Nest – ESG interview
overweight on the companies which are showing progress towards the 2050 mile- stones. It is not like we have a blanket pol- icy on being underweight on energy. We were underweight Exxon but slightly overweight Total, which has set targets, improved their reporting and started talk- ing about a just transition. We try to identify leading companies within the energy sector, which we can continually engage with. We do not have a blanket approach to energy and we are not any worse off than the market. It has been a tough environment for cli- mate strategies. But we are focussed on long-term sustainable returns for our members and the short-term geopolitical risks should not distract from that.
Does a climate tilt pose a risk of higher exposure to other assets, such as US tech, which might lead to unwanted portfolio concentration? We are
sector
we are balancing that out with exposures across other asset classes.
In private markets, we do not have much tech. Where we see specific issues unfold- ing in the sector we try to manage them through engagement. For example, we are members of the Ranking
Digital Rights
Initiative and
engaging with companies on things like data privacy, human rights and govern- ance. We are active in engaging with US tech companies where we see those risks.
Are you planning any changes to your strategy as a result of the energy crisis? No, our underweight is quite marginal and we tend to not make short-term deci- sions on the back of short-term geopoliti- cal factors.
neutral, but the FTSE
Developed index is skewed towards US tech. That is the nature of the market. So we have a high exposure to US tech, but
We have talked a lot about equities, but in 2021 Nest announced significant private equity mandates. What does ESG integra- tion look like in that asset class? Private markets, specifically private equity, are slightly more challenging. This is an asset class where ESG risks are quite
prevalent, but there is an issue around data and transparency. It is something we are focusing on with our fund managers. We are trying to build a picture of where ESG risks are across the portfolio. We engage with general partners (GPs) to get information on the ESG risks of the underlying portfolio companies. And our fund managers are committed to getting as much relevant and material informa- tion from GPs as possible. We are building up our levels of disclo- sure, which has been quite difficult in pri- vate markets. These are not publicly listed companies, so they do not have the same level of scrutiny as publicly owned com- panies. We are on a journey to build better transparency and, once we get a fuller pic- ture of where the risks are, engaging with those GPs.
Our fund manager has started to incorpo- rate ESG requirements within the side letters to GPs. At the point of selection, the GP has to demonstrate that they are engaging with the underlying holdings and are asking for more information in relation to ESG policies and practices.
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