How we won the UK Pensions Awards… LGT Capital Partners

  Video: LGT Capital Partners partner Tycho Sneyers

PP: What does it mean to win this award?

TS: Winning "SRI/ESG Provider of the Year" is recognition of our commitment and efforts to make ESG an integral part of our investment activities. This award is especially meaningful to us as UK pension funds have played a leading role in pushing the ESG agenda globally. Recognition from this important investor group further encourages us to continue engaging with our underlying managers and investee companies to raise the bar higher on ESG.

PP: What do you believe sets you apart from your peers and contributes to this success?

TS: At LGT Capital Partners, we are distinguished by our longstanding commitment to ESG in alternative investments, which began already in 2003, when many investment programmes had a responsible investment clause written into their governing documents. We have also deeply embedded ESG criteria into our investment due diligence and monitoring processes, where we assess our managers on a wide range of metrics and assign them an overall ESG rating on a scale of 1 to 4 (where 1="excellent" and 4="poor"). During the last year, we have also demonstrated our ESG commitment by:

• Enhancing the understanding of institutional investors' ESG priorities by carrying out the first-ever global ESG survey focused on alternatives. The study of 97 investors in 22 countries looked at how and why institutional investors incorporate ESG factors into alternative investments, and it will ultimately help us to define ESG expectations for our underlying managers

• Engaging with more than 200 of our managers through an annual ESG assessment exercise, where we rate them on their integration of ESG practices into their investment processes. This is followed by one-on-one discussions with managers, where we offer advice and encouragement on further developing their ESG systems

• Partnering with LGT Venture Philanthropy to launch the UK-focused impact investment fund, IVUK, which follows a venture capital approach to investing for social good and is currently invested with four social enterprises in the UK

PP: What are the key challenges facing your pension scheme clients and how are you helping them address these issues?

TS: As pension funds have made ESG considerations an evergreater priority in recent years, they have challenged us to develop new and innovative solutions to meet their needs. We have responded by working closely with them to tailor investment programmes to their specific ESG frameworks, through customised investment processes and bespoke monitoring. This is greatly facilitated by the fact that ESG due diligence and monitoring is deeply embedded into our own investment process, which allows us to engage with managers about ESG on our clients' behalf SRI / ESG Provider of the Year and report on such risks in detail. We have also recently advised one large pension fund investor on developing its own ESG framework, as the client's team was early in the process of developing their approach. We drew on our experience of conducting systematic ESG analysis and monitoring of our large base of managers to help them define their own approach. We continue to advise them and we stand ready to assist others with similar needs.

PP: How will you continue to improve your services to pension scheme clients over the coming 12 months?

TS: We will continue to provide investors with transparency on ESG practices in our portfolios, so they can gain a better understanding of their long-term ESG risks. We will also continue to engage with our underlying managers and encourage them to adopt more comprehensive systems for ESG analysis and implementation. This includes helping them to understand pension funds' expectations for ESG and providing examples of actions managers can take to enhance their approach. In addition, we are looking forward to discussing with clients the option of developing customised ESG portfolios of alternative investments, which consist only of underlying managers with highly institutionalised ESG practices. For clients with a strong sensitivity to ESG risks, such a portfolio could be an attractive solution.

Extract from LGT Capital Partners' original UKPA submission

LGT Capital Partners applies a robust ESG due diligence process to every investment it makes - a process that both rates managers' commitment to ESG and monitors their progress in further ESG integration.

The firm believes such a focus on ESG helps drive its investment returns - and its sustainable bond fund has returned 9.3% over one year and 21.7% over three years; and its sustainable equity fund has achieved 18.1% over one year and 61.7% over three years.

In December 2013, LGT Venture Philanthropy, LGT's impact investing initiative, launched a UK-focussed impact investment fund, IVUK, to invest in enterprises that create a strong, positive social impact for disadvantaged people and communities in the UK as well as generate a financial return. The fund committed capital to four social enterprises in 2014 in the areas of youth employment, mental health and social housing.

IVUK is one of the first social impact funds to attract investment from a UK local authority pension fund.

In 2014, LGT Capital Partners also teamed up with Mercer to carry out the first ever global survey of alternative investors on ESG in order to look at these issues from the viewpoint of investors and help LGT to define expectations for its underlying managers and to further develop its process for evaluating and engaging its managers on ESG.

Survey participants included investment decision makers from 97 pension funds, foundations, endowments and other institutional investors.

LGT also carried out its annual survey of managers within its own private equity and hedge fund portfolios - rating managers on a scale of 1 to 4 on ESG commitment and processes, where a 1-rating indicates excellent. The survey found that a quarter of its European private equity managers had improved on ESG in the last 12 months and overall ratings of its hedge fund managers also showed an improvement over the 12 month period.