Appendix A: Requests for Proposals (RFPs) and Due Diligence
Appendix A: Requests for Proposals (RFPs) and Due Diligence
This Appendix consists of two parts. The first identifies information that asset owners should consider including in their Requests for Proposals (RFPs) to enable potential to understand the type of mandate being sought and the specific expectations as regards sustainability and stewardship. The first identifies information that asset owners might request from managers in order to assess their suitability.
These are not a comprehensive list of all information that should be provided and sought during the asset manager selection process. It specifically addresses information that relates to sustainability and stewardship, and not all of the topics that will typically be covered by an RFP or due diligence questions. Not all items on these lists will be relevant to all mandates.
Links to the principles and standards referred to in this Appendix and other useful resources can be found on the ICGN website at: https://www.icgn.org/icgn-global-governance-principles
Part 1: Information to be Provided by the Asset Owner in RFPs
This information should be included in or appended to the RFP, where relevant, so that asset managers have a clear understanding of the asset owner’s needs before preparing their proposals. Depending on the nature of the mandate and the asset class or classes involved, the mandate might include:
Mandate specification
- Expected rate/ range of return over a specified time period.
- Liquidity and cash generation requirements.
- Portfolio design – for example, maximum percentage of portfolio in single investment or in specific market(s), asset class mix (for multi-asset class mandates).
- Portfolio turnover – minimum and maximum turnover rates.
- Any general restrictions or exclusions - for example, linked to liabilities or regulatory requirements.
- Any asset class specific considerations - for example, duration for fixed income.
- Benchmarks and performance measures.
- Fee structure – for example, a statement that at least some elements of the fee structure should be linked to long-term performance.
- Policy on the use of counterparties.
- Reporting expectations – what information does the owner expect to receive and at what frequency?
Sustainability
In the RFP itself:
- The nature of the mandate – for example, is it an SDI or impact mandate?
- Any expectations on asset allocation – for example, SDG themes/priorities, or the minimum percentage to be allocated to SDI.
- Approach to materiality.
- Any sustainability specific benchmarks and performance measures.
- Reference to relevant principles and standards (examples below).
- Sustainability reporting expectations – see Appendix B.
To be appended to the RFP:
- The asset owner’s investment guidelines and/or responsible investment policy or policies
- Exclusion list or screening criteria (if applicable)
Principles and standards
Examples of recognised principles and standards that might referred to include:
- ICGN Global Stewardship Principles
- UN Sustainable Development Goals (SDGs)
- Principles of Responsible Investing (PRI)
- UN Global Compact
- UN Guiding Principles on Business and Human Rights
- UN Declaration on the Rights of Indigenous Peoples
- PAII Net Zero Asset Owner Commitment
- OECD Guidelines for Multinational Corporations
- International Capital Markets Association (ICMA): Green Bond Principles
For examples of reporting frameworks and metrics see Appendix B
Stewardship
The investment/ responsible investment policy may set out the asset owner’s policies on delegation of some stewardship functions to asset managers and oversight of those functions. If not, consider adding requirements in the RFP in relation to:
In the RFP itself:
- Priorities for monitoring and engagement – this might include the impact themes or priorities in the responsible investment policy, but might also include specific governance topics such as executive compensation or board composition.
- Any public policy and advocacy priorities and expectations.
- Voting – state whether it will be delegated to the asset manager, and if so whether they will be expected to vote in accordance with the owner’s voting policy. Specify the circumstances in which the owner would expect to be consulted on a voting decision if delegated.
- Relevant international national or industry principles and standards (examples below)
- The owner’s policy on stock lending
- Stewardship reporting expectations – see Appendix B
To be appended to the RFP:
- Voting policy or guidelines (if applicable)
Principles and standards
Examples of recognised principles and standards that might referred to include:
- ICGN Global Stewardship Principles
- ICGN Global Governance Principles
- ICGN Securities Lending Code of Best Practice (2016)
- Relevant national Stewardship Codes
- Relevant national industry guidance (for example, the PLSA Stewardship Guidance and Voting Guidelines in the UK)
- CFA Institute: Global ESG Disclosure Standards for Investment Products
- International Limited Partners Association (ILPA): Principles 3.0 (for private equity)
- Standards Board for Alternative Investments (SBAI): Alternative Investment Standards
Part 2: Information to be Sought From Asset Managers in RFPs and Due Diligence Questionnaires
This information should be requested from all potential asset managers, where relevant, so that the asset owner can assess the manager’s suitability for the particular mandate. As noted. this is not a comprehensive list of all information that should be sought when selecting an asset manager, but addresses only information relating to sustainability, stewardship and the manager’s own governance.
In addition to the information listed below, asset owners should request a copy of the asset manager’s standard contract terms for this type of mandate, so that they can compare them with the Model Mandate and assess the level of compatibility between the two. Asset managers should also be asked what scope there is to vary these standard terms and/or to append additional requirements to the standard terms if requested.
PRI has published a series of more detailed ESG Due Diligence Questionnaires covering a range of asset classes and stewardship topics. Links to these and other useful sources of guidance can be found on the ICGN website at: https://www.icgn.org/policy/icgn-guidance
Sustainability
Questions to be asked:
- What are the manager’s investment principles as regards sustainability?
