As Anthos
As a fund-of-funds manager, we recognise that our journey towards responsible investing begins at the top level of the value chain with our own practices. Committed to leading the financial industry in responsible investing, Anthos adheres to best-in-class practices, and driving positive change through rigorous RI assessments and active engagement with underlying managers in our portfolios.
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UN-backed Principles for RI Assessment
Our ambition is to be an RI leader, which can help us drive the change we want to see in the financial industry. A leader, among other things, requires best-in-class practices in integrating the principles of RI. The PRI is perhaps the most credible organisation that assesses RI practices across the financial industry, which is why we value its accreditation when assessing our ambition to be a leader.
We are pleased to report that Anthos achieved 4 stars across all categories in the 2022-2023 PRI Assessment. This marks a significant improvement from the pilot assessment in 2021. Our scores increased to 83 in the Policy, Governance, and Strategy module and 76 in the Fixed Income and Hedge Funds module. We also maintained high scores in the Listed Equity module despite changes in the assessment criteria.
Key achievements include enhancing our climate approach and TCFD reporting. We integrated climate change and human rights guidance into our investment processes. Our RI Scorecard now more effectively assesses and monitors external managers’ ESG practices. We increased engagement with other investors on ESG issues through various initiatives, amplifying our influence on topics like climate change, diversity, and human rights.
Looking ahead, we are developing our processes and always aim for further improvement when it comes to RI integration across our portfolios.
“The United Nations’ Principles for Responsible Investment (PRI) now has 5,372 signatories, of which 740 are asset owners, representing well over an estimated AuM of US$120 trillion.”
According to the PRI’s final quarter signatory update, 2023.
Anthos PRI assessment
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The PRI assessment evaluates signatories’ implementation of responsible investment principles and their integration of environmental, social, and governance (ESG) factors into investment practices. The scoring methodology rates responses across various modules on a scale from 1 to 5 stars, reflecting performance against key indicators and best practice criteria.
Selecting investments that make less negative, and more positive, impact on the world
Manager and fund selection is a key lever of influence for Anthos, allowing us to choose who we invest with and how. Our RI Scorecard is the primary tool we use to assess funds and managers on ESG integration and impact intention. This comprehensive questionnaire evaluates how managers incorporate ESG risks and opportunities into their portfolios and assesses the fund’s impact intention. Moreover, our RI Scorecard serves as a powerful engagement tool, enabling us to actively work with managers to enhance their ESG practices.
In 2023, we assessed nearly 100% of applicable funds using the RI Scorecard, as documented in our due diligence memos before investments. We also enhanced our process to use the full RI Scorecard for due diligence. Annually, we monitor and engage with all relevant funds to improve their ESG integration and impact.
We made significant progress in 2023 by incorporating RI Scorecard insights into a dashboard that portfolio managers and the RI team can use to monitor overall portfolio exposure to laggards and leaders, as well as the types of funds in terms of impact potential.
In Figure 6, we show the average RI score for all inscope managers where a fund that has not formalised its position on sustainability or responsible investments is considered a laggard, and a fund with strong governance policies and requirements, a sustainable risk assessment as part of their investment process and developed stewardship and monitoring approaches is considered a professional or a leader. As can be seen, the average score shows strong ESG integration though many differences exist between asset classes. In the investment portfolios chapter, we provide more in-depth insight for each asset class.
| Average RI scores for all in-scope managers | |
| ESG Score | 3.4 |
|---|---|
| Policy Score | 3.5 |
| ESG Integration Score | 3.4 |
| Active Ownership Score | 3.4 |
| Diversity Equity Inclusion Score | 3.4 |
| Climate Change Score | 3.3 |
Figure 6: Average RI score for all assets under management. About the scores: 0.0 – 1.4 Laggard 1.5 – 2.4 – Novice 2.5 – 3.4 – Professional 3.5 – 4 – Leader. For more on our RI Scorecard methodology
RI and IMP scores over time
In Figures 7 and 8, we provide a summary of ESG and IMP development over the past three years. As can be seen, the ESG component shows a consistently strong profile of Leaders and Professionals, with less Novices in 2023 than previous years. Meanwhile, assets deemed Not Applicable have somewhat increased in 2023.
For the IMP (impact intention), the clear majority of Anthos investments sit within Act to avoid harm. There are a few investments that are classified as Benefiting stakeholders or Contributing to solutions; notably not just within the muti-asset impact portfolios, but also in our other portfolios that report under SFDR 8. Some M/Ds remain, which is mainly within the absolute return strategies due to nuances with that specific asset class.
ESG
Figure 7: Aggregate ESG scores for Anthos total AuM. Source: Anthos Fund & Asset Management, as at 31 December 2023.
About our RI and IMP scoring methodology
Anthos’ RI and IMP scorecard is a proprietary tool used by investment teams at Anthos to score the sustainability credentials of underlying managers and strategies during due diligence and post-investment for engagement and monitoring. The scorecard assessment is based on the guidance by the Principles for Responsible Investment (PRI), the OECD guidelines for institutional investors, the Global Real Estate Sustainability Benchmark (GRESB) and guidance from the Impact Management Project (IMP) for impact.
Anthos’ RI Scorecard explained:
- Leader: The thought leaders, influencers, and proactive implementers. Leaders voluntarily set standards and develop new approaches and solutions to society’s problems.
- Professional: Fully compliant with regulations, professionals sign up to global commitments and implement clients’ policies without complaint. They have sufficient resources and good, practical governance.
- Novice: Novices refers to managers that are aware of the importance of integrating ESG issues, and are starting to formulate policies and processes. Some have good integration but are lacking in the documentation or facing data gathering challenges. They do what is required legally, and often have gaps in their RI approach.
