Chris Varco
“It is amazing how rapidly the fiduciary definition has gone from “Could we?” To, “should we?” To, “we must.” Chris Varco, Cambridge Associates
There is an upside to stewardship from a policy perspective. We did some scenario work a while ago and looked at what would happen to our portfolio in a four-degree scenario; it’s not pleasant. The investment returns members were getting in that scenario were terrible. So it’s consistent with our fiduciary respon- sibility to stop that outcome happening at a policy level. It is not all just at the individual company level. Stewardship used to be defined as: “Has your fund manager voted?” It’s much bigger than that now. Ward: We are supportive of the Financial Reporting Council’s definition of stewardship because it is more inclusive. It articulates the fact that financial institutions, companies, the economy and society are fundamentally interdependent.
I am hoping that definition will survive the onslaught of pushback, which it will inevitably get because it’s pushing the boundaries of what people are used to. It is perhaps changing their world view, but I believe the Financial Reporting Council have got it right.
PI: Once you have set an ESG policy, what are the challenges of implementing it? Nathalia Barazal: Fiduciary duty starts with the asset owners but it goes through to the fund manager. It starts with risk mitigation, drawdown management, capital preservation and reputational risk. Clients are no longer passive. They are now an integral part of the investment story. It is not just focusing on what’s right but also what’s the impact for investors, negative and positive. This is more of a sustainability evolution than revolution because our role is to raise awareness of best ESG
8 May–June 2019 portfolio institutional roundtable: ESG
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