Stockholm (HedgeNordic / NordSIP): Man Group’s Head of Sales for EMEA, Steven Desmyter talks about Man Group’s commitment to ESG across its Investment Management Businesses.
How does Man Group currently think about ESG when it comes to its own product range within its hedge fund business?
Man Group manages a diversified collection of alternative and long only products across its various investment engines. While a firm-wide responsible investment committee exists to drive responsible investment policies across Man Group’s investment engines, Man Group does not impose a single house view in terms of ESG application. Rather, we provide the ESG resources and tools to support and facilitate the investment decision making process from both financial and non-financial perspectives. The latter involves using our sophisticated, firm-wide technology platform to approach ESG from a systematic, fundamental or negative screening perspective. The system allows for a broad array of ESG indicators to be deployed using various data providers, including Sustainalytics and Ethix for governance and social factors, and Trucost to support our environmental analytical capabilities. External information is then supplemented with ESG work conducted by our in-house analysts. The consequence of all this is that our managers are well positioned to consider and capitalise on this information in their investment decisions.
What is the story behind ESG and Man Group? How has it evolved over time?
Man Group has a history of participation in normative organisations and the promotion of ESG issues, as evidenced by our interactions with portfolio investments and our activities across the wider hedge fund industry. Man Group is a founding member of the Hedge Funds Standards Board, and remains a Board Member under Luke Ellis. Two of Man Group’s investment managers, Man GLG and Man Numeric , are signatories to the United Nations’ Principles for Responsible Investment (UNPRI). Jason Mitchell, who overseas responsible investing at Man GLG, has chaired the UNPRI’s Hedge Fund Advisory Committee since 2014.
Man Group’s efforts in ESG began through a focus on governance. Our commitment to active ownership can be measured by our high proxy voting activity using ISS, and by the frequency of our managers engaging on issue-specific governance matters with management teams and boards. Man Group has supplemented governance with a strong emphasis on environmental analysis, developing proprietary carbon-cost accounting systems across the firm and developing long-only strategies that identify carbon leaders and laggards.
More recently, we have adopted a firm-wide Cluster Munitions and Anti-Personnel Mines Policy developed alongside ISS-Ethix. This has involved designing the requisite procedures to ensure compliance with the Cluster Munitions Convention, including the regular monitoring and identification of companies involved in the manufacture, supply or distribution of these weapons.
Hedge funds taking note of ESG considerations is arguably a new phenomenon, what are some of the main challenges that Man Group notes?
The integration of ESG challenges occurs at several levels, particularly for a large, multi-strategy alternative asset manager like Man Group. First, from a client perspective, one challenge stems from the fact that many investment mandates are coupled with norms- or values-based requirements. Man Group needs to understand and reconcile investor preferences—which span the pluralism of world views and normative codes—in such a way that doesn’t undermine the investment manager’s ability to drive returns. Since investor preferences differ widely in these areas, particularly around criteria applied in determining exclusions, we have focused on helping to tailor solutions to best fulfil the ESG requirements of our clients. Our systems allow for reports aligned to specific regional or religious ethical codes, executive compensation schemes, governance practices, human rights violations and pollution considerations to name a few. This ensures that the great majority of our portfolios have the tools available to them to dynamically adapt to most ESG requirements.
Second, Man Group’s size and breadth across asset classes means that the integration of ESG must be tailored individually to its investment strategies. As the active management component of Man Group, Man GLG will have an inherent focus on active ownership and clearer framework around which to fulfil the UNPRI’s Six Principles. Other strategies like Man Group’s quantitative trading programmes, represented by Man AHL, are more constrained by the very nature of their strategy in how aspirational codes like UNPRI are and the role of active ownership can be applied.
Last, the firm’s size presents a challenge in that Man Group must continually ensure that its investment staff is provided with the latest ESG technology resources and guidance in responsible investing. This means a vigilant Man Group Responsible Investing (RI) Committee, regular RI teach-ins to investment professionals and the publication of relevant leadership thought pieces.
How does ESG impact costs, recruitment and new suppliers of data?
Man Group recognizes that the development of ESG capabilities and systems to accommodate investor preferences around norms-based screening requires significant upfront investment. Man Group’s approach has been to partner with key third party data providers like Trucost and Ethix to provide data across the firm. In other instances, individual investment teams within Man Group subscribe for specifically-tailored ESG data. It’s the long-term strategy for Man Group to develop a central ESG resource that aggregates data streams from several providers to produce a comprehensive ESG risk profile that can be balanced against screens that measure a portfolio’s performance and risk attribution, factor sensitivity, and behavioural analytics. Man Group always welcomes new suppliers of data, although with the caveat that new services considered must drive a higher level of ESG risk assessment rather than simply replace current providers with little value-add. The firm has generally maintained a policy where investment teams themselves are responsible for the approach and application of ESG, including team-specific headcount. The firm has generally found that investment managers and financial analysts who embed ESG factor criteria produce greater accountability and decision-making over standalone ESG analysts.
We note significant change in attitude from hedge fund managers regarding ESG. Why is this happening now? What are the main drivers of this change?
The main reason why this movement has gathered pace in the last few years is that clients have started demanding it more. As mentioned, it is not for us to dictate a moral compass to our clients. Instead we need to ensure that we have the capabilities to effectively respond to their varied ESG views. We owe our ultimate duty to the investors who charge us with stewardship of their capital – the more they see ESG criteria as part of that stewardship, the more we will do to further those interests. Specific to hedge funds, we note that the space has become far more institutional over the past decade. We find that pension funds, university foundations and other big institutional investors have advanced requirements related to ESG issues. As our clientele has evolved, our treatment of ESG has changed to reflect it. Last, asset owners and consultants are becoming more sophisticated in this area, particularly in the RFP process. As chair of the UNPRI Hedge Fund Advisory Committee, we are leading the work stream to develop a sophisticated Due Diligence Questionnaire template that enables investors to ask more tailored ESG questions.
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