Step 4 - Investment policy and governance | Technical guide

Asset owners need to ensure that they have the necessary resources, expertise and processes in place to implement the strategy. They will typically codify their investment strategy in relation to their investment decision-making process, asset allocation, ESG incorporation, active ownership, manager selection and monitoring criteria through an investment policy. Some asset owners will decide to have a standalone RI policy rather than integrate it into a general investment policy. The investment policy formally integrates asset owner strategy and policy and enables a day-to-day focus on achieving the organisational mission and ensures that all material factors – including ESG – are incorporated into investment decisionmaking to enhance performance and long-term value creation. This can only be achieved through in-depth understanding of the beneficiaries’ preferences and needs by the asset owner and the fiduciaries.

What is the role of investment consultants?

The specific role played by investment consultants will depend on the systems and processes that the asset owner already has in place and on previous work it has done on ESG-related issues. Investment consultants can advise on many aspects of investment policy and governance. They can help develop investment policies that codify the asset owner’s investment strategy in relation to its investment decision-making and asset allocation processes, and its approach to ESG incorporation, active ownership, manager selection and monitoring.

Questions to ask the investment consultant

Does the investment consultant have its own policy that mandates ESG considerations into its advice to clients and, if so, how is it integrated into its service offering?
Does the investment consultant have a structured process or template it follows to help clients develop their investment policies?
Can the investment consultant provide one or more examples where clients adopted ESG issues in an investment policy due to the consultant’s advice? What were the (dis)advantages or drivers for the client adopting such a policy?
If a specific client ignored the investment consultant advice in relation to ESG incorporation, what was the key reason for this decision?

More than 900 responsible investment policy documents, which can be filtered by asset class and region, can be reviewed on the PRI website and further details on investment policy reported by signatories is available on the PRI Data Portal (indicator: SG 01.5)