months ago somebody took more risk? They would now be behind plan. It’s not just thinking about the plan or talking about targeting buy- out in X number of years but looking at market conditions and de- ciding if it is practical or not. Fullerton: It seems interesting that some pension schemes are tak- ing a whole lot more risk to end up in a no risk position.


PI: How is ESG being factored into CDI strategies? Visavadia: The conversation initially started with ESG mainly fo- cusing on equities, but now as more and more schemes are invest- ing in credit, that conversation is spilling over into the credit market.


I’m finding that there’s a lot of conversation happening around ESG when building and constructing a CDI portfolio. I under- stand that in the credit space there’s a lot more engagement on ESG, which is quite a good idea. So yes, there is a lot happening in the ESG space.


The question is, do we have enough visibility on that at this point? I’m not so sure. That should come in the next 12 months or so as more and more work is done on reporting and how do you meet your regulatory duties in that area. Talking to them informally I feel there is a lot of work going on in the background on ESG.


PI: Claire, is this something that your clients are talking to you about when moving into credit? Bews: Absolutely. We talk to our clients regularly about ESG and in the past two or three years it’s become an important part of our in- vestment process.


Our analysts take ESG factors into account when doing their fun- damental research. These are flagged to portfolio managers, whether or not they are material, along with the creditworthiness of the issuer. That allows fund managers to incorporate most ESG factors into portfolios. We have a lot of information on that and it’s only going to get bet- ter in the next 12 months. For our largest clients we can build be- spoke portfolios that take ESG factors into account. We have cli- ents, for example, who want to exclude issuers with a high weighting of their EBITDA to oil and coal. We can do that because we have that information. Fullerton: A lot more clients have been focused on ESG, particular- ly within credit markets. Perhaps almost coincidentally, pension funds that designed their CDI strategies with ESG in mind, would have been a bit more resilient during this crisis. Carbon intensive businesses that have not performed well over the past month or so, like travel, oil and energy, have seen a greater decline in their market values. Chavda: Clients are increasingly aware, particularly after the re- quirements for reporting that were brought in last year, of how managers are incorporating this. Managers have been talking


One of the issues concerning trustees, especially of smaller schemes, are unanticipated cash demands. David Weeks, Association of Member Nominated Trustees


about ESG for a while but is becoming more meaningful. The focus of ESG in fixed income is on the governance element, which would have been in place for some time, particularly with the analysis that most credit analysts undertake. The focus on the E and S can vary between managers and approaches. There is going to be an increasing focus on ESG, particularly giv- en recent events. There’s a lot of talk at the moment about focus- ing on renewable energy going forward. So, I would imagine, par- ticularly given the timeframes that our pension schemes are investing in, that ESG will be an increasing factor. Weeks: If you have the immediate threat at the gate, you have to deal with the immediate threat. That doesn’t mean to say that long- er term threats don’t remain, so ESG should remain firmly on the agenda for the future. Kwatra: ESG fits in a CDI strategy because you are investing for the long term. The ESG due diligence would help you measure that long-term risk. Businesses that have sound governance and sustainability models are more likely to deliver those cash-flows in the long term as ESG trends evolve.


April 2020 portfolio institutional roundtable: CDI 15


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