www.unpri.org/areas-of-work/reporting-and-assessment/faqs/

6. http://www.frc.org.uk/Our-Work/Codes-Standards/Corporate-governance/UK-Stewardship-Code.aspx

7. Rathbone Investment Management and Rathbone Greenbank flagged that only Rathbone Unit Trust Management is a signatory

of the Code as this is the only part of the group to which it applies. However, the wider group’s corporate governance policies have

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Integration of ESG concerns

What we asked:

Explain how ESG research/analysis is integrated into investment decisions and company engagement

Responsible Investment is an approach to investment decision-making which should be applied across mainstream portfolios. We would therefore expect managers to use their ESG research and analysis when making investment decisions and undertaking their stewardship activities. In our view, best practice requires that ESG analysis be systematically included in managers’ investment decision-making processes, in the same way that other strategic investment data is considered. Such processes may be complement-ed by practices such as integrating ESG specialists into investment teams and preparing regular briefings and training for staff on key ESG concerns.

Every manager articulated at least one way in which they use ESG research and analysis in their invest-ment decision-making.

Some managers have devised processes which at-tempt to quantify ESG issues in order to assess com -pany risk and performance (F&C and Alliance Trust). F&C explained that its credit analysts and corporate bond managers (and soon its equity managers) in -tegrate the analysis from its in-house ESG Risk Tool into the investment decision-making process and that “to date, this has resulted in 23 changes to our internal ratings of company risk”. Alliance Trust rates all companies in terms of their sustainability and how they manage the ESG aspects of their business.

CCLA explained that it has an ESG filter within its core quantitative investment process which means that companies with high unmitigated risks in certain areas (environmental management, climate change, human and labour rights, supply chain labour stan-dards and countering bribery) cannot be held in any fund or portfolio. It uses “comply or explain” pro-cesses to address corporate governance laggards - explanations must be signed off by both the Chief Investment Officer and the Deputy Head of Ethical and Responsible Investment.

Further good practice was demonstrated by TCAM whose in-house equity stocksheets include ESG analysis to track its house stance on each active equity. The intention is for the ESG analysis to “mi

-grate and impact other parts of the analysis”8_{. TCAM}

carried out an audit to assess the impact that ESG analysis was having on actual investment views and decisions: “We surveyed the 200 equities we active -ly covered or invested in financial year 2011/12. In over a quarter of cases, the ESG issues were explicit drivers or risks in determining the investment case. Moreover, it was our financial analysts that had taken the initiative in doing so, in the majority of cases.”9

On a similar theme, Generation explained that it uses sustainability factors as key criteria throughout its stock selection process, incorporating sustainabil-ity criteria tailored to the risks presented by factors within certain industries to create its “Industry Road-maps”. It explained that ESG concerns often act as “gating factors” when assessing whether certain companies within industries are suitable for invest-ment. A company may be excluded if it performs badly on ESG issues even if it scored highly on more traditional assessments of business quality.

8, See TCAM’s Annual Responsible Investment Review, 2011/12, p. 10 9. Ibid

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Integration of clients’ Responsible

Investment policies & responsiveness

to clients’ concerns

What we asked:

In your opinion, what is your role in implementing clients’ Responsible Investment and stewardship policies?

Charity clients will often have their own Responsible Investment priorities, even if these are not articu-lated in formal policies. Ideally managers will have processes by which they seek to understand their clients’ Responsible Investment and wider charita-ble concerns and will be open to sharing with clients details of their activities, such as voting, engagement and investment decisions, which impact on these.

Many of the managers gave a high level response as opposed to a practical explanation of how they implement their clients’ priorities and policies. Such an example of a manager’s approach to seeking to understand its clients’ policies and priorities was giv-en by First State Stewart (“fundamgiv-entally our role [is] to work with clients to understand their stewardship objectives and ensure we are representing them to the best of our abilities”). Rathbone Greenbank ex-plained its practical and comprehensive approach to understanding its clients’ policies through its Ethical Questionnaire, which it uses to “provide the basis for translating a client’s views into investment strategy”.

