RI Video Series [7]: The Role of Asset Managers

When it comes to responsive investing, not all asset managers are created equal. With the recent surge in popularity of socially responsible investments, managers are often advertising themselves as progressive but fail to back that up with results. FEG Senior Research Analyst Lily Ambrosius details some of the questions you should ask managers before hiring and how to tell the difference between an intentional manager and a greenwashed one.

The role of asset managers is paramount in integrating responsive investments. Simply put, their role is to reflect the values of an organization through a well-managed portfolio. Since that's pretty broad, there's really not a one size fits all approach in describing the ideal manager. A good starting point for assessment is on materiality. A few simple questions to ask when meeting with an ESG manager include: what environmental and social considerations are being integrated, are those factors financially material, and do they lead to a better outcome for the company and for society? Any ESG manager should be able to answer those questions.

The next step is measurability. Are the manager's objectives measurable and are outcomes reported to investors? The best way to hold anyone accountable is to measure and monitor their actions. You should also assess how active a manager is outside the investment process. Is the manager taking additional steps and engaging with company management to push them to achieve net zero emissions? Are they filing shareholder resolutions when engagement efforts become unsuccessful? These efforts create shareholder value by affecting real change in companies which further aligns investors' missions.

The most necessary aspect we look for in managers is intent. More and more strategies are marketed as ESG or impact, but that doesn't automatically mean they're intentional. Does the firm believe transitioning to renewable energy adds shareholder value over the long term, or are they just trying to capitalize in recent sustainability trends? Greenwashing can be hard to decipher unless you're in the weeds talking to these kinds of managers on a regular basis. At FEG, we meet with hundreds of managers a year and have resources focused specifically on responsive investing strategies. Our job as a consultant is to recommend intentional, materially driven, measurable investments for our clients to help serve their mission.