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On Monday, the Business Roundtable, “one of the US’s most powerful business groups," released a statement claiming “the pursuit of shareholder interests is no longer the central purpose of corporate America.” Signed by 180 US business leaders—most notably JP Morgan’s Jamie Dimon—the statement “marks the first time the nearly 50-year-old group has said shareholder value is not the first priority.” A pretty seismic shift, one framed by the FT as “a bulwark against populism” as public discontent over income inequality and rising healthcare and education costs continues to grow in the US.
If the statement is in fact tectonic rather than toothless, it marks the beginning of the end for the world's investor-centric model of capitalism.
Wrong question. The right one is, of course, who should be responsible for making sure your pension has a purpose: a point that has been garnering plenty of attention in the UK this week.
As with plastic straws and red meat, the onus is too often put on the consumer. Yet, as Patrick Collinson points out in the Guardian, “in no other area of consumer expenditure does the buyer have so little control and choice.” While asset managers do offer a range of funds in which to invest, "going into the scheme and picking and choosing the right fund" assumes a level of financial literacy the average consumer may not have. What’s more, “most company pension schemes will automatically ‘default' you into a prescribed fund," which is likely to invest in companies such as BP and Shell. Concludes Collinson: “Pension funds will argue that they are devoting time and resources to social responsible investment, and that they are ‘engaging’ with companies on climate change, which they are. But they need to be bolder and offer simple, accessible ways for savers to opt out of fossil fuels entirely.”
Action is picking up, argues the BBC, which suggests big investors — led by Climate Action 100+, a coalition of 360 asset managers — could “save the world.” Government MPs are also piling on the pressure: this week, the environmental audit committee has urged investors and pensions to attach ‘climate risk’ reports to pensions, believing a voluntary approach won’t work. Or, as per the Guardian, “the City of London faces mandatory climate reporting within the next three years to avoid jeopardising hundreds of billions of pounds worth of pension savings.”
Maybe the UK should look to Japan’s $1.36trn Government Pension Investment Fund (GPIF) as an example of how to do it. The Harvard Business Review has focused on CIO Hiro Mizuno as an industry “protagonist” one step ahead of the curve, for whom “the risk of climate change is not some abstract thing that might happen to some other firm; he believes the whole economy is at risk.” Misuno has integrated ESG into the fund’s investment process and — in so doing — brought attention to the idea that “these very large asset owners could be a very powerful force for good in the world."
Still, it’s not exactly the bold action that will help savers “opt out of fossil fuels entirely.”
Apollo Global Management has joined the race among private equity firms to raise impact investing assets, with plans for a $1bn social impact fund. The news arrived just as KKR is said to have reached its own $1bn target for its Global Impact Fund and TPG Growth enters the market with a second, $3bn Rise Fund. As Impact Alpha notes, $1bn "is now table stakes for entry into impact investing."
There’s still a major misconception that investors might sacrifice returns by channelling investments into sustainable funds. However, Morgan Stanley last week “added credence” to sustainable returns with a white paper that looked at 11,0000 ETF and mutual funds and not only found that returns were in line with comparable traditional funds, but also that sustainable funds were less susceptible to downside risk in choppy markets. As Matt Slovik, head of Global Sustainable Finance at Morgan Stanley, told the FT’s Moral Money: “The number one myth in sustainable investing is that it underperforms. If anything, Morgan Stanley’s research shows that sustainable funds offer better downside risk protection especially in periods of market turbulence. The volatility of these [sustainable] funds is lower.”
Something to bear in mind as markets begin to swing more wildly.