Most managers referenced their voting and engage-ment activities as the means by which they imple-ment their clients’ Responsible Investimple-ment concerns (for example, CCLA reserves 20% of its engagement time for client-specific priorities, as well as adhering to clients’ positive and negative screening require -ments). Responses to our questions on whether managers seek clients’ views or direction when deciding voting and engagement priorities (below) showed that most managers do so, with examples being given of practices such as meetings, consulta-tions or surveys.

What we asked:

Do you seek clients’ views when deciding on your engagement priorities? If yes, how is this done?

Whilst we recognise that managers cannot tailor their engagement priorities to each client’s preferences, charity clients in particular are likely to have an inter-est in ensuring that their concerns and objectives are reflected in their managers’ engagement activities. For example, charity clients whose work is focused on alleviating poverty in the UK may want to see managers engage with companies on whether they pay their staff the Living Wage.

Formal policies or practices for obtaining clients’ views are to be preferred to informal arrangements as they provide certainty that client input will be sought, and welcomed, as well as consistency across clients. They also provide a transparent process by which clients can influence their managers if they wish. What we found amongst surveyed fund

managers:

4 out of 12 managers said that they do not seek cli -ents’ views when deciding engagement priorities (in-cluding Schroders, Generation and Rathbone Invest-ment ManageInvest-ment). Most of the remaining managers referenced their meetings and dialogues with clients as the mechanism by which views are sought. For-mal policies are in place at a number of managers, for example client surveys or consultations (undertaken by TCAM, CCLA, F&C and Rathbone Greenbank) and advisory boards with representation of clients’ inter-ests (used by Sarasin & Partners and CCLA).

What we asked:

If requested by a client, would you engage on

specific ESG issues, for example if a charity client

explained that an issue is particularly relevant to its mission?

Would you engage on such issues even if there is no strong investment case for doing so?

Rationale for these questions:

As explained above, charity investors will often have their own concerns about how companies in which they are shareholders are operating. It may therefore be important to such clients that their managers are willing to address issues within companies as part of their engagement activities.

These concerns may prevail even if the companies’ practices are not significantly impacting on perfor -mance and there is no strong investment or financial case for engaging.

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All but one of the managers answered “yes” to being open to client-led engagement, but most caveated their answer by explaining that other considerations would need to be taken into account, such as the interest from the wider client base or whether the engagement would be consistent with the manag-er’s wider policy. Although Rathbone Investment Management answered “no”, it explained that such engagement would be at the discretion of the client’s individual manager.

Sarasin & Partners, F&C, Jupiter, CCLA, First State Stewart and Rathbone Greenbank would engage on a client-led issue even if there is no strong investment case for engagement. Alliance Trust and TCAM said that this would be considered on a case by case basis. 3 managers said they would only engage on an issue raised by a client if that issue was financially material from an investment perspective.

Approaches to client-led engagement

• Reserves 20% of its time for client-led engage -ment priorities (CCLA).

• “We invite clients to attend company meetings with us and one went so far as to travel to India with us to meet companies and raise ESG is-sues” (First State Stewart).

• “Where clients wish us to engage on issues that we believe are material to the success of the business, or simply to encourage better busi-ness, we will do so – providing they are consis-tent with our stated position on matters most commonly of concern to our clients” (Alliance Trust).

What we asked:

Are your clients in segregated funds able to direct how you cast votes on their behalf? If not, why not? Are your clients in pooled funds able to direct how you cast votes on their behalf? If not, why not?

Rationale for these questions:

Managers act as client’s agents, entrusted with their assets. Best practice for segregated funds is for

clients to be able to retain discretion to direct their votes.