- What criteria and processes does the manager use to integrate sustainability and other long-term factors into asset allocation and individual investment decisions? What metrics or ratings does the manager use when assessing potential investments?
- How does the manager identify material long-term risks, including those relating to sustainability? And how do they identify potential sustainability related opportunities?
- Is the manager willing to apply client specific guidelines (for example, exclusion lists and/or customized indices)?
- Does the manager take sustainability considerations into account in derivatives, insurance instruments (such as CDS) and other synthetic exposures or positions?
- Post-investment, how does the manager monitor whether the sustainability objectives of the investment are being met?
- How often are the manager’s responsible investment policies (or equivalent) reviewed?
- How does the manager measure and report on the social and environmental impacts of the investments in the fund? Please provide examples.
- Is the manager a PRI signatory? Have they committed to other relevant international or industry standards, guidelines or reporting frameworks??
- Is the manager an active participant in investor initiatives that aim to promote one or more of the SDGs?
Documents to be requested:
- The manager’s responsible investment policy/ policies or equivalent;
- Any other documents that explain how the manager addresses sustainability across its investments and/ or for different asset classes – for example, templates for assessing investment cases.
- Case studies showing how sustainability factors impacted on investment decisions. The owner may wish to specify the SDGs or outcomes on which examples are sought.
- The manager’s most recent annual responsible investment report or equivalent and/ or a summary of recent engagement and outcomes (to provide evidence of how their policies have been implemented in practice).
- The most recent PRI Assessment Report (if the manager is a PRI signatory).
Stewardship
Questions to be asked:
- Are stewardship services such as monitoring, engagement and voting covered by the basic fee or do they need to be paid for separately? If so, what are the fees?
- Where does responsibility for stewardship sit within the manager’s organisational structure? If it is a carried out by a separate team, how does the manager ensure integration with the teams that are directly responsible for managing investments?
- What is the level of resource dedicated to stewardship? How is it divided between funds, asset classes and markets?
- What criteria does the manager use to decide when it is necessary to engage with or intervene in an investment? What is the process for escalating this engagement if necessary?
- What framework does the manager use to identify and manage conflicts in relation to engagement and voting?
- Does the manager engage in dialogue with issuers specifically on sustainability issues? What systems does the manager have in place to ensure engagement objectives are pursued systematically and to measure progress against them?
- Does the manager delegate or contract out any stewardship activities to third parties (for example, engagement or voting advice and execution)? If so, what oversight does it undertake?
- For asset classes other than equities, what form does their stewardship activity take?
- Does the manager adhere to the CFA Institute’s Global ESG Disclosure Standards for Investment Products?
- Where relevant: Does the manager adhere to the ILPA Principles (private equity) and/or the SBAI standards (for alternative investments)?
- Where relevant: Is the manager a signatory to the national stewardship code?
Documents to be requested:
- The manager’s approach to monitoring, engagement and other stewardship functions, if not covered in the responsible investment policy. Managers that are signatories to one or more national stewardship codes may disclose this information in a statement of how they apply the code(s).
- The most recent data on the manager’s engagement activity. This might include, for example, data on the number of engagements undertaken divided by region, subject matter and type of engagement and/or case studies describing particular engagements and their outcomes.
- The manager’s voting guidelines.
- The most recent data on the manager’s voting activity. This might include, for example, data on the percentage of meetings at which the manager voted, the percentage of votes against divided by region and subject matter, and examples of high profile votes with an explanation of why the manager voted in the way that they did.
- The manager’s policy on selection and monitoring of proxy advisors and engagement overlay services (if applicable)
- The manager’s policy on stock lending.
- The manager’s conflicts of interest policy
The asset manager’s culture and capabilities
Questions to be asked:
- Which functions in the manager’s organisation are responsible for oversight and implementation of sustainability and stewardship activities?
- What is the compensation structure for the team that will manage the investment? How is sustainability and stewardship performance reflected? What incentives and KPIs are used?
- Does the manager provide training or support to its workforce to help them understand and identify the relevance and importance of sustainability and stewardship factors?
- Does the manager adhere to the CFA Institute’s Asset Manager Code of Professional Conduct or equivalent professional standards?
- How often does the manager review general risk oversight policies and procedures? Does the risk oversight function operate independently from those taking investment decisions?
- How does the manage monitor counterparty risk and measure their exposure?
- Has the manager been involved in any litigation or other legal or regulatory investigations or disciplinary actions relating to their investment activities in the past [x] years?
Documents to be requested:
- A summary of the manager’s internal organisation, including the reporting lines for the team that would be responsible for the mandate.
- Details of the staff directly responsible for the mandate and those with relevant cross-cutting responsibilities for sustainability and stewardship.
- The manager’s diversity and inclusion policies and data on the diversity on the workforce and senior decision-makers.
- Details of the structure and organization of the manager’s research capability, including research on macroeconomic issues.
- A summary of the manager’s risk management practices.
- Relevant compliance policies – for example, anti-money laundering.
- The manager’s policy on selection and monitoring of counterparties.
- Examples of their periodic (quarterly and annual) reports to clients