ESG Interview with Tony Tomich, Head of Pension Investments, Farmers Insurance
Tony Tomich serves as Head of Pension Investments at Farmers Insurance®. He also oversees the organization’s Socially Responsible Investments Portfolio and has multiple leadership roles in the space.
DC Institute:
How do you define ESG?
Tony Tomich:
When we think of ESG, we look at things from a top-down and bottom-up approach. Farmers Insurance® has been doing bottom-up, and what we call impact investing, for almost 20 years. Farmers®, along with a number of other large insurance companies, created an entity called IMPACT Community Capital back in the late nineties, and that is the entity that we use to facilitate our impact investing, which again is bottom-up.
The opposite of that viewpoint is our top-down approach and that’s where ESG fits in for us, including having our outsourced asset managers using ESG factors in their overall investment processes. We have manager strategies, so it's making sure that we understand how each one of our asset managers uses ESG factors in their overall valuation and investment process.
“For the most part, it's about making sure that our investment processes use as much robust data as possible.”
DC Institute:
Is the interest in ESG at Farmers coming from your underlying plan participants?
Tony Tomich:
There are several different stakeholders that are currently expressing interest in ESG. The culture at Farmers has long supported impact investments in the places where we do business and we've been doing that for many years. The ESG piece of it is more internally driven because as we view it, ESG is a factor like any other investment factor that we think should be incorporated into the investment processes from the managers. Obviously, there are synergies with our overall sustainability strategies, but for the most part, it's about making sure that our investment processes use as much robust data as possible.
DC Institute:
Do you negative screen any investments, and if so, what kind of investments are you excluding?
Tony Tomich:
We don't use negative screening in general. We’re an insurance organization, so we're regulated in many different places and we always comply with regulation. Generally, we do not include negative screenings, which we would define as SRI. SRI is more mission and compliance-focused investing. We do not engage in that kind of strategy.
DC Institute:
Does Farmers currently and proactively seek out investments that will make a positive impact?
Tony Tomich:
Yes, and we do that via the entity we helped create that I mentioned earlier, IMPACT Community Capital. IMPACT Community Capital provides capital to traditionally underserved communities. We've [Farmers] been an owner and investor with that entity for almost 20 years. That entity invests primarily in multi-family affordable housing through LIHTC, or low income housing tax credits. We also have a New Market tax credit vehicle in there, as well as investments that look at creating healthcare and childcare facilities in underserved communities.
DC Institute:
What barriers do you think DC plan sponsors have to overcome in order for them to introduce ESG into their plans?
Tony Tomich:
I think there are two things that plan sponsors need to overcome. One of those is a philosophical barrier and the other is there has to be a belief. When we first thought about ESG a couple years ago, we thought that the DC client will maybe have an ESG tier in their plan at some point. But our of thinking has evolved over time and has migrated more towards what I originally spoke about in the first question, which is that we want ESG factors integrated into all of the processes that our investment managers use.
We view these factors like any other factor, and if you're not taking in that wide range of information when you're valuing a stock or valuing a bond, you could potentially misprice it and ultimately miss opportunities. Therefore, our thinking has evolved from having ESG as a standalone option or a standalone mandate to incorporating ESG into everything.
“We are looking to do in the next phase of our ESG strategy is requesting non-financial reporting and non-financial metrics from our investment managers”
DC Institute:
How do you think we can make ESG investments more accessible to DC plan sponsors?
Tony Tomich:
It depends on how you define that question. If your question is, how do we make new ESG branded funds more accessible? I think that's a very different question than, how do we make ESG as an overall holistic approach more accessible than we've seen with participants? If you are asking, how do we make plan sponsors come to the conclusion that an ESG tier makes the most sense to then put products in that tier, then that’s really different than the way we are looking at things.
I think the main question you have ask yourself is that if you take our approach and you have ESG incorporated into all the investment process that you have with your managers, how do you communicate that with participants and should you?
One of the things that we are looking to do in the next phase of our ESG strategy is requesting non-financial reporting and non-financial metrics from our investment managers. That information can be used to communicate with plan participants to say something like, “We're taking this many cars off of the road” or, “We are avoiding ‘x’ amount of landfills.” Using those non-financial metrics with our participants can help communicate the impact we are having.
I think if you take the tier approach, then you have to have products in the tier and if you take our approach where you want ESG incorporated into all of your investment processes, then it's really about how you communicate what you're doing to your participants and what is appropriate.
DC Institute:
What is the most innovative and interesting thing that you have done or that you have seen with regards to ESG in the plan?
Tony Tomich:
I think it comes down to door number one and door number two with door number one being that tier concept and door number two being the overall holistic concept. Door one would be an ESG tier where you look at the E investment, the S investment, the G investment and an investment that has a thematic approach that's maybe even aligned with the UN sustainability goal and things of that nature. I think from a product standpoint that has been the most innovative I’ve seen. Door number two, I think, comes down to those non-financial metrics that are communicated to participants.
DC Institute:
You mentioned the E, S and G in your last answer. Does Farmers emphasize these in separate areas or view it as one?
Tony Tomich:
We emphasize all. We believe that each one of those areas has a relevant amount of information for our evaluation processes. I think that data needs to be incorporated into your processes to leverage and guide your decisions and ultimately inform the factors you use to get the optimum price. Then you observe where the market is and you make the buying decision accordingly.
DC Institute:
How do you satisfy your participants’ many differing views on what ESG is and what ideas should be prioritized?
Tony Tomich:
When we think about participants and what they feel is important, we try and break that down by various factors and then we structure our plan to do the most good for the most people. That’s not only from an industry standpoint but from an overall structural standpoint. We try to satisfy most people and do the most good for the most people. It is imperative that this messaging is consistently aligned with our overall investment beliefs with how ESG plays a role in our processes.