As RIAs put more and more thought into hiring managers who incorporate environmental, social and governance (ESG) concerns into their investment processes, the due diligence necessary to properly vet these managers has evolved.
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Today there are many managers, even those not managing formal ESG strategies/funds, who claim to take ESG considerations into their investment processes.
Here are three questions you can ask as part of your due diligence:
- Is the manager’s ESG process just using exclusionary screens (a restrictions list) or have they integrated ESG research into their process? Are they actively engaging companies in dialogue on important topics?
- Is the manager using a third-party data vendor for ESG rankings? Ask why they chose that particular vendor over the others in the ratings space. ESG scores differ significantly from vendor to vendor. We authored a white paper on this subject, which is available here.
- Is the manager a signatory of the Principles for Responsible Investment? The PRI is an independent organization working to define and encourage responsible investing around the world, with the mission to put sustainability at the heart of the capital markets. Today, the PRI works with its international network of asset managers and asset owners that have volunteered as signatories to put the six Principles for Responsible Investment into practice. There are currently more than 2,000 signatories from over 60 countries, representing over $80 trillion of assets. The PRI also provides annual performance scores of all signatories in order to hold them accountable. Learn more about the PRI here.
If you would like to be informed when we release new information on the Dana Epiphany ESG Fund, please let us know.
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The universe of acceptable investments for ESG and SRI funds may be limited as compared to other funds. Because these funds do not invest in companies that do not meet their ESG or SRI criteria, and may sell portfolio companies that subsequently violate their screens, they may be riskier than other funds that invest in a broader array of securities.