Hermes Fund Managers has been awarded a $90-million environmental, social and governance mandate by Local Government Super for a developed-world equities fund.

Hermes director, Ian Manton-Hall, told IM Online that the fund was similar to another of the firm’s funds for core investor, the BT Pension Scheme, but with some particular overlays specifically for Local Government Super.

How it works

“We have an ESG input into our quant team, and we know there are some things Local Government wants to exclude – such as tobacco, alcohol and gambling – and we do that screening in the quant process and then apply our active management over the top of that,” said Manton-Hall.

“We’ve known Local Government Super for a long time and we’ve been talking to them about a portfolio that had some positive ESG components to suit them, and which will deliver good returns going forward.”

Local Government Super chief executive Peter Lambert told IM Online that working with Hermes, which has $116 billion in assets under management worldwide, was an effective way of running the fund’s ESG filter on the portfolio. “We run and overlay and often the difficult is that when you deal with global stocks you then up with small holdings and an unbalanced portfolio,” Lambert said.

“This way we can work with Hermes to run an ESG filter on their existing fund, which has an ESG dashboard, and it enables us to do this at a manager level.”

The portfolio is benchmarked against the MSCI World (excluding Australia) Index in a universe of around 250 stocks “which takes on Local Government Super’s exclusions.”

The Hermes mandate is a second significant ESG move by the $6-billion Local Government Super this year, coming after a mandate to Omega for a global bond fund that invests in bonds issued by nations judged on their ESG records.

The analysts look at 90 nations through up to 70 ESG filters and the fund also has a 15-per-cent allocation to climate-themed or so-called green bonds.

In May, Local Government Super joined with several other funds alongside shareholder activist group, Regnan, to push for raising the operating standards in the global coal-seam gas industry.

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