Asset management firms must now comply with a series of ESG rules if they wish to manage money for St James's Place.
SJP's model is to outsource the management of the funds its clients are invested in to third party firms, with the funds then operated under the SJP label.
As part of the criteria to win a mandate to run an SJP fund, Sam Turner, the company's head of responsible investing, said there were "three lines of defence", but the overall principle is asset managers must consider the financially material risks and opportunities around ESG in any investment they make.
He told FTAdviser the first criteria is that any fund manager who runs money for the company, “must be a signatory of the UN principles of responsible investing, adhere to the policies contained within that around divestment and they must have a named individual at the firm who is responsible for this".
Turner said the second consideration was that a company must pass an annual ESG assessment.
This means they must show SJP case studies of how they consider the risks and opportunities and show levels of training beyond the named fund manager.
"They must show us data," Turner said. "The important thing, we think here, is that we have specific things we look for from each asset class, so for bonds, equities etc, but also that the number of things we look for, in terms of what is considered an ESG issue, has also expanded.
"I also think its also the case that since 2014, this has become less of a tick box exercise and we now expect to see investment managers talking about this stuff, and it not just being a compliance function."
The third factor demands is that fund managers provide the individual funds score based on the ESG scoring methods of the Aladdin system which SJP deploys.
Aladdin is an end-to-end investment management and operations platform owned by BlackRock which is widely used in the industry.
Turner said: “We don’t want to be prescriptive, so if a fund manager we like hasn’t signed up to the UN goals at the time we are speaking with them, we would want to understand why, and in all cases where that has happened, if we have allocated them a mandate to run for us, they have subsequently signed up to those.
"If a manager’s data and approach to reposnible investing is not good enough, then it’s not an immediate termination, we will work with them, and have a conversation with them around the expectations we have.
"But in reality we believe that considering the financially material risks and rewards of ESG helps investor returns in the long-term. We also feel that an approach which integrates ESG as part of the process is better for clients than those funds which are branded as sustainable or impact. Whilst these funds are a great way to align your portfolio with more sustainable companies, Tte issue with those funds is often they are less diversified and more correlated to world events. ”
The performance of SJP funds has come under general scrutiny recently, with the revelation that four of its funds appeared in the Spot the Dog list of underperforming funds.
david.thorpe@ft.com