- Laggard: Laggards may think RI and sustainability issues are important, but outside the remit of how they invest. They don’t have much to show in terms of ESG integration and lack willingness to change.
- Not applicable: Cash; FX positions; other cash instruments; FX hedge; money market funds (unless it is in an impact fund); direct government bonds; direct real estate; legacy assets.
Anthos’ IMP assessments explained:
- Act to avoid harm (A): Seeks to mitigate the negative impact of an investor’s portfolio, by for example incorporating ESG factors into investment decisions, accounting for and mitigating negative impact, engagement, and other activities to avoid harm.
- Benefit stakeholders (B): Seeks investments intended to generate positive outcomes for a wide range of stakeholders. This can be done by, for example, positively screening for investments that are sustainable for the world either by consistently mitigating their negative and providing positive contributions or by being in industries that traditionally provide positive outcomes, e.g. healthcare, or education.
- Contributes to solutions (C): Seeks investments intended to generate measurable significant positive, social and environmental impact for otherwise underserved stakeholders, including the environment.
- May/Does cause harm (M/D): The absence of policies, processes or activities to measure, monitor and mitigate the negative impacts caused by the asset.
- Not reviewed: The remaining funds face challenges ranging from data issues in that particular asset class, to legacy funds, to methodology mismatch for those strategies that employ complex methodologies which require further study before we can use the IMP methodology.
- Not applicable: Cash: FX positions; other cash instruments; FX hedge; money market funds (unless it is in an impact fund); direct government bonds; direct real estate; legacy assets.
IMP (impact potential)
Figure 8: Aggregate IMP classications for Anthos total AuM. Source: Anthos Fund & Asset Management, as at 31 December 2023.
Steering capital toward sustainability: adapting Impact Management Project (IMP) norms for a multi-asset fund-of-funds approach
Introduction
At Anthos, our overarching RI ambition is to gradually minimise the negative and increase the positive impact of all our investment portfolios on the world and society. The Impact Management Project (IMP) norms provide a structured approach to measuring, managing, and optimising social and environmental impact. These norms are designed to help organisations and investors understand and communicate the impacts of their activities and investments23.
Anthos began using a component of the IMP norms in 2020 to strive to understand the potential impact of our portfolios. Through measurement, we sought to learn how we could steer capital toward more sustainable investments for each asset class, in line with our overarching RI objective.
The component of the norms we were inspired by is called the Impact Management Project (IMP) ABC model, which helps classify investments based on their impact intention.
A
Act to Avoid Harm
- Reducing or mitigating negative outcomes.
B
Benefit Stakeholders
- Generating positive outcomes for stakeholders.
C
Contribute to Solutions
- Addressing social or environmental challenges with significant, measurable impact.
Since 2019, we have mapped our portfolios with the model by including relevant assessments as part of our RI due diligence and monitoring activities. One of the reasons why we liked this model is the fact we could adapt it as “one language” for all asset classes. However, we learned that the implementation compatibility and suitability varied across the board. Going forward, also taking into consideration how the field and regulation backdrop evolves, we will continue to develop our approach and assess if this is still the preferred methodology alongside other tools we use to steer capital towards sustainability.
Below, we share some of our key findings from using our adapted version of the IMP ABC model:
- Anthos has identified sustainable offerings that also meet financial return objectives across asset classes, with significant variation in availability.
- The growth of such offerings has slowed due to several factors including stricter regulations, macroeconomic and investment environment, and shifting investor sentiment, amongst others.
- Using the IMP framework to assess the potential impact of a fund strategy provides useful insight. Corroborating an assessment with additional insights about the underlying assets (via specialised datasets), provides more tangible levers to influence change.
- As fund selectors, we recognise that setting topdown ambitions with such frameworks can become challenging when we are highly dependent on market developments and depth of the universe.
For more granular detail of the nuanced insights per asset class, see the next chapter, Investment portfolios.
Conclusion
Having first mapped our investments using the IMP framework in 2020 for 86% of the funds we were invested in, we decided to set an ambition to invest in more B and C funds – 25% by 2025 to align with our overarching RI ambition.
Over the years, the insight gained from striving to reach this goal has increased our understanding of market availability, how different asset classes approach sustainable investment, and where there are opportunities to engage and innovate with ambitious managers. Using the IMP norms has therefore been a useful tool for navigation to date.
It has also taught us where the limits and obstacles lie with using a narrow lens to explore the broad spectrum of sustainable investments, which has inspired us to add more tools to our repertoire. For example, we have invested heavily in additional resources to look through portfolios at the underlying holdings, including their carbon emissions, alignment with the SDGs, and their business activities. Tangible insight into a company’s business activities, and whether that aligns with consensus definitions of being sustainable or not, is a powerful lever to influence change with our underlying managers. This, coupled with increasing guidance from regulations like SFDR and ESMA’s new sustainability fund criteria, is helping to expand our view of the portfolios considerably.
In 2024, we will assess what the best strategy will be to achieve our RI objectives for 2025 – 2030. Within that context, we will assess the methodologies and approaches to succeed in our efforts, given the expansion of our capabilities and the ever-evolving regulatory guidance and market developments. We are excited by entering into the next chapter of our RI development at Anthos and look forward to reporting our findings and lessons as we go.
23Anthos adapted the one part of the IMP norms to assess the underlying funds in our fund-of-funds portfolios, where the IMP norms were originally intended to assess companies. For further information on the ABC framework and the broader IMP norms, refer to the ABCs of enterprise impact, housed on Impact Frontiers website.
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Investment portfolios