While fund managers have often been the focus of those looking for more sustainable investment approaches, UKSIF chief executive Penny Shepherd tells Mike Scott how their attention is moving to asset owners themselves
Critics of the financial system have long complained that those at the top of the tree – the asset owners – have failed to encourage fund managers to invest their money in a way that creates long-term returns rather than a quick buck.
Now UKSIF, the UK Sustainable Investment & Finance Association, is holding an Ownership Day to highlight the benefits of active ownership strategies and to encourage more investors to implement such strategies.
“We want investors to use their shareholder rights by voting and engaging with companies to encourage them to deliver long-term value to their owners,” says Penny Shepherd, UKSIF chief executive. “This clearly includes active ownership on ESG issues such as executive pay and climate change, but it’s not limited to that.”
Ownership Day, which is on March 12, is in part a response to the recent Kay Review, which highlighted the failure of UK asset managers to match long-term capital to long-term opportunities. UKSIF wants to encourage retail investors and asset owners to ask their investment managers about the levels of active ownership that exist in their portfolios.
The evidence suggests that active ownership protects the long-term value of investments and retirement savings, she adds. This is likely to become more important over time as issues as varied as climate change, the growth of emerging markets and the impact of the internet on business models affects the value of investments.
The initiative comes as investors increasingly recognise the value of active ownership, Shepherd says. A particular problem is the behaviour of corporate pension funds, particularly for companies that see themselves as sustainability leaders. “Traditionally, corporate pension funds have been the absent voice at the table in this debate,” she continues. “There has been a disconnect between companies that take a long-term approach in their business operations and their pension funds, which do not seem to have the same focus on long-term issues.
“If company pension funds use a short-term approach to their investments, it’s not surprising if the investment chain translates that into pressure on companies to focus on short-term returns.” However, while there is still a long way to go, there are early signs of change in sustainability leaders’ pension schemes, Shepherd adds.
The UKSIF initiative is not the only attempt to change asset managers’ behaviour. Using the tagline “Are you accidentally investing in climate change?” the Vital Few is a social network campaign set up by the Asset Owners Disclosure Project that aims to shift investment from high carbon assets to low carbon ones by getting members to write to their pension funds.
“By demanding that funds tell the truth about what percentage they are currently investing in high-carbon and asking them to hedge climate risk by increasing low-carbon investment from less than 2% to 5%, this will redirect billions of investment dollars and create a tipping point ushering in the low-carbon economy,” the scheme’s website says.
Shepherd adds: “For companies to continue to thrive, we need an investment sector that focuses on those long-term issues that are relevant to long-term profitability. Companies by and large are aware of the effect that issues such as resource constraints and climate change will have on future profitability. Unless that is integrated into the selection of investment managers then arguably companies are failing in their duty to employees.”