Identifying and separating clients’ voting rights in pooled funds is less straight-forward. We know that some managers in the industry do allow at least large clients to instruct on the votes attaching to their portion of the fund. We regard this as best practice. Where managers do not offer this to clients, they could still seek client input. For example, their gen-eral voting policy which will be applied across these funds could be shaped in part through client con-sultation, by seeking client views on what the policy should be in relation to identified ESG issues. What we found amongst surveyed fund managers:

CCLA explained that voting is undertaken collabora -tively at asset owner level: as a mutual, it is owned by its Church and charity clients and has helped lead the development of asset owner voting coalitions and bespoke voting templates. TCAM explained that the question on segregated funds was not applicable as it has no segregated mandates.

All other managers were open to clients directing how votes are cast in relation to segregated funds, with Sarasin & Partners flagging that fee arrangements may need to be reviewed if administrative costs increase and Schroders explaining that this would be done on an “exceptional basis”.

However, out of the 9 managers to which the ques

-tion on pooled funds applied10_{only Jupiter and Sara}

-sin & Partners said that clients invested in pooled funds could influence or direct their voting, with both managers qualifying their response: Sarasin & Part -ners explained that this could happen “partially – they can influence the way we vote, but ultimately a single vote is cast on behalf of all unit holders” and Jupiter explained that its “expectation is to apply uniform voting decisions based on our internal policy… [and although the] potential and capability exists for Jupiter to instruct on a “split vote” within a pooled account… our preference, guidance and engagement success has been built upon uniform voting and we stress this important matter to our clients.”

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Monitoring and measuring ESG

concerns

What we asked:

How do you monitor or measure the social and environmental impacts of companies in your funds?

Rationale for this question:

As part of managers’ assessment of companies they should seek to have an understanding of perfor-mance on social and environmental issues. In order for managers’ assessments to be timely and accu-rate, we would expect them to have a systematic ap-proach to reviewing companies’ performance, based on up to date information, and a structured way of measuring the ESG risks of companies and flagging any bad practice or concerns.

All but one (Rathbone Investment Management) of the managers surveyed undertake some type of formal monitoring and measurement of companies’ social and environmental performance. Good exam-ples of managers making use of relevant and up to date information to measure the impact of companies were articulated by:

• F&C (uses its in-house ESG Risk Tool drawing on external and internal data to produce a numerical snapshot of a company’s ESG risk profile. This covers over 3000 companies);

• First State Stewart (uses RepRisk to monitor companies and to alert it to negative practices, sends its portfolios to Ethix to undertake screen-ings and uses Trucost to undertake benchmarking

of its portfolios against environmental factors11_);

• Rathbone Greenbank (uses weighted social and environmental criteria to assess and rate compa-nies’ risk profile); and

• CCLA (uses FTSE’s ESG Ratings, CDP’s perfor -mance bands and GMI’s governance weightings to measure its portfolio holdings).

Fewer managers specifically mentioned having a

process by which they can act on companies’ bad practice (this was not something we specifically asked of them). However, Generation explained that its qualitative assessment of companies’ ESG impacts has on many occasions “played a role” in how it rates a company, leading to a downgrade of its view of the company as a potential investment. Alliance Trust explained that where it holds a com-pany in breach of its sustainability criteria or which is falling short of its expectations on how it should be managed, it will be downgraded and divested within 6 months. CCLA also flagged that its ESG analysis of companies has led to divestment across all funds and segregated portfolios.

What we asked:

How do you internally monitor and assess the effectiveness of your engagement with companies?

Managers should seek to evaluate the effectiveness of their engagement activities in order to improve their approach over time and to better understand what approach to engagement works for particular companies. We believe managers should set clear objectives for their engagement, systematically mon -itor progress and have some method of measuring success or failure.

There are a number of reasons why it can be dif-ficult for managers to assess the success of their engagements. First, changes in company behaviour often happen incrementally and it can be difficult for managers to draw a direct line between their engage-ment and any changes which emerge. Secondly, companies themselves are often reluctant to attribute changes in practices to such engagement.

