7IM's ESG integration approach
What is the best way to ensure that the investments team takes ESG and stewardship seriously when they make decisions?
We believe ESG is best handled within investment teams, as part of their regular activities, rather than having a separate ESG or Stewardship team to focus on ESG issues.
ESG issues are considered at every stage of the 7IM investment process: Strategic Asset Allocation, Tactical Asset Allocation, Portfolio Implementation and Risk Management. One person in each area is designated the ESG champion and makes sure that ESG issues are addressed appropriately. They report back to the ESG Investment Committee, where progress is discussed and monitored.
We believe our Tactical Asset Allocation (TAA) can be a powerful tool to position the 7IM portfolios to navigate a world impacted by climate change. We review ESG metrics when we consider tactical asset allocation views and changes across portfolios. We also consider TAA views that have explicit ESG characteristics, such as US Health Care, a position we have held since 2019.
Our Risk Management team is a cornerstone of our investment process and ESG metrics are increasingly being incorporated into the risk oversight of the funds. In 2020, for example, the risk team incorporated climate change stress tests into their oversight. One stress test simulates a 50% drop in the price of oil and is used to judge the potential impact on portfolios from stranded assets.