Chap 9 Facts and Test Flashcards
KEY FACTS
- Agency problems exist within the investment chain just as they exist between companies and their owners. This agency problem also extends to aligning ESG beliefs.
- Accountability and alignment can be delivered in large part through aligning the
time horizons
of fund managers with their clients. This helps ensure that fund managers will work to deliver their fiduciary duties.
- This can be reinforced through a focus on longer-term matters rather than short-term performance assessment.
- ESG integration will vary between different fund management firms, and individual portfolio managers, because it needs to be tailored to the investment style and approach.
- Increasing numbers of advisory services are available to help clients assess the ESG delivery of their fund managers and attribute performance and E, S and G characteristics of the portfolio.
These are perhaps best used in dialogue with managers to test whether they are delivering their expected investment style in practice.
- Asset owners will seek to challenge and debate
hard cases of individual assets within portfolios so that the client can understand how effective ESG integration is in practice and how well the portfolio reflects that integration.
- Resourcing of ESG work is always a constraint on effectiveness and the application of the approach across portfolios. Collective engagement is one key way to bolster resources.
- The ESG expectations of clients have a range of drivers and therefore manifest in different forms.
What is the clearest risk from an asset owner leaving voting decision-making in the hands of its fund managers?
If a company is held by more than one fund manager, the asset owner’s shares may be voted
differently.
Which of the following is NOT a way of assessing whether a fund manager effectively integrates ESG factors, according to the PLSA?
How much financial return is directly attributable to ESG factors.
What behavioural step needs to be taken to reinforce the length of the client mandate in order for fund manager time horizons to lengthen as intended?
(a) Clients assess investment performance less frequently and predictably.
Which two ESG specific areas of disclosure are requested by the International Corporate Governance Network (ICGN) Model Mandate?
A detailed disclosure of stewardship engagement and voting activity must be made, and the manager’s assessment of ESG risks must be embedded in the portfolio.
