M&G plc has two ESG priorities of Climate Change and Diversity and Inclusion, given their importance for the long-term sustainability of all businesses and society as a whole. They aim to be carbon net zero as a corporate entity by 2030. Further, they aim to achieve 40% female and 20% ethnicity representation in their leadership by 2025.
Prudential Assurance Company (PAC – the Asset Owner) are now a signatory to the UN Principles of Responsible Investment as an asset owner. PAC aims to achieve net zero carbon emissions across AUMA (assets under management and administration) by 2050, in line with the Net Zero Asset Owners Alliance. An important aspect of how the Asset Owner manages its investments is the integration of ESG factors into investment decisions, which Prudential Assurance Company (PAC) believe can help better manage risks and generate sustainable, long-term return for customers. The M&G Treasury and Investment Office (T&IO) do this on behalf of PAC through implementing ESG considerations into the SAA process, integrating ESG factors into manager selection and oversight and considering ESG factors in mandate design.
M&G Treasury & Investment Office (T&IO) look to the asset managers they select to:
- engage with companies as active owners that help foster a more sustainable economy,
- participate in voting on key issues such as Climate,
- manage assets in accordance with the T&IO ESG Investment Policy and,
- ensure that ESG is integrated into their investment process. T&IO's ongoing Investment Due Diligence on these selected managers ensures that they not only meet a high threshold from an investment perspective but also in terms of these ESG requirements.
Given T&IO's view that the integration of Environmental, Social and Governance (ESG) factors into the investment process can help manage risks and generate better sustainable long-term returns this is as important in the selection and ongoing due diligence process as the traditional aspects of manager selection (e.g. investment team, investment philosophy and investment process).
The process and philosophy behind how T&IO manage money has not changed, only evolved. T&IO are, and always will be, long-term investors and so believe that ESG factors should be considered in addition to and alongside the more traditional financial metrics not only in selecting managers but also in asset allocation. T&IO believe that companies which capture and embed ESG opportunities and risks into their strategy are more likely to be successful. As an Asset Owner, T&IO therefore ensure that ESG considerations are integrated into all of the investment decisions relating to asset allocation, manager selection and oversight and mandate design.
For the LF Prudential Risk Managed Active and LF Prudential Risk Managed Passive Funds, T&IO apply the T&IO ESG investment principles for the internally managed Funds within these ranges focusing on the corporate priorities of climate change and diversity and inclusion. T&IO incorporate considerations of these priorities via a combination of focused engagement strategies and some exclusions.
For Funds run by external managers, T&IO look to identify suitable investment managers which are able to manage the mandates in line with the T&IO ESG investment principles. For all existing managers we look to monitor their alignment to the T&IO ESG investment principles on an ongoing basis; where there are divergences, the T&IO Investment Management Oversight team looks to either engage with managers to encourage alignment with the ESG investment principles over time, or to migrate the assets to a fund that aligns.
Within the M&G Treasury & Investment Office we are always looking for ways to further achieve our ESG ambitions, and so continue to evolve both actively and passively managed solutions towards those with greater awareness of ESG criteria for example through mandate design and the consideration of additional ESG and Impact targeted building blocks within the ranges. We are confident that the current exposures within LF Prudential Risk Managed Active and LF Prudential Risk Managed Passive Funds remain appropriate for our investors however we are prioritising the creation of passive strategies that meet our ESG criteria.
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