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.

No comments: