Railpen has unveiled plans to step up its focus on engagement with private managers over the next year, citing poor quality of ESG data and reporting.
Chandra Gopinathan, senior investment manager at the £37 billion ($45 billion; €43 billion) pension fund for UK railway workers, said it needed “to start talking to general partners and to private external mandates” about reporting. “You don’t even have regular data, let alone emissions data,” he said.
The key to improving private markets data and reporting is to further integrate climate and net-zero considerations into mandates, according to Gopinathan.
This would be similar to the approach Railpen has taken in public markets. In 2021, the fund selected a manager for an equity mandate in a region with low standards of ESG disclosure and elevated ESG risks. To ensure that the fund managed its reputational risk, could carry out stewardship effectively and met its own reporting requirements, it integrated a number of ESG requirements within the legal agreement, including full voting rights, alignment with exclusions policies and a number of reporting requirements.
“It’s never been done before, at least within our shop. For us it was a pretty time-consuming exercise but it set the template for how we want our mandates to look going forward,” said Gopinathan.
He added that Railpen was looking to implement similar agreements with existing managers. A net-zero stewardship toolkit, which the fund co-authored with the IIGCC, contains a sample investment management agreement for asset owners to review.
The response from managers has mostly been encouraging, Gopinathan said. “What we have found generally is that asset managers are open and receptive to it, as in many cases they’re doing it already. There may be some iterations on the detail and format, but overall we expect climate reporting to standardise and converge over time.”
Climate and ESG are “very well entrenched” within Railpen’s manager assessment framework, with specific queries and questionnaires on climate change. Again, Gopinathan said managers generally performed well in this process. “The good news is this is where most of the asset managers are doing a lot of work already, so they have a lot to discuss.”
UK pension funds are increasingly pushing their managers on climate change and other ESG issues. The UK’s ‘lifeboat’ fund, the Pension Protection Fund, said in March that it had walked away from deals where managers were not at the required standard on ESG, while LGPS pool Border to Coast said that responsible investment and integration of ESG issues “will be central” to the manager selection for its planned £1 billion emerging markets equity fund.
At the start of April, UK-based pensions consultancy Lane Clark & Peacock said that it would revoke ‘buy’ ratings from funds run by managers that were not signed up to the Net Zero Asset Managers initiative, and encouraged its clients to engage with any managers that were not part of the initiative.
This article first appeared in affiliate publication Responsible Investor.