Tuesday, 16 December 2014

Salience and priorities in responsible investment

I've written a couple of bits recently to point up what I think is a bit of a lop-sided approach in the responsible investment world. Specifically, in the UK at least (thought I expect elsewhere too), there is a lot more emphasis on environmental and governance issues than 'social' ones. And given my interests, obviously I'm particularly concerned about the lack of focus on employment issues. I want to be constructive about this, but also be clear that there is a disconnect between much RI activity and where beneficiaries are.

Let's take a detour into Capital P Politics for a minute. Lord Ashcroft (yes, him) has become a source of very useful polling. Not only has he undertaken constituency-level polling in addition to national polls, he has also done some really interesting research on salience. This recent piece is worth a read. He makes the point that issues like 'economic competence' or 'leadership' are actually not necessarily as important as our politico commentators assume. If they were the Tories would be home and dry, as they easily lead on them versus Labour. But because these issues do not have the same salience as 'being on the side of people like me' or 'wanting to help ordinary people' where Labour has a lead, the election is still wide open. (Interesting, too, that Labour's advantages are about values/intentions rather than particular policies. Usually lefties are on the wrong side of this - quoting tractor production stats rather than projecting values.)

And there are issues that have very little salience at all. On these ones you can have a significant lead and it won't really affect the punters' views at all. This is exactly where Labour is with the environment. It has a clear advantage over the Tories on this issue, and has held this advantage over the last two years. But its salience with voters is well below average.

This, to me, shows why it was an obvious move for David Cameron to get rid of the 'green crap' to try and respond to Labour's policy on energy prices. They don't really risk anything given the low salience of the environment, but potentially gain by being able to say "we'll bring bills down" by getting rid of green taxes and thus cutting away at Labour's lead on 'wanting to help ordinary people'.

Actually you see something very similar in the polling that the NAPF undertook of pension scheme members I blogged previously. When asked what they thought asset managers should focus on it was pretty much bread & butter topics - the financial performance of the companies and the pay and conditions of employees were the top two. Environmental issues weren't even close. Again, low salience. (Of course, some will argue that actually a lot of the activity the RI sector undertakes IS focused on the financial performance of companies. But I think, if we're honest, we know this is a limited explanation for a lot of it.) But if we look at the activity undertaken in the RI world these positions are reversed. Environmental issues, climate change in particular, dominate whereas pay and conditions of employees is a long way down the list.

I can't help feeling that this is part of the reason that RI still feels like a bit of an add-on rather than an integral part of what pension funds do. Scheme members probably think it's broadly a good thing that people engage with companies over climate change, but it's not something many see themselves having a personal interest in. And because of its low salience at best it's pretty irrelevant in terms of building beneficiary support for RI activity (making it easy for opponents to scrap the investment industry's "green crap"). At worst there could be a significant gap between what pension scheme members want and what the RI sector undertakes on their behalf. It could look a bit like the legitimacy problem politicians now face.

I think it would be useful for all us in this field if there were a tighter link between what beneficiaries seem to want, and the activity undertaken on their behalf. Reorienting RI a bit so that bread and butter issues are given more prominence could do a lot to bolster credibility, and make it harder for opponents to challange. But then I would say that, wouldn't I?

PS. if I were working at an asset manager I would be looking at some of this polling a little bit nervously. There has already been a bidding war between the parties on pension charges. There is also growing interest in hidden investment costs. It's easy to see how a "lower costs"/"value for money" campaign could quickly gain ground, rooted in some simple values (like sticking up for scheme members), and I've little doubt that is something punters would be interested in.  

Monday, 8 December 2014

Ruling the Void

Ruling the Void, a posthumous sort of finished book by Peter Mair, is one of the most interesting things I have read recently. It covers similar issues to Colin Crouch's Post-Democracy but with a) some analysis of electoral behaviour to underpin the argument and b) a focus on the EU as an example. If you don't know about it, the book is basically about the hollowing out of Western democracies, with declining political participation and loyalty leading to more volatility on the one hand but less accountability on the other.

Particularly interesting to me area the comments about the state becoming primarily a regulator rather than an instrument of politics. This is exacerbated by the tendency of governments to seek to demonstrate the ideology-free nature of their offer by appointing third parties to develop and oversee policy. In practice this means that often only corporate interests get a look in since only they have the resources to devote to such work. Therefore, in my opinion, you should shudder when someone suggests that we need to "take the politics out of" a given issue, as this will likely mean hand it over to industry interests to do as they see fit with little accountability.

Anyhow, well worth a read. Below are a few good snippets.

