IAPF Spring 2018 Irish Pensions Magazine

IRISH PENSIONS MAGAZINE | SPRING 2018 | 51 well-governed default investment strategies that deliver long-term value — and we believe that ESG has a key role to play in that effort. From Ambition to Action Three key questions for scheme sponsors and trustees to address when contemplating ESG in DC: 1) WHAT ESG APPROACH DOES THE ASSET MANAGER USE? There are a number of different ESG approaches available, for example some funds screen out certain poor ESG stocks or sectors, and others focus on companies that are better than their peers or improving their ESG performance. In addition, ESG analysis and ratings come from a number of different research providers. Furthermore, it is a relatively new and evolving sector with new options becoming available. Trustees and scheme sponsors need to be comfortable with their manager’s chosen approach. 2) WOULD AN ESG STRATEGY INTRODUCE ADDITIONAL COSTS AND RISKS? Any move away from an indexed strategy can introduce new challenges, such as increased portfolio turnover, complexity and tracking error. Changing the ESG profile of a portfolio also might lead to concentration or liquidity risk. These potential costs and risks must be monitored to ensure they are justifiable in terms of the improvements in performance and ESG ratings that the strategy delivers. 3) HOW WILL YOU EDUCATE MEMBERS ABOUT ESG? Trustees and scheme sponsors must be able to explain clearly the purpose of and extra steps associated with ESG investing, to ¬ensure that all stakeholders understand the process and any changes in performance it might create. By engaging in these questions about ESG investing, scheme sponsors and trustees can help to mitigate potential risks and seize new opportunities to help members build meaningful savings over their careers. The Power of Active Stewardship At SSGA, we use our voice — and our vote — to engage with companies on issues that promote sustainable value. Our asset stewardship programme continues to be foundational to our mission of investing responsibly to enable economic prosperity and social progress on behalf of our clients. EXPERT OPINION