Results from Hermes’ first Responsible Capitalism and our Society survey, revealed that 90% of fund managers think corporate governance risks should be a core part of the investment analysis.
Yet while the survey suggested investors are becoming increasingly aware that focusing purely on financial gains is not enough, it also found that fund managers tend to behave contrary to this.
Out-of-the-box
“The results are remarkable when you consider fifteen years ago ESG was considered to be ‘out-of-the-box’ thinking,” said Saker Nusseibeh, chief executive at British asset manager Hermes Investment Management.
“It is clear that ESG has become mainstream. However, the industry’s obsessive focus on measurement leads naturally to more short-term thinking and decisions that often miss the whole point of investment. This is to the detriment of the savers the industry is supposed to be serving.”
"The industry’s obsessive focus on measurement leads naturally to more short-term thinking and decisions that often miss the whole point of investment"
Passive engagement
According to the survey, over half of respondents think large shareholders are likely to become unaware of the companies they invest in, which Nusseibeh put down to the increase in the flow of assets into passively-managed funds.
“The opportunity for investors to effect change is quickly decreasing,” he said. “By moving towards index-tracking strategies, investors are giving up their voting rights, and thus, their influence”.
He said risk-centric approaches to ESG and the decline in shareholder engagement relating to the shift towards passives are both “symptoms of the same failing”, that is, “measuring performance by the wrong benchmark”.
Long road
Nusseibeh said there is “a long road to walk” before there is any real change in the industry.
“Financial services needs to address this and given the vital role that asset management plays in allocating the vast sums of savers’ money, it has a pivotal role to play in bringing about change in this regard.”
He added: “Today’s siloed and short-term investment approach is the antithesis of responsible capitalism. Change is necessary, if we are to ensure today’s savers and their children will be able to enjoy a fruitful world in the future.”
In August, Hermes’ head of product strategy Rhodri Mason talked to International Adviser about the difference between ESG and stewardship.