Some managers are reluctant to communicate about their engagements on the grounds that to do so will damage their relationships with companies. We be-lieve these fears are ungrounded: the fact that some managers within the industry do disclose to clients and the public quite detailed information about their engagements without any apparent damage to re-lationships with investee companies would seem to effectively counter these concerns.

10 .This question did not apply to Rathbone Investment Management or Rathbone Greenbank. CCLA explained that it is a cli -ent-owned mutual and voting is done at asset owner level

11. TCAM also uses RepRisk and Generation uses Trucost

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Some of the responses received were quite high-lev -el, mentioning in a general way the setting of engage-ment aims or goals and the measuring of success against these. Some responses focussed on exam-ples of specific engagements without giving a clear sense of the managers’ general practices.

We were particularly impressed by Jupiter’s re -sponse. In particular, the following features show a robust approach to prioritising, monitoring and assessing engagement activity:

• Objectives are set: Jupiter “[looks] at steward -ship, financial and strategy issues across our core holdings and often [decides] collectively [between the investment function and the Sustainable Investment and Governance Team] whether we need to engage”.

• Monitoring is undertaken across teams: “Com-panies are monitored by fund managers, cor-porate governance and sustainability analysts/ specialists”.

• Frequent engagement with companies is used to monitor performance: Jupiter “typically has in excess of 1,000 meetings with companies each year…In addition, companies are monitored through Jupiter’s programme of stewardship meetings”.

• Systematic approach to recording and review-ing engagement: “Jupiter has established an in-house database that provides documentation and an audit trail of our engagement with com-panies…[which] provides a useful reference point for monitoring dialogue and evaluating how these issues have developed”.

F&C, Schroders and CCLA also demonstrated sys -tematic approaches to monitoring engagement out-comes. F&C records yearly “milestones” or instances where companies improve their sustainability and/ or governance practices following engagement and rates these milestones for their potential impact on shareholder value. Schroders reviews its database of requests for change on an annual basis. CCLA is using academics at Edinburgh University to assess its engagement with FTSE 350 laggards. CCLA ex -plained that the pilot assessment gave a 50% suc

-cess rate for its test group, against a 13% suc-cess rate for the control group.

What we asked:

Do you participate in collaborative engagement? If yes, have you initiated or led the engagement?

Collaborative engagement is important because of the increased power which can be leveraged by investors acting together to influence company be -haviour. We wanted to see how open managers are to taking action in this way.

All of the managers engage in collaborative engage-ment. As a good example of how membership of the PRI can be useful, 6 managers mentioned using the PRI as a vehicle for their collaborative engagement efforts.

A number of managers explained that they had initiat-ed or linitiat-ed on collaborative engagements (Sarasin & Partners, F&C, Schroders, TCAM, CCLA, Generation, Alliance Trust, Rathbone Investment Management and Rathbone Greenbank).

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Transparency

We surveyed the managers on the information they make available, whether publicly or to clients only, looking in particular at their approach to disclosing their voting and engagement activities.

Rationale for seeking this information:

Disclosure of information on voting and engagement is important to clients because it allows them to check whether managers are implementing their pol-icies and how they are reacting to issues in investee companies.

Whilst it is often argued by managers that customers would not be interested in detailed voting and en-gagement disclosures, charity clients are a subset of customers to whom this information may be partic-ularly relevant and for whom it is important that this information be available.

We asked the managers whether they complied with our criteria for “full voting disclosure” (see box). We believe that comprehensive public disclosure of voting is fundamental to achieving accountability through the investment chain. Information disclosed by each manager should facilitate comparative analy-sis of fund managers’ voting records.

We also asked managers whether they complied with our criteria for full engagement reporting (see box). The criteria sets out what we would consider to be complete engagement reporting and it is based on best practice we have seen in the industry. How-ever, quality of the disclosures made will be more important than quantity of information – the real test is whether clients gain a clear sense of what their managers are doing and why in relation to their en-gagement activities.

