Funds were scored based on 54 questions across three major components. The average country score was 49 out of 100 up from 42 in last year’s review, marking the biggest relative improvement among any of the four factors. These improvements mean that responsible investing (RI) is no longer the lowest scoring factor overall, having surpassed the average score for the cost factor. Improvements to disclosures were evident across all components and most countries. RI did continue to have the greatest dispersion of scores reflecting that countries are at different stages of implementing responsible investing within their investing framework. Average country scores ranged from 11 to 77, a slightly smaller range than last year.
The Netherlands stole Sweden’s crown in this factor with a score of 77, besting the Swedish funds by a single point. Both countries had improved disclosures over the past year. The Nordic countries – Sweden, Denmark, Finland, and Norway – continued to do very well on RI as a region, with all countries receiving scores well in excess of the overall average.
The responsible investing factor was assessed by looking at three criteria
1. Responsible investing framework and reporting.
Average country score: 54 (last year 48)
Responsible Investing framework and reporting was again one of the higher scoring components. Sweden continued to stand tall, increasing their average score from 92 to 94 as three of the Swedish funds scored 100 in this area, with even the lowest scoring Swedish fund obtaining a score of 80. This type of consistency was not seen in other countries and is likely reflective of rules for responsible investing implemented in Sweden. Part of this new legal framework is uniform reporting guidelines that impact the largest funds.
On the other end of the spectrum, two of the lowest scoring countries, Mexico and Chile, showed some improvement and saw their average scores increase from 7 and 10, to 18 and 17, respectively. This occurred as more funds in these countries provided disclosures around climate change and included ESG/sustainability in their goals/mission for the fund.
Notable results from this component included:
- 89 per cent of all funds disclosed that they had an established policy/framework for RI
- 77 per cent of all funds disclosed that they had a climate change policy (either as part of the overall RI policy or as a stand-alone policy)
Last year it was clear that while most funds disclosed that they had an RI policy/framework, specifics on targets and measuring outcomes were not as robust. This year we have seen a tangible improvement in funds setting and reporting on these goals.
- 72 per cent of all funds disclosed their goals/targets for responsible investing compared to 56 per cent last year; and
- 57 per cent of all funds disclosed how they have progressed on their responsible investing goals/targets compared to 49% last year.
Questions relating to responsible investing framework and reporting
- Has the fund established a policy/framework for responsible investing?
- Does the fund disclose a climate change policy either as part of the overall RI policy or a distinct stand-alone policy?
- Are responsible investing processes/reports verified by an independent third party?
- Is ESG/sustainability included as part of the mission/values/overall strategy for the fund?
- Are goals/targets for responsible investing disclosed and clearly laid out?
- Does the fund provide how they have progressed on their RI goals/targets (e.g. year over year changes/improvements)?
- Are quantitative KPIs included as part of the progress report on RI goals/targets?
- Does the fund comply with the Global Reporting Initiative (GRI) for reporting purposes?
- As part of the climate change goals, does the fund provide data on its portfolio’s carbon footprint?
- Does the fund disclose the climate-related risks and opportunities for specific investments and/or the total fund?
- If the fund does disclose climate-related risks and opportunities, does the fund follow the recommendations as outlined by the Task Force on Climate-related Financial Disclosures (TCFD)?
2. Responsible investing governance.
Average country score: 39 (last year 34)
Responsible investing governance was one of the lower scoring components, though we did see some improvement this year. For RI to be successfully implemented there needs to be oversight and accountability. For this component, marks were provided for disclosures that clearly laid out where the oversight of responsible investing resides and who is accountable for ensuring that RI policies are implemented. This year Australia joined the list of countries where RI was part of the board’s oversight across all funds (Australia, Finland, South Africa, Sweden, and the UK).
Areas of notable improvement included:
- 71 per cent of all funds disclosed whether RI is part of board oversight (67 per cent last year)
- 65 per cent of all funds disclosed whether there is a designated role/team to oversee the RI mandate for the fund (51 per cent last year)
- 60 per cent of all funds disclosed how RI is integrated at the executive management level (48 per cent last year)
Questions relating to responsible investing governance
- Does the fund disclose whether responsible investing is part of the board’s oversight?
- Does the fund disclose how responsible investing is integrated at the executive management level (i.e., CEO, CIO, etc.)?
- Has the fund disclosed a designated role/team to oversee the responsible investing mandate for the fund?
- Is responsible investing integrated within each asset class team?
- Does the fund disclose whether responsible investing has an impact or is a component of staff compensation?
- Does the fund disclose whether responsible investing has an impact on the organisation’s scorecard?