[P]ublic policy is no longer so often decided by the party, or even under its direct control. Instead, with the rise of the regulatory state, decisions are increasingly passed to non-partisan bodies that operate at arms length from party leaders... [T]he officials who work within these delegated bodies are less often recruited directly through the party organisation, and are increasingly held accountable by means of judiciary and regulatory controls. And since this broad network of agencies forms an ever larger part of a dispersed and pluriform executive, operating both nationally and supra nationally, the very notion of of accountability being exercised through parties, or of the executive being held accountably to voters (as distinct from citizens or stakeholders) becomes problematic.
[T]raditional politics in seen less and less as something that belongs to the citizens or to the society, and more and more as something done by politicians. There is a world of citizens - or a host of particular worlds of them - and a world of politicians and parties, and the interaction between them steadily decreases. Citizens change from participants into spectators, while the elites win more and more space in which to pursue their own particular interests.
[I]t is possible to speak of a growing divide in European party systems between parties which claim to represent, but don't deliver, and those which deliver but are no longer seen to represent.   

Tuesday, 2 December 2014


This is a few months old, but well worth a read - an interview with Will Davies (parts 1 and 2). Some choice quotes below that I particularly like/ agree with.
Ultimately what neoliberalism is doing is paradoxical.  It is asserting the political legitimacy of certain anti-political forms of technocracy, measurements and economics.  But when those forms of technocracy, measurements, economics and so on reach some massive crisis, as they have done in recent years, then the paradox becomes visible because the only things that can happen is for the state to use all its power to prop everything up and in a sense assert it all back into being.   And so the illusion that we can have a capitalism without power, without politics, and without sovereign bodies, comes crashing down – a project of power comes again to the fore.
[O]nce the state’s job is measuring outcomes and measuring efficiency, the legitimacy of the state looks very different from if its job is seen in a much more normative, legal-constitutional way of imposing a particular market order....
[T]here is an emptying out of the capacity of judges, lawyers and regulators to mobilise arguments on the grounds of principle.  And this is deeply problematic because right now we live in a situation where most people would like to reduce the powers of banks and the main way in which that could be done is through regulation.  But the problem is that the banks are now involved in activities which are so complex and require such expertise, that they can always turn around to the regulator and say: you don’t know or understand what we are doing as well as we do and if you were to intervene that would have a drastic impact on certain economic indicators – growth or whatever.  And the regulator has no counter-argument to that.  What’s interesting about neoliberalism, I think, which has brought us to a state of crisis which we seem unable to get out of, is that it has gutted the very bodies which might traditionally have had the authority to restore certain areas of our economy to a state of legitimacy.  It has made it impossible for anyone to come along and claim that certain practices are simply illegitimate, because the only argument about legitimacy with any force is one based on economic evidence. 

Friday, 28 November 2014

ESG - where are the workers?

There's an interesting PRI report just published on investor engagement on public policy. It is worth a read. But I thought I'd carry out a little experiment to see the relative emphasis put on different issues as measured by mentions.

Here's the scores on the doors -

Sustainable+sustainability - 56 (37+19)
Climate - 53
Environment - 34
Governance - 31
Social - 19
Employee - 5 (of which 3 are part of the name of an investment institution)
Employment - 2
Union - 2 (including 1 in 'European Union')
Inequality - 1
Labour - 1
Worker - 0

To be clear, this is not a criticism of this particular report, it's a general point, and this is a very simplistic measure. But I wonder if anyone in this world would be surprised? Personally I think it's pretty indicative of where the RI community is at currently. The people whose money is being organised, and used to engage with corporates, don't get much of a look in. Attention is very much focused on environmental issues, and climate change in particular.

Wednesday, 26 November 2014

Tony Blair / David Brent

Somehow this -
Blair is frustrated that, for many Britons, Iraq effectively disqualifies him from contributing to this debate. He predicts, however, that this will change: ‘At some point … people will come to see that this is indeed a complicated and difficult argument and [that] this is something … I’ve spent not just my time in office but … the last seven years studying. I’m out in the Middle East twice a month, I’m seeing it first-hand. So when people say, “Oh, well don’t listen to him because of Iraq”, well, precisely because I’ve gone through these experiences it may just be that it’s worth at least listening to my reflections on them.’
Reminds me of this -

"What upsets me about the job? Wasted talent. People could come to me, and they could go, 'Excuse me, David, but you've been in the business twelve years. Can you just spare us a moment to tell us how to run a team, how to keep them task-orientated as well as happy?' But they don't. That's the tragedy." 

Monday, 24 November 2014

"As shareholders...."

A few years ago I was sitting in a meeting about a proposed corporate governance campaign when one of the younger people in the room began a sentence with the words "As shareholders, we...."

