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LGS considers expanding ESG mandate
If all goes well with the mandate Local Government Super (LGS) awarded to Hermes last November, it may be extended to include the fund's other passive holdings.
LGS awarded the $90 million mandate to Hermes to launch its environmental, social and governance (ESG) strategy.
The ESG strategy is tailored to LGS and implemented on its international equities trades.
"It's a bit of a test to see whether or not we could get more good performance from a more passive part of our portfolio through the use of this ESG overlay," LGS chief executive Peter Lambert said.
The fund would review Hermes' progress at the end of the year to assess if it could be extended to its other passive holdings, Lambert said.
"I think if that proves successful we'll look to extend that ... to a greater percentage of our passive holdings," Lambert said.
The latest Super Ratings research found that over the past three years 20 per cent of funds had moved away from the stand-alone responsible investment (SRI) option to implement a holistic ESG approach via an ESG overlay, due to SRI's limited penetration.
Lambert said its SRI option had been launched 18 months ago but had not been not wildly successful.
An ESG overlay approach had it problems too, according to Lambert.
"Whilst the overlay concept is very good, the reality is it would be far better to have managers invest directly into the stocks you like in the first place, rather than you having to go in and pick and choose the ones you want and to pull out and replace," he said.
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