- Does the fund disclose whether ESG training or education is provided to its staff?
3. Responsible investing implementation.
The responsible investing implementation component was divided into four categories representing the most common strategies.
Average country score: 47 (43 last year)
Exclusion refers to the strategy of using negative screening or enhanced ESG monitoring as part of the investment process. Exclusion was most common in Sweden and the Netherlands. Every fund in these countries used exclusion as part of the investment process and disclosed the criteria used for screening and provided a detailed list of excluded investments.
- 64 per cent of funds disclosed whether a negative screen or enhanced ESG monitoring was used as part of the investment process (61 per cent last year)
- 49 per cent of funds disclosed the criteria used for negative screening (exclusion policy) or enhanced monitoring (44 per cent last year)
ii. Active ownership.
Average country score: 60 (52 last year)
Active ownership refers to engaging with and influencing companies to conduct their business in a way that promotes responsible investing and aligns with ESG factors that the fund is focused on. Included in active ownership is active participation in shareholder meetings and exercising voting rights. Compared to the other implementation strategies, active ownership scored the highest. Even some countries that scored poorly in other components of RI or scored poorly overall tended to score higher on active ownership. This may be because funds starting to implement RI typically focus first on public equities and active ownership is a key implementation strategy for this asset class. Canada had the highest average score for active ownership at 100. This was one area where we saw the largest improvements, especially among funds that “middle of the pack” last year. These funds have started reporting on their engagement activities, some of which use third-party organisations to structure their engagements.
- 71 per cent of all funds disclose an ownership policy that outlines engagement activities with investees (64 per cent last year)
- 73 per cent of all funds disclose a policy for active participation in shareholder meetings and exercising voting rights (60 per cent last year)
- 63 per cent of all funds summarize engagement activities and what the resulting outcomes were (52 per cent last year)
iii. Impact investing.
Average country score: 48 (37 last year)
Impact investing refers to the strategy of investing in opportunities that promote sustainability (eg, renewable energy, green bonds). We saw a lot of positive improvements in this component, especially as many funds started to highlight their green investments as well as disclose targets to increase investment in these areas. Most of the European countries aligned their impact investing with the United Nations Sustainable Development Goals.
- 71 per cent of all funds disclosed that investments were made in companies that promote sustainability (56 per cent last year)
- 57 per cent of all funds provided list or examples of investments made as part of their impact investing program (45 per cent last year)
- 47 per centof all funds utilize or align with the United Nations Sustainable Development Goals (SDGs) (43 per cent last year)
iv. ESG Integration.
Average country score: 32 (27 last year)
ESG integration refers to how funds integrate RI across the different asset classes and the total portfolio. Funds were scored on disclosing RI policies for external managers, for investment/asset class level frameworks and for disclosing the impact of ESG integration across the fund. ESG integration scored the lowest within the implementation component, with slight improvements this year. The Netherlands scored the highest with an average score of 59 with all funds disclosing their RI policy for external managers and all were Principles for Responsible Investing (PRI) signatories.
- 72 per cent of all funds disclosed they were PRI Signatories (63 per cent last year)
- 56 per cent of all funds disclosed RI policies for external managers (including climate change specifics) (44 per cent last year)
- 43 per cent of all funds disclosed that ESG factors are taken into consideration as part of risk management (33 per cent last year)
Questions relating to responsible investing implementation
- Does the fund use negative screening or enhanced ESG monitoring as part of the investment process? If the fund explicitly states that it does not practice exclusion, the marks from this section are re-assigned to the section on Active Ownership.
- Is the criteria used for negative screening (exclusion policy) or enhanced monitoring provided?
- Does the fund implement an exclusion/negative screening/enhanced monitoring for each asset class?
- Does the fund disclose the number of exclusions (e.g. 300 investments are excluded)?
- Does the fund provide a detailed list of excluded investments, individually listing investments that are excluded?
- Does the fund have and disclose an ownership policy that outlines engagement activities with investees?
- Does the fund summarise engagement activities conducted and what the resulting outcomes were?
- Does the fund disclose which ESG factors the fund is focused on or prioritising in its engagement efforts?
- Does the fund provide a breakdown of the engagement efforts undertaken categorised by each ESG factor?
- Is the policy for active participation in general shareholder meetings and exercising voting rights (either in person or by proxy) disclosed?
- Does the fund provide examples of their voting record?
- Does the fund provide the number of shareholder meetings and votes cast?
- Does the fund disclose its policy on nominating board of directors for portfolio companies?
- Does the fund’s active ownership policy outline requirements for board composition?
- Does the fund’s active ownership policy outline requirements for remuneration/executive pay?