It really jarred with me at the time, and still does, so I thought I'd try and articulate why this is. Part of it was probably just an age thing. I guess it always feels a bit odd to hear someone quite young seek to present themselves as the voice of an institution, financial or otherwise.

But I think that merely served to make it more obvious how problematic it is to invoke the identity of "shareholders" in support of particular objectives. There are a couple of ways of looking at this. First, what is the location of the "shareholders"? Is it the share register, where usually the asset manager is the primary name, or do we need to look behind that to a beneficial owner (an asset owner)? Or is it even further back, say in the membership of a pension fund?

The politics here are interesting. It's obviously the beneficial owner or beneficiary that has the economic interest in the shares held. But both corporates and much of the finance sector are much happier viewing the asset manager - the intermediary - as the 'shareholder'. Of course partly this reflects the reality that asset owners delegate, but it's striking that some people seem to like it that way, and oppose reforms that might allow beneficial holders to behave more like shareholders.

Second, even within investment institutions there's a question over where the "shareholder" identity is located. Many people in the RI field understandably worry about ESG-focused staff being separated from the "investment process". But then that suggests, again, that the "real" identity of the "shareholder" is a mainstream asset manager. This looks like prototype theory in action, as applied to corporate ownership - mainstream asset managers are for many people the best example of "shareholder-ness". (And in return, many of us trying to change things are happier labelling the asset owner as the 'real shareholder'.)

But that isn't the end of it. A further identity problem arises if we consider the gap between the behaviour of the 'best example' of a "shareholder" and public policy expectations. In the policy world, "shareholders" should "act like owners" and therefore they need the tools to undertake this activity. Yet, as I've blogged many times before, in reality many mainstream asset managers have actually opposed the extension of shareholder powers. Similarly, both the current and previous administrations have prodded "shareholders" to undertake the kind of activity (value-focused engagement) that is supposed to be in their own interest.

This has the interesting effect of the state trying to create a new shareholder identity, as expressed in certain behaviour, because the actual behaviour of these 'best examples' of "shareholders" isn't close enough to how the state thinks financial market participants should behave. So there is an idealised notion of what "shareholder-ness" should be, to which actually existing shareholders are being encouraged to adhere.

On reflection, both the identity of "shareholders", and the property of "shareholder-ness" are a lot more up for grabs than you might imagine.

Tuesday, 18 November 2014

Socialising responsible investment

Responsible investment is a bit lopsided really isn't it? When you look at the commitment to the analysis of, and engagement over, 'ESG' issues it's pretty clear that the 'S' is somewhat silent.

Corporate governance (or, at least, a distilled group of shareholder-friendly CG principles) is almost completely mainstream now, and most asset managers take it somewhat seriously. Meanwhile the range of environmental initiatives which institutional investors are involved in is pretty impressive - IIGC, INCR, Climate Bonds, Carbon Disclosure Project, plus specialist service provides like Trucost, Climate Change Capital etc etc. It is quite clear then that asset owners - and trustees - are able to mobilise the capital under their stewardship, and they have done so in support of both 'E' and 'G' issues.

But social issues, and particularly employment/labour issues, lag a long way behind. What is more if you raise 'labour issues' in a responsible investment context most people are probably going to expect that you want to talk about supply chains and/or developing countries.

There is a strange disconnect here. After all, much of the capital that the RI community wants to mobilise exists because of collective bargaining a few decades back, and the governance of many asset owners includes employee representatives, often nominated by unions. What's more there is some evidence that beneficiaries care more about bread and butter issues like pay and conditions than they do about climate change or executive pay. And the Law Commission report on fiduciary tells us we're allowed to take account of beneficiaries' views when addressing ESG issues.

Overall, the priorities of the RI community can look a bit 'well-meaning, well-off green/liberal'. It's great that a lot of good work is being done, but the issues on which there is focus seem a bit out of step with beneficiaries. And, to be fair, this isn't helped by the fact that unions haven't always been proactive in trying to shape the RI agenda, so maybe we shouldn't be surprised that our issues are so low on the agenda. Equally, if we aren't trying to support our trustees and give them confidence to ensure labour concerns are taken seriously they may be more comfortable trying to do a bit of good by supporting 'mainstream' RI.

So it strikes me that there is some work to be done here to make sure the 'S' in ESG isn't forgotten, and to ensure that the RI world remains close to beneficiaries. For our part, unions could be better about getting our issues across to investors in a digestible format, in speaking up for beneficiaries (many of whom would benefit from more attention on issues like low pay, zero hours etc) and in supporting our trustees. Perhaps the RI community in turn could make a conscious effort to address the weakness on 'S' issues, and give a bit more time to considering what employee representatives have to say.