PLANSPONSOR - August/September 2019 - 14

Upfront
Actively Managed ESG Funds
managers focus on scouting for profitable,
smartly run companies in the U.S.
and abroad that are also leaders in integrating
ESG practices into their businesses,
according to Vanguard.
" This active ESG fund is something
that came out of many client meetings, "
Courtines says. " There's a clear need and
desire on behalf of our investors to marry
the idea of great returns and corporate
responsibility. "
Timothy Calkins, director of fixed
income at Nottingham Advisors, agrees
that clients increasingly have expectations
as to how ESG investment approaches
fit into the world of institutional asset
management. This has been true especially
since some big meta-studies were
published in 2015 showing ESG integration
to be either neutral or, more often,
positive from the performance perspective.
" Cerulli and Callan research shows
ESG investment adoption in DC [defined
contribution] plans is low, " Calkins says.
" Given that Callan's clients comprise
mostly large and mega plans, which are
typically forerunners in market trends,
ESG adoption in the overall DC market
may be even lower. "
In practical terms, Calkins' firm
MEASURING investment risks related
to climate change or corporate irresponsibility
are a challenge. There are
no uniform disclosure standards, and,
according to experts, many disclosures
being made are incomplete or published
in forms that are hard to compare.
Due to such challenges, says
Yolanda Courtines, a London-based
senior managing director for Wellington
Management Co., active managers that
offer environmental, social and governance
(ESG)-themed portfolios are potentially
advantaged over passive managers
that offer such products. The reason:
They can deploy teams of analysts tasked
with conducting qualitative reviews of
ESG disclosures and the general market
conditions.
Courtines is one of the lead portfolio
managers for the new Vanguard Global
ESG Stock Select Fund, which launched
in May and is sub-advised by Wellington.
The fund charges 55 basis points (bps)
in annual fees, about half the average
expense ratio of all ESG stock mutual
funds, and it holds a highly curated and
relatively small selection of 40 stocks. Its
14 PLANSPONSOR.com August - September 2019
Art by Sam D'Orazio
already uses separately managed accounts
(SMAs) as a way to deliver ESG strategies
to clients. As opposed to mutual funds
or collective trusts, the SMAs can be
customized to allow clients to uniquely
implement their ESG perspective.
" Being able to offer customized ESG
solutions is a big part of our future, we
feel, as is finding new ways to clearly
demonstrate the performance benefits
of these strategies, " Calkins says.
" Especially when it comes to serving
clients under the Employee Retirement
Income Security Act [ERISA], we know
the performance conversation is always
going to be critical. " -John Manganaro
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PLANSPONSOR - August/September 2019

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