Voting

Managers’ performance in this area varied greatly. Only 3 managers publicly disclose full voting informa-tion (F&C, TCAM and CCLA). Clients of some other managers will be able to access full voting informa-tion either through informainforma-tion disclosed in client reports as a matter of course, on request or a com -bination of public and client-only disclosure (Alliance Trust, First State Stewart, Jupiter, Generation and Schroders). Jupiter explained that its clients have been receiving full voting and engagement data as a

matter of course for years.

Managers performed poorly in relation to disclosure of explanations for votes against management and abstentions and on contentious issues. Voting dis-closures should allow clients to find out both how votes were cast and, where significant or controver -sial votes are concerned, why these decisions were made. Explanations need not be long or elaborate to provide an insight into the reasoning behind the vote.

CCLA provides explanations for voting decisions where these are “off template”. Rathbone Invest-ment ManageInvest-ment and Rathbone Greenbank do not disclose this information, whilst the majority of the remaining managers will make it available to clients on request.

14 What constitutes full voting disclosure? At least annual disclosure of:

• All votes cast

• Listed by company with a summary of the proposal

• Explanations for votes against management and abstentions

• Explanations for votes on contentious issues, including shareholder proposals

What constitutes full engagement reports? At least annual disclosure of:

• Total number of engagements undertaken • Information broken down or analysed by ESG

issue

• Full listing of companies engaged with • Description or analysis of selected

engage-ments provided, including the objective of the engagement.

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Engagement

Managers’ performance on disclosure of engagement activity was mixed. No manager publicly discloses all the information we requested. Some managers’ clients will be able to obtain full information, either through client reports as a matter of course, on request or a combination of public and client-only disclosure (including Sarasin & Partners, Jupiter, F&C, CCLA, TCAM, Rathbone Greenbank and Alliance Trust).

No manager publicly discloses a full listing of the companies with which they engage (CCLA currently discloses engagements with companies in its top 10 holdings and/or engagements based on specific ESG or financial concerns, although it is piloting the pro -cesses for full disclosure ready for disclosure of Q1, 2014 engagements. Jupiter discloses meetings with Chairmen and non-executives of its top 15 holdings).

Good practice: disclosure of voting information by F&C

• Easily accessible on the manager’s website • Full voting records are searchable by company

name

• Full voting disclosure made

• High quality explanations provided, allowing clients to understand why voting decisions were made.

One manager said that they do not make full voting information available as a matter of course because clients already comment that reports are too long. However, F&C’s approach to putting information on its website shows that disclosure can be made without clients being overwhelmed by information.

Why is engagement with companies undertaken?

• To influence companies’ behaviour (scored 90%)

• To obtain information from companies (scored 87%)

• To comply with the UK Stewardship Code (scored 64%)

Other top-ranked reasons:

“To improve performance”

“To establish a mutually constructive dialogue and understanding of the company’s culture and strate-gy to deliver long-term value to shareholders and all other stakeholders”

“To ensure we generate investment returns from companies acting in a manner consistent with our beliefs concerning social responsibility”

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Conclusion and recommendations

Overall the surveyed group of fund managers performed well, with every manager demonstrating that they take Responsible Investment seriously. Amongst the group, a small number stood out for seeking to be par-ticularly client-centred in their approach to Responsible Investment.

Fund managers act on behalf of clients. This survey shows that many fund managers are willing to be respon-sive to clients who have thought through and can describe their objectives in relation to Responsible Invest -ment. Some managers will even proactively elicit information from clients in order to shape their Responsible Investment service accordingly.

As charity investors work with and learn from each other in the area of Responsible Investment, we would expect what they ask of their fund managers to become more sophisticated, resulting in them having greater impact as responsible asset owners over time.

Recommendations to charity clients

1. Ask your managers about their Responsible Investment activities in relation to themes and topics of par-ticular interest to your charity. Are they able to give you detail about how they approach those themes with companies in your portfolio and are they willing to take your perspectives on board?

