Ownership Day: age of ‘invisible investors’ passing

Pension funds have been urged to “lead from the front” and hold companies to account. To mark the second annual Ownership Day, institutional investors are being encouraged to be more ‘active owners’ and use shareholder power to make companies more sustainable.

A poll commissioned by the UK Sustainable Investment and Finance Association (UKSIF), which co-ordinates Ownership Day, found that 48% of British adult believe institutional investors should have stewardship responsibility in the companies they invest in.

In addition, 39% of respondents said that environmental, social and governance (ESG) issues and other financial considerations could affect the long-term value of investments. Concerns raised by investors included human rights abuses and child labour in corporate supply chains, animal welfare abuse and reducing use of fossil fuels.

Earlier this year the Law Commission accepted submissions looking at fiduciary duty and whether the current law gives investment trustees the ability to consider ESG issues. Whilst some of the submissions said the law is “fit for purpose”, concerns around trustee knowledge were raised.

When asked to pick which three issues they thought were most important for pension funds to be active about, 53% of survey participants said ensuring companies pay their fair share of UK tax. This answer reflects headlines from last year after big brands, including Starbucks, Amazon and Google, were found to be avoiding tax.

Half also wanted pension funds to encourage companies to pay a living wage and 48% said ensuring executive pay and bonuses are not excessive was important.

Simon Howard, chief executive of UKSIF, said, “The age of when it was the norm for pension and other funds to be ‘invisible investors’ who simply sat back and waited as their assets were managed is passing.

“If we are to rebuild public trust in savings then we need all major funds in the UK to act as responsible stewards, not absentee landlords. They need to use the information and advice available to them to set the tone for how their funds are managed, and our research show this is what the public – the people the funds are run for – want.”

Active ownership involves engaging with companies to improve how they manage long-term issues. According to UKSIF, it has become an important part of sound financial management for investors with over £800 billion of assets not being invested in this way in the UK.

ExxonMobil is a recent example of shareholder action having a positive outcome. Investors raised concerns about the financial risks posed by climate change and stranded assets, as a result the company will now report on these issues in a bid to be more transparent.

Institutional investors are being called on to sign up to the Stewardship Code, a set of principles aimed at encourage active ownership. The call for all pensions funds to sign the code will be made in parliament today.

Conservative MP Paul Uppal, who is hosting a parliamentary reception for Ownership Day, said, “Effective use of shareholder power is key to protecting the value of people’s pensions and savings and I would argue everyone – policymakers, pensions funds and the public – to get involved in Ownership Day.”

Further reading:

National Express shareholder seek to address employment issues

ExxonMobil in landmark agreement to report climate risk after investor resolution

Investors warn of ‘carbon bubble’ as Shell predict climate regulation will hit profits

The sole purpose of investment is profit. All other considerations are secondary

The Guide to Ownership 2013