They’ve been called “absentee owners” by former City Minister Paul Myners but now the UK government has issued its strongest broadside yet against the fund management community – with Pensions Minister Guy Opperman branding them “zombies”.
In a strongly worded piece, written by Opperman for Responsible Investor, the minister says how underwhelmed he is by asset managers’ “lack of action and urgency” on climate change.
“Pensions can change the world” he says, but calls for a “radical rethink” by the industry.
He paints a picture of pension schemes “cast adrift on a tide of ESG greenwash from investment managers”.
He proposes a three-point plan that trustees can apply “to distinguish proper long-term managers from fund management ‘zombies’”: voting behaviour; support of shareholder resolutions on climate change; and whether they themselves own shareholder resolutions.
While, to some, Opperman’s arguments may appear overly simplified and lacking detailed knowledge of how the sector operates, his overall point is well made.
The Association of Member Nominated Trustees (AMNT), cited by Opperman, has been on a fruitless campaign to get fund managers to do more on ESG in pooled funds. The failure of its Red Line Voting initiative to shift the dial shows the inertia that is inherent in a system where the client often – not always – comes last.
Opperman probably oversimplifies the situation when he says fund managers are doing nothing. Fund managers would argue that they are doing what they can with the tools they have available.
But the genteel world of ESG engagement, where in Churchill’s words jaw-jaw is always better than war-war (i.e. dialogue over divestment,) has been challenged recently by influential figures like David Blood.
He’s said his firm, Generation, is “not comfortable” engaging with the big oil and gas firms. His colleague Mark Ferguson said the “quiet diplomacy” of investor-corporate dialogue has failed.
And Leslie Samuelrich of Green Century, wrting in RI, called for an end to the “futile” engagement with the oil & gas industry.She wrote: “At what point does this continued, futile engagement with the oil and gas industry constitute climate denial?”
We publish this as the CEO of Standard Chartered Bank, Bill Winters, has blasted shareholders as being “immature” for voting against a new pay policy at its AGM in May.
This drew the following comment on social media from Neville White at EdenTree: “It is always unedifying when the CEO of a very large company has a public spat with investors in support of his own greed. The 40% oppose vote to the egregious and obtuse ‘smoke and mirrors’ accounting for pension at Standard Chartered was a fitting rebuke for an outlandish attempt to hide an unjustifiably excessive pension payment.
“Bill Winters’ accusation that investors have been immature in their opposition shows the cloth ear approach to greed that continues to exist in the C-Suite. Shameful.”
So the idea that all fund managers are supine in the face of ESG issues is not true, though Opperman’s point probably still holds across the board.
The asset management sector, the active part of it at least, is facing a Molotov cocktail comprising the growth of passive investment, Brexit and poor returns. The Woodford affair is just another headache. There is a sense that its social licence to operate is about to be withdrawn.
The industry is aware that it’s at a cross-roads.
Chris Cummings, Chief Executive of the Investment Association, launching a new roadmap for the future of the £7.7trn sector last month, said: “The investment management industry is at an inflection point.
“The needs of our customers are changing rapidly, societal expectations are rising and technological advances will be transformative.”
The vision was for a “more value-focused industry in which sustainability and stewardship are at the forefront, particularly in the context of the challenge of global climate change”.
If it gets it right, perhaps the zombies can be bought back to life. If not, where does that leave the ultimate clients, the pension beneficiaries?