2. Managers appear to be open to hearing clients’ views on what their engagement priorities should be. You could therefore identify a small selection of engagement themes which are of particular importance to you and communicate these to your managers. Ask whether your manager is undertaking engagement on these issues already and, if so, ask to be kept updated on key engagement targets and successes. If they are not engaging on the issues, ask if they will consider doing so in the future.

3. Nearly all managers are members of the PRI. You can access their Transparency Reports on the PRI web-site to see how your manager tries to comply with the Principles. When the Assessment Reports have been trialled by the PRI, you could ask your manager if it will disclose its score and peer ranking.

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Appendix: Questions asked

A. Transparency

Do you disclose (whether publicly or to clients only) the following information:

1. A clear Responsible Investment policy detailing how financially material ESG issues are incorporated into engagement and voting activities.

2. Voting records, at least annually (i.e. all votes cast; listed by company and proposal description; rationales provided for votes against management and abstentions; and rationales provided for votes on contentious issues, including shareholder proposals).

3. Engagement activities, at least annually (i.e. total number of engagements undertaken; breakdown or analysis by ESG issue; full listing of companies engaged with; and description or analysis of selected engage-ments, including the objective of the engagement).

B. Responsible Investment policies and implementation

1. Do you have a specific policy or policies addressing Responsible Investment (RI) that covers environmen -tal, social and governance (ESG) issues for all funds available to clients (not only dedicated ‘SRI’ funds)? If yes, please provide a copy of, or link to, the policy or policies.

2. How often do you review your RI policy?

3a. Are you a signatory to the UN Principles for Responsible Investment?

3b.*Please list any other investor RI initiatives to which you are a signatory or with which you comply. 4.In your opinion, what is your role in the implementation of your clients’ RI and stewardship policies? 5. How do you monitor or measure the social and environmental impacts of companies in your funds?

6a.* Please list some of the key issues covered by ESG research commissioned or produced by you in the last year. Please attach an example piece.

6b. Please explain, ideally by using examples, how ESG research/analysis is integrated into investment deci-sions and company engagement.

C. Engagement in practice

1. Do you comply with the UK Stewardship Code?

2. Do you seek clients’ views when deciding your engagement priorities for your funds? If yes, how is this done?

3a. If requested by a client, would you engage on specific ESG issues, e.g. if a charitable client explains that an issue is particularly relevant to its mission? If yes, please provide examples.

3b. Would you engage on such issues even if there is no strong investment case for doing so?

4. Are clients invested in segregated funds able to direct how you cast votes on their behalf? If not, why not? 5. Are clients invested in pooled funds able to direct how you cast votes on their behalf? If not, why not? 6. Do you participate in collaborative engagement? If yes, please give examples of specific issues on which collaborative engagement has been undertaken and state if you initiated/led the collaborative engagement. 7. Why is engagement with companies undertaken? Please rank the following possible reasons on a scale of 1 to 5 where 1 is “of no importance” and 5 is “of great importance”: to obtain information from companies; to comply with the Stewardship Code; to influence companies’ behaviour; other (please state, with ranking of 1 to 5 as above)

8. How do you internally monitor and assess the effectiveness of your engagement with companies. If possi-ble, please illustrate with examples.

D. Further information Please provide:

your top 10 holdings*

any additional comments or information links to any relevant documents.

* Members of the Charities Responsible Investment Network will be provided with their managers’ full survey responses and related

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Charities Responsible Investment Network

Managing for good

A review of the Responsible

Investment policies & practices of fund managers used by the Charities

Responsible Investment Network

Charities

Responsible

Investment

Network

About ShareAction

Disclaimer

Contents

Introduction and methodology

Summary of responses

Responsible Investment policies

Integration of ESG concerns

Integration of clients’ Responsible

Investment policies & responsiveness

to clients’ concerns

Monitoring and measuring ESG

concerns

Transparency

Conclusion and recommendations

Appendix: Questions asked