Towers Watson and Oxford University have launched a collaborative research effort to examine the impediments to progress in sustainability integration, with changes to mandate design one of the expected practical solutions. The project is spearheaded by thought-leaders Roger Urwin and Professor Gordon Clark.
A six-month project, which also has 22 funds manager partners and asset owner representatives, it aims to produce some “practical outcomes”.
Towers Watson has been a proponent of long-term mandates, with an unconstrained approach, for some time.
Global head of sustainability at Towers Watson, Jane Goodland, says the project will look at some of the impediments to progress in integrating long-term sustainability into the process and thinking of the industry.
“If this is common sense, why is there reluctance to change?” she says.
Goodland says the study aims to produce some practical solutions to overcome these impediments.
“A lot of the problems are structural – for example, the practice of performance measurement and the obsession of tracking short-term performance,” she says.
“Long-term mandates require a re-assessment of benchmarks and fees, and they also require strong fund governance, and trustee courage and skills to allocate in that way.”
This study will cover all these aspects in multi-disciplinary research, covering fund governance, fiduciary duty and resource scarcity. The research will be conducted by various specialists at Oxford, including Myles Allen, Claire Woods and Dariusz Wojcik, and it will produce a report to be completed in the first quarter of next year.
At the beginning of the year Towers Watson cemented its “sustainability beliefs”, which are incorporated into the 30 beliefs that underpin all its advice and research.
Since then Goodland has been involved in educating the firm’s investment manager researchers and client consultants around the globe on how to build sustainability and ESG into the overall process internally, as well as how to advise clients.
“These beliefs are not measures but anchors; they set the foundation of our research and advice,” she says.
“Our process is very qualitative and we decided it would be artificial to have a separate ESG factor rating; we wouldn’t have a separate rating for risk, for example.”
Goodland says pension funds should be determining what their own beliefs are around sustainability, and building trustees’ awareness of the issue.
“Adequate knowledge of trustees is important to be able to discuss where the fund should be,” she says. “Once they are through that they should be developing a policy to articulate their own objectives.”
Towers Watson has also developed a methodology to review and assess managers on ESG, based on a “traffic light” system, which is now being used by some clients.
She says while the process is slow, some funds are also looking at how sustainability impacts asset allocation: in terms of allocating capital to targeted mandates as well as ESG integration across the whole fund.
Relevant articles by Roger Urwin include
Sustainable Investing Practice – Simplified Complexity
Allocations to Sustainable Investing
And a collaborative paper by Gordon Clark and Roger Urwin is
Innovative Models of Pension Fund Governance in the Context of the Global Financial Crisis
