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Pension funds criticise asset managers over lax ESG approach

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Local authority pension funds are reporting problems over their asset managers’ approach to environmental, social and governance (ESG) factors.

The survey of Local Authority Pension Fund Forum (LAPFF) members, which comprise most of the sector, showed they were unlikely to recommend their asset managers based on the way ESG matters are handled.

Some 45% said asset managers gave little evidence how ESG influences investment decisions and 29% said working with their asset manager on ESG-related engagements was hard.

When asked whether they would recommend their manager based on ESG performance the average score was 6.5, between a ‘satisfied but unenthusiastic response’ and an ‘unhappy’ response.

Mirroring this, some 60% said their ESG needs were “somewhat well” met, with 63% saying their managers were “somewhat effective” at changing ESG behaviours.

Paul Doughty (Lab), acting chair of the Local Authority Pension Fund Forum and councillor at Wirral MBC, said: “Given the mounting body of evidence showing the financial benefits of good corporate governance, it is worrying that so many of our members see asset managers as underperforming on ESG.

“With funds placing an even greater emphasis on their asset managers’ stewardship capabilities, the survey shows the industry needs to up its game.”

LAPFF’s survey showed the importance of ESG factors in the Local Government Pension Scheme (LGPS), with 95% of funds giving ESG some weight in the selection process.

Local authorities have lately been criticised for their pension funds’ investments in companies that create pollution, particularly energy firms involved in oil or fracking.

The forum’s membership comprises 79 local government pension schemes and five pools, with combined assets of about £230bn.

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