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.  

No comments: