Five questions to Edmond Schaff, portfolio manager of Sanso Investment Solutions, French member of SfC
Edmond, Sanso has been engaging asset managers on ESG issues for four years now. What is the purpose of your engagement?
Approximately one third of Sanso IS’s assets are invested in funds managed by third party asset management companies. External fund selection is therefore a significant activity for us. We strive to select SRI funds or funds that integrate ESG issues. However, there are still few such products in certain asset classes, for example in bond funds, including high yield ones, absolute return funds or small- and mid-cap equity funds.
Therefore, we need to engage with some asset managers, encouraging them to advance their ESG integration practices. If ESG issues are not considered at all (or only partially), we ask our partners to improve their policies.
How does this happen in practice?
We organise meetings with the management, analysis and distribution teams of our partners during which we express our commitment to the integration of ESG issues. We send letters and questionnaires to the management and we monitor the evolution of the managers’ approach in this field. If no progress is made after 24 months of dialogue, we remove the asset management company from our list of counterparts.
Has your engagement been successful so far?
Since 2017 we have engaged 37 asset managers. About a quarter of these engagement processes are still ongoing. Most companies have been moving in the right direction and in some cases, by their own admission, our engagement significantly contributed to this move. On the other hand we have excluded two companies from our investable universe, including one this year: they had not made any progress in the last 2 years and systematically refused to answer our questionnaire.
Can you give us some examples of the results you were able to achieve?
We were able to achieve very encouraging results with three French asset managers so far: Erasmus Gestion, Axiom AI and Colville Capital Partners.
Erasmus has been engaged since 2017. We asked them to integrate ESG criteria in their investment policy. Finally, in 2021, the company adopted a formalised SRI policy and has become a signatory to the PRI. They also obtained the French SRI Label for their three main funds.
Axiom has been engaged since 2019. At that time the asset manager was integrating only the ‘G’ of ESG (governance) in its investment policy. Since 2021, thanks to our engagement, the company has started implementing a comprehensive SRI policy and introduced a tool to measure the temperature of its portfolios.
The formal engagement with Colville is a a bit older. It started in 2017 and ended in 2020 when the firm adopted a formal SRI policy and obtained the SRI Label for all its funds. Even though we were not the only investor to contribute to these changes, what is interesting is that we continue to informally discuss with the founders on various aspects of their SRI policy. They are eager to continue improving and appreciate our feedback on these issues.
How do you explain the engagement with asset managers to your clients?
I think the best thing to do is to let the numbers speak for themselves. Companies with strong ESG policies tend to be more profitable than the average and this profitability is more stable.
Internally, we calculated that eurozone equity funds with advanced ESG policies have outperformed standard eurozone indices by approximately 400 basis points over the last 3 years. ESG conscious companies usually generate more cash, have less debt and are, all in all, less volatile, so funds investing in this kind of companies are well-equipped for market downturns.