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ESG’s role in manager research

12 October, 2022
clock 6 MIN READ

How does SEI integrate sustainable investment issues into its manager selection process?

SEI is a manager of managers. We build investment strategies by hiring and monitoring specialist investment managers known for their expertise in specific markets or with specific investment styles. We do not take a prescriptive approach to integrating sustainability into our investment process. We believe it is important to include an assessment of a manager’s sustainability practices in our analysis, but that is one factor among several that form the basis for our overall assessment of a manager’s skills and competitive advantages.

With our commitment to sustainable investing, we look to expand and monitor the progress of sustainability integration across our funds over time, through corporate and manager engagement, active proxy voting, and effective reporting.

What criteria do you use to evaluate managers in terms of sustainability practices?

Our approach to evaluating managers focuses on more than just their performance—it considers the underlying investment decisions they make and how those decisions tie in with the overall mission of the organization. Our ranking system considers three broad sets of factors:

  • Profile: The extent of the firm’s sustainability practices and its demonstrated commitment to responsible investing.
  • Resources: Whether it is adequately resourced to achieve its responsible investing goals.
  • Practices: How it implements responsible investing in a practical sense—or if it otherwise presents a false integration of responsible investing practices in an effort to attract clients.

We evaluate and score each manager based on its philosophy and process related to ESG investing. The chart below provides an overview of factors we evaluate.

Exhibit 1: Manager ESG factors

Manager ESG Profile  

Membership

  • United Nations Principles of Responsible Investment (UN PRI) Signatory
  • UN PRI Rating
  • United Nations Global Compact Member
 

Corporate Implementation

  • Policy
  • Compliance/Risk Management
  • Best Practices
  • UN Sustainable Development Goals (SDG)
 

Products

  • Experience
  • Scope
  • Rationale
Manager ESG Resources  

Personnel

  • People
  • Training
  • Data
       
Manager ESG Practices  

Integration

  • Process
  • Competitive Advantage
  • Engagement
  • Reporting
 

Importance

  • Influence
  • Future Plans
   

 

How does SEI evaluate sustainable investing practices during manager due diligence?

We created a proprietary ranking system to rate the managers we hire for our investment offerings.

Every firm and strategy that is considered undergoes a due diligence review and receives a score of Strong, Moderate or Weak. We have not established a minimum threshold to hire a firm or select a strategy.

Qualitative assessment plays a significant role in our ESG scores. We don’t rely much, if at all, on third-party analytics. Instead, we rely on qualitative assessment of manager commitment and action. This leads to detailed discussions with managers to assess how they put sustainable investing into action in both their investment and stewardship processes. Manager transparency is therefore critical. Like any qualitative analysis, it is judgmental. To minimize biases, we have created criteria to define our qualitative assessment in order to support the overall evaluation.

Quantitative issues are a well-known challenge in the industry due to data availability and consistency. Until those improve, we are inclined to place greater emphasis on our qualitative judgments. 

For more information, see our video on why ESG data is such a challenge.

We have created a framework to codify our best thinking on what we deem to be most relevant and important to evaluating a firm or manager’s sustainable investment practices. While the final analyst rating avails itself of this structured analysis, discretion on a final score is left to the analyst to weigh those factors with greatest significance in their judgment.

Scores are re-assessed on a biennial basis and strategy ESG scores are re-assessed annually.

What do you see when you look to the future in the sustainable investing space?

Despite its explosive popularity, there are still no clearly defined standards guiding sustainable investing.

We think that sustainable investing may be more widely considered an inherent component of fundamental analysis in the future. As the industry settles on a common definition of responsible investing and enacts more regulation around reporting and materiality, this type of analysis may become more straightforward.

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This information has been created, issued and approved by SEI Investments (Europe) Ltd ("SIEL"). This information is not intended to constitute an offer to buy or sell, or a solicitation of an offer to buy or sell any particular product. Please note you may not be able to invest in any of the investment products described in the film directly.

This webpage is provided by SEI Investments (Europe) Ltd (""SIEL""). SIEL is authorised and regulated by the Financial Conduct Authority. Financial Services Register Firm Reference Number (FRN) 191713. Registered office; 1st Floor, Alphabeta, 14-18 Finsbury Square, London EC2A 1BR. Registered in England and Wales – company number 03765319. This webpage is only for the intended recipient and should not be distributed further. While considerable care has been taken to ensure the information contained within this webpage is accurate and up-to date and complies with relevant legislation and regulations, no warranty is given and no representation is made as to the accuracy or completeness of any information and no liability is accepted for any errors or omissions in such information or any action taken on the basis of this information. The views and opinions in this webpage are of SEI only and are subject to change. They should not be construed as investment advice.

Sustainability guidelines may cause a manager to make or avoid certain investment decisions when it may be disadvantageous to do so. This means that these investments may underperform other similar investments that do not consider sustainability guidelines when making investment decisions. There can be no assurance goals will be met.

If a product or strategy is subject to certain sustainable investment criteria it may avoid purchasing certain securities when it is otherwise economically advantageous to purchase those securities, or may sell certain securities when it is otherwise economically advantageous to hold those securities.

Sustainability is not uniformly defined and scores and ratings may vary across providers.

SEI considers ESG factors as part of its Portfolio Manager Research and due diligence process including an evaluation of each Portfolio Manager’s approach to integrating sustainability risk in its investment process; however, no minimum threshold has been established with respect to these capabilities in order for a firm to be hired as a Portfolio Manager.

Past performance is not a reliable indicator of future results.  Investment in SEI funds are intended as a medium to long-term investments. The value of an investment and any income from it can go down as well as up. Investors may not get back the original amount invested. This video and its contents are for Institutional Investors only and not for further distribution.

SIEL, 1st Floor, Alphabeta, 14-18 Finsbury Square, London, EC2A 1BR is authorised and regulated by the Financial Conduct Authority (FRN 191713)