Co-founder and launch of the Net Zero Investment Consultants Initiative as part of a group of 12 consultants who have approx. 100% of our discretionary portfolios committed to the Net Zero Asset Managers Initiative, joining more than 230 managers with more than $57 trillion in assets.
Purpose, strategy and culture
Sustainability is inherent in our culture - the way we work, understand problems and work to solve them. In 2021, we introduced a new leadership role – our Head of Stewardship – to strengthen our focus on stewardship within WTW Investments.
Governance, resources and incentives
Introduced in 2021, the Head of Custody role gives our custodial activities clear accountability and focus, which is further strengthened by the inclusion of our Head of Custody in our SI Steering Group. Our Head of Custody is the Chair of the EOS Customer Advisory Board and members of our teams regularly attend EOS Customer Advisory Board events held twice a year.
Conflicts of interest
Service Providers: Signatories identify and manage conflicts of interest and put clients' best interests first. So conflict of interest is a topic that is part of our assessment of asset managers.
Promoting well-functioning markets
We have joined the Net Zero Asset Managers Initiative (NZAMI) and co-founded the Net Zero Investment Consultants Initiative (NZICI) as part of our focus on collaboration. Both initiatives are part of the Glasgow Financial Alliance for Net Zero (GFANZ), the global coalition launched in 2021. We have committed to a goal of net zero greenhouse gas emissions by 2050 at the latest, with a 50%.
Climate change and a just transition to net zero greenhouse gas emissions is a systemic and urgent global challenge. Strategically anticipating a net zero transition, we believe, will significantly improve risk-adjusted returns for our clients. That is why in 2021 we joined both the Net Zero Asset Managers Initiative (NZAMI) and co-founded the Net Zero Investment Consultants Initiative (NZICI).
Aim to push the asset management industry to commit to a net zero emissions target.
AM/AO), Principle 6 (SP) —
For voting, we used the PLSA voting template as a way to ask managers consistent questions about the voting process. We've also developed our own voice analytics tools to consistently dig deeper into more complex voice activity. Historically, we have also asked consistent questions and set a specific definition of engagement (to ensure consistency as different asset managers will define engagements differently).
To ensure that we consistently meet these requirements, we have developed a number of policies, procedures and other related collateral (collectively, 'regulatory collateral'). Within WTW Investments we have created a clear governance structure with accountability and responsibility as described in Principle 2. We have seen both happen (see Case Study 4: Asset manager engagement: . Global equity index manager in Principle 9).
For example, in 2021 we increased the number of climate-related questions we ask leaders and included additional indicators to measure progress.
AM/AO), Principle 5 (SP) — Client and
Often, specific members of the Trustee Board have high interests in SI (e.g. involved in ESG on the company's side, strong belief in sustainable investment). Often the majority of members of the Trustee Board have a strong interest in SI (eg involved in ESG on the corporate side). As part of the review, the administrator identified several areas where scheme managers could improve their approach to climate change.
Portfolio resilience — an assessment of the portfolio's exposure to sustainability-related risks and opportunities. The purpose of this analysis is to show the historical path of the portfolio's emissions towards the desired long-term path to net zero. The Manager believes that the ultimate measure of the success of its ESG and engagement activities is the long-term performance of its investment strategies.
We also use a proprietary tool to assist in our assessment of voting activity for large asset managers (where data is available), which we use in our research meetings and engagement activities.
Stewardship, investment and ESG integration .45
Our manager research team practices asset manager engagement in the same way that we expect asset managers to engage in a constructive dialogue with the companies, issuers and assets they own. As described above, our manager research team reviews the voting policies and practices of the underlying asset managers to ensure good practice. Finally, much of our manager research process is based on assessing the culture at the asset manager.
This has been part of our manager research and portfolio management process for many years, evident in our culture reviews and engagement with managers. We joined IPLA's ESG Data Convergence initiative and encouraged the GPs we work with to get involved. A large part of our manager research process is based on assessing the culture of the asset manager, and I&D is considered in every new strategy we evaluate.
Through 2021, I&D has been one of our key pillars of engagement in the asset manager industry, alongside sustainable investment and culture.
Monitoring managers and service providers
We have been working with MSCI for several years and have also undertaken significant reviews of other data providers during that period. This ensures that we have access to the best quality data in the market to suit our and our customers' needs. Throughout this report, and particularly in response to Principles 7, we have described and demonstrated the outcomes of our ongoing engagement with the asset management industry, where SI and stewardship have been key pillars.
As highlighted earlier in this report, we have been working with EOS at Federated Hermes (EOS) for several years. At both WTW and EOS we have a dedicated Relationship Manager and regular ongoing and open communication and reporting – as outlined in Principle 2. We have therefore decided to highlight the collaboration that EOS is doing in relation to our Ireland-based Global Equity Focus. fund (GEFF) to illustrate the implemented activities and results in this area.
While we have mainly highlighted equity-related activity under this principle, influencing issuers is also a key part of fixed income investing.
Engagement
This engagement has been led by the Manager's Head of Real Estate Investments and Co-Founder. The manager's engagements have exceeded expectations, and the manager has been impressed by the stakeholders' willingness to contribute time, energy and resources to create mission-driven resident programs for the residents. We have been in dialogue with the leader in several in-depth meetings on these issues since the end of 2018.
Although not necessarily inconsistent with its Asian counterparts, the manager's approach to ESG was quite basic - the manager had a strong focus on governance risks but less on environmental and social issues, and ESG risks were not explicitly considered in the credit underwriting process. While significant improvements have been made to ESG integration, we continue to work with the manager. We are encouraged by the manager's demonstrable track record in working with us to improve his processes.
As part of our research, assessment and monitoring of managers, we consider whether the manager's policy specifies their approach to collaborative activities and to what extent the investment manager contributes to and can demonstrate this effort.
Collaboration
NZAMI and NZICI are both part of the Glasgow Financial Alliance for Net Zero (GFANZ). We have contributed to the Paris Aligned Investment Initiative, including as part of the Strategic Asset Allocation working group. We are a member of the Net Zero Stewardship Working Group and contributed to its latest draft paper outlining best practice stewardship for organizations committed to net zero.
We are delighted that PRI has shortlisted CCRI for the 2021 Stewardship Initiative of the Year. Our Head of Stewardship currently chairs the EOS Client Advisory Board, is a member of the PRI Stewardship Advisory Board, a member of the IIGCC Net Zero Stewardship, working and member of the ICSWG-UK Stewardship Group. Our Sustainability Solutions Manager is a member of the NZICI External Relations Working Group and the ICSWG Asset Owners Group.
The asset manager decided to participate in this group as it focused on topics of utmost importance from a risk management perspective.
Escalation
During 2021, we have engaged extensively with the asset manager community on SI, and as previously mentioned we completed over 150 such engagements with over 100 managers. When engaging with an asset manager, the ultimate sanction is rejection or downgrading of a strategy (which may then flow into disinvestments from our delegated solutions or advice to our clients to disinvest). These will depend on the topic being discussed and our level of leverage with the asset manager.
In early 2021, we communicated our views to the manager on their ESG and cooking activities and explained our expectations of the asset managers' activities and how these would translate into our investment beliefs, research approach and expectations of good practice. An asset manager we work with engaged with a European bank to better understand how they were planning to address concerns around corporate governance. An asset manager we work with used their exposure through both debt and equity of a company to engage in the social impacts of artificial intelligence.
We then regularly monitor the voting decisions each manager makes against the EOS guidelines and engage or challenge the underlying asset manager where necessary.
Exercising rights and responsibilities
EOS' input is based on its extensive research and experience in stewardship, as well as their long-term involvement with companies. The tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Hypothetical aggregate returns have many inherent limitations and may not reflect the impact that material economic and market factors could have had on the decision-making process if the client's funds were actually managed in the manner shown.
It covers approximately 85% of the free float regulated market capitalization in each country." The PME analysis assumes that private markets cash flows are invested in a public market index and compounds it to the end of the measurement period to arrived at a synthetic terminal portfolio value.Model returns have many inherent limitations and may not reflect the impact that material economic and market factors may have had on the decision-making process if client funds were actually managed in the manner indicated .Client versus client conflict – where we may not be able to act in the best interests of one client without adversely affecting the interests of another client.
Company-Client Conflict (including Client-Third Party Conflicts) – our own corporate interests conflict with the duty we owe to the client in some cases where our ability to act in the client's best interests is affected by our relationship with the third party a person. party.
