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Asset managers must up their game on ESG standards, says LAPFF

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The Local Authority Pension Fund Forum (LAPFF) has called on asset managers to improve their performance on environmental, social and governance matters after a survey of Forum members produced disappointing feedback.

The survey found member funds were unlikely to recommend their asset managers to peers based on ESG. The average net promoter score was 6.5, meaning LAPFF funds were close to being classed as unhappy customers.
 
LAPFF funds were underwhelmed by their asset managers. Though more than half (60 per cent) said their ESG needs were met ‘somewhat well’, fewer than one in ten awarded their managers a top score. A similar proportion of funds (63 per cent) said their asset managers were ‘somewhat effective’ at changing ESG behaviours but only 4 per cent gave them top marks.
 
Almost half the funds (45 per cent) said asset managers provided little evidence of the role ESG plays in investment decisions and almost a third (29 per cent) said working with their asset manager on ESG-related engagements was difficult.
 
Cllr Paul Doughty (pictured), Acting Chair of the Local Authority Pension Fund Forum, says: “Given the mounting body of evidence showing the financial benefits of good corporate governance, it is worrying that so many of our members see asset managers as underperforming on ESG. With funds placing an even greater emphasis on their asset managers’ stewardship capabilities, the survey shows the industry needs to up its game.”
 
When asked how likely funds were to recommend their asset manager to another fund in their pool based on ESG performance, funds give an average net promoter score of 6.5. A score of 7-8 indicates a ‘passive’ attitude (satisfied but unenthusiastic). Those giving a score of 6 or less are ‘detractors’ – unhappy customers who can damage a company’s brand.
 
Asked how well asset managers were meeting their ESG needs 60 per cent of funds said ‘somewhat well’ but only 8 per cent gave top marks. Most respondents (63 per cent) said assets managers were ‘somewhat effective’ at changing ESG behaviours but only 4 per cent awarded the top score.
 
Almost half (45 per cent) said though asset managers asserted ESG was integral to investment processes and valuation methodologies, they provided little evidence to back this up.
 
Most funds (70 per cent) said they had to do extra work on asset managers’ reports before they were able to pass on information to stakeholders. 
 
One in three members (29 per cent) said it was not easy to work with their asset manager on ESG-centric engagements.
 
The vast majority (95 per cent) of funds gave some weight to ESG in the selection process
 

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