Environmental, Social and Governance (“ESG”) factors represent a new focus for pension schemes, given the rising ethical considerations and increasing regulatory requirements. The importance of ESG integration has also grown for companies and for fund managers. The question for pension schemes is how ESG should impact their decisions regarding strategy, manager selection and engagement.

There are hundreds of new ESG strategies launching every year, driven by fund manager enthusiasm to convert the new trend into revenue. As with any new field, the growing offerings are very diverse, conflicts of interest arise, and it may be a challenge for investors to implement legitimate ambitions.

Whilst we do not question the fundamental importance of ESG criteria within capitalism, we do suggest investors proceed with caution. In many situations, simply engaging with existing managers and taking time to build knowledge in the area whilst the industry develops seems more sensible than rushing to invest in the latest ESG product.

In this paper, we comment at a high level on investors’ motivations and the landscape of product offerings, before providing our views on the economic value potential of such approaches and the various options for implementation.