This report examines how environmental, social, and governance (ESG) issues can impact investment portfolios and outlines the benefits of aligning ESG considerations with beneficiaries’ preferences. Asset owners are encouraged to engage with beneficiaries and consider their preferences as a key input into investment decision-making. Engaging with beneficiaries can lead to increased competitiveness, beneficiary satisfaction, contributions, and greater awareness of the role investments play in society.

Based on interviews with 14 asset owners and leading practices, the report suggests a four-step process for understanding and integrating beneficiary preferences: actively report back to beneficiaries; use surveys or focus groups to gauge preferences; analyse the preferences and use the data to inform investment decision-making; and integrate preference data into strategy and policy. The report also recommends that asset owners communicate the key priorities identified from beneficiary engagement to their service providers and embed consideration of beneficiary preferences into the investment manager selection, appointment, and monitoring processes.

The report identifies several drivers of the increasing importance of beneficiary preferences, including an evolving regulatory landscape and greater awareness among asset owners that investments should reflect the values of beneficiaries. There are also growing expectations for increased transparency and disclosure, including addressing obstacles to a sustainable financial system within market practices, structures, and regulation.

The report suggests a number of ways to obtain information on beneficiary preferences, including surveys, focus groups, and interviews. The report recommends these approaches are undertaken in a representative manner, to ensure the data is reflective of a broad range of beneficiaries. Finally, the report recommends that asset owners use a combination of stewardship tools, including voting, industry engagement, and policy advocacy, to support existing investment strategies and make necessary changes to meet beneficiaries’ preferences.