- Does the fund’s active ownership policy have an embedded climate change policy?
- Does the fund’s active ownership policy have an embedded ESG policy?
- Does the fund provide access to their voting records?
Responsible investing implementation – Impact Investing
- Does the fund invest in companies that promote sustainability (e.g. microfinance, renewable energy, green bonds)?
- Do the impact investing strategies utilise or align with the United Nations, Sustainable Development Goals?
- Does the fund provide a list or examples of investments that are part of impact investing?
- Does the fund disclose its goals for impact investing for the investments discussed?
- Does the fund disclose the results of impact investing (what was achieved) for the investments discussed?
- Does the fund disclose the dollar value (or % of assets) that impact investments accounted for?
- Does the fund implement impact investing across all relevant asset classes?
Responsible Investing Implementation – ESG Integration
- Does the fund disclose if it is a PRI signatory (i.e. that they participate in the United Nations Principle for Responsible Investing)?
- If the fund does disclose it is a PRI signatory, does the fund provide its annual PRI assessment report (including the summary scorecard)?
- Does the fund disclose its policy for responsible investing for external managers (including specifics such as climate change)?
- Does the fund disclose whether external managers are required to be PRI signatories?
- Does the fund disclose/include the impact of ESG factors on risk management?
- Does the fund use an investment level framework SASB (Sustainability Accounting Standards Board) to help identify material ESG issues/risks for an investment?
- Does the fund disclose how responsible investing is integrated into the investment process for each asset class?
- Does the fund use a third party to assess the ESG performance or compliance of private assets or investments (i.e., GRESB, etc)?
- Does the fund disclose the goal/mandate for ESG integration across the portfolio ($ or % of portfolio)?
- Does the fund disclose how they are progressing on integrating ESG ($ or % of portfolio changes year over year)?
To view all questions to each component, visit the Methodology page here.
Average country score
Responsible investment questions asked
“Society grows great when old men plant trees whose shade they know they shall never sit in.”
– Greek proverb
There is increasing consensus that large institutional investors should integrate responsible investing as part their overall fiduciary framework. While some have argued that a focus on RI is incompatible with the core fiduciary responsibility of generating returns, emerging research, including a recent CEM study, suggests that the two goals are not mutually exclusive.
The assessment of responsible investing (RI) disclosures included 54 questions across the three key components outlined below. A few changes, informed by last year’s reviews were made. Most material of the revisions is that marks associated with exclusion will be allocated to those dealing with active investing and engagement with portfolio companies when an organisation explicitly states that they do not use exclusion principles in addressing RI.
The review encompassed assessing annual reports, responsible investing reports, websites, and various policy disclosures. Given the relatively recent adoption of RI by many funds and the nascent global standards and reporting guidance for RI, the disclosures varied widely across funds and countries. We also saw the largest year-over-year changes in scores in this factor.
1. Responsible investing framework and reporting (30% of responsible investing factor score)
Questions assessed whether disclosures laid out how RI fits into the overall strategy for the fund. This included the goals and targets for RI and whether the progress made towards these goals and targets were disclosed. The verification of RI disclosures by independent third parties and alignment with emerging global standards for RI reporting (GRI – Global Reporting Initiative and TCFD – Task Force on Climate-related Financial Disclosures) was also considered.
2. Responsible investing governance (15% of responsible investing factor score)
For RI to be successful there needs to be accountability. The responsibilities for oversight and implementation need to be clearly laid out. Important considerations in evaluating disclosures around governance include whether RI is part of the board’s oversight and how it is integrated within the organisation including executive management oversight and whether there is a dedicated role or team.
3. Responsible investing implementation (55% of responsible investing factor score)
Evaluation of implementation disclosures covers the key policies that funds use to implement RI. Funds are scored on whether actual activities and specific metrics are provided. Key implementation policies included in the assessment are:
Disclosure of screening and monitoring criteria used to assess eligibility of investments. For instance, some funds exclude tobacco companies and list excluded investments.
- Active investing
Disclosures around ownership policies that outline how funds engage with investees to bring about change that aligns with RI investing policies, values, and goals. For instance, funds are scored on whether disclosures around voting records, engagement statistics, etc. are provided.
- Impact investing
Disclosures on how funds invest to promote sustainability. Assessments include whether key focus areas or goals are provided, metrics such as percentage of portfolio impacted, and examples of investments (i.e., investing in renewable energy to reduce carbon footprint).
- ESG integration
Disclosures related to the various ways responsible investing is implemented across the portfolio, including whether RI is part of the criteria for evaluating external managers and if it is included in risk management processes.