Investors often face challenges how to implement responsible investing in portfolio management. In particular, many institutions must consider how to take responsibility into account in their investment activities without compromising the pursuit of profit and the targeted risk-return ratio. Finding the right balance between responsible investing and the costs it entails, is essential.
Front is a signatory to the United Nations’ Principles for Responsible Investment (UNPRI). As an asset manager Front has traditionally relied strongly on ETF investing. We build our investment portfolios with cost-effective ETF products. In recent years, it has been virtually impossible to take UNPRI objectives and ESG principles into account in index and ETF investment. This has slowed down our process to include ESG aspects in our investment decision making.
Recently ETF funds, which are so called ESG transparent and for which ESG scores are calculated, have entered the market. It has become easier to take ESG principles into account in portfolio management and investment decision making. Another key factor which motivates us to include responsibility as a part of our portfolio management is meeting market standards. Institutional investors increasingly require that the asset managers they use are signatory to the UNPRI and they take ESG aspects into account in their investment activities.
What the UNPRI requires from an asset manager?
The principles of the UNPRI are a voluntary and aspirational. Commitment to these principles means that the signatory parties strive to promote responsible investment and ESG aspects in their activities. The six key principles are:
- Incorporating ESG issues into investment analysis and decision-making processes.
- Being active owners and incorporate ESG issues into ownership policies and practices.
- Seeking appropriate disclosure on ESG issues by the entities in which they invest.
- Promoting acceptance and implementation of the Principles within the investment industry.
- Working together to enhance effectiveness in implementing the Principles.
- Reporting on activities and progress towards implementing the Principles.
How Front include responsibility to its portfolio management
We take ESG aspects into account in our investment process but it does not determine our portfolio management activities, allocation decisions or investment policy and does not automatically exclude investment targets. Therefore, we do not exclude broad indexes from our investment universe on the grounds that an ETF following a very broad stock index – e.g. S&P500 or Stoxx600 would have a single company or companies that do not meet the ESG investment criteria.