Welcome back from your holiday….now it’s time to get ACTIVE to drive demand for RI!

Supply-side changes to the investment world have only taken us so far.

Welcome back to RI Readers who have (hopefully) been away over the summer on a nice, relaxing holiday sipping cocktails by the pool, taking invigorating walks in the country, visiting some wonderful museums/attractions, or lying in the hammock in the garden….
But now it’s back to work, and time to get ACTIVE! Yes, that’s right ACTIVE
It’s tough getting back into the swing of things. But there’s plenty out there to suggest that we are seeing signs of the responsible investment movement becoming more activist and realising that it’s time to take its work out to a broader public, tune into the trends of on-line consumer choice and e-campaigning, and even, dare I say, take a responsible ‘selfie’ or two and post them to the web. I was inspired this week by the story we covered on the launch of the Australian web platform Super Switch, which has an initial list of 35 of the largest Australian superannuation funds with publicly available information on their carbon holdings. It encourages members of Australia’s mandatory superannuation schemes to compare the carbon exposure of the investments of market providers and move their money if they wish, or lobby the fund directly on its actions on climate change. It’s the latest salvo in the global fossil fuel divestment campaign, which has caught the zeitgeist. Watch out for more of this in Europe and the US as campaigners begin to refine their tactics and target investors directly. At RI we’ve never believed that fossil fuel divestment is a panacea. There are huge, complex questions around the financial and practical implications of reducing carbon intensive assets. But, it is a vital debate given the urgency of climate change. Institutional investors cannot duck their crucial financing and public-facing role. As Bob Welsh, former CEO at the AUS$13bn VicSuper fund, says in the story, there is plenty that pension funds can do, and savers surely have a right to know what their fund provider ‘is’ doing on one of the most important ethical and financial issues of our time.As, we would argue, they also do on corporate governance given its undoubted, potential role in (hopefully) preventing future financial crises and saving the economy the tens of trillions of dollars needed, according to bodies like the IMF, to clean up the last crisis.
To this end, ShareAction, the London-based NGO for responsible investment, is doing fresh, clever work using social media to amplify its voice and explain why pension fund governance activism is vital, as Catherine Howarth, Chief Executive, recounted at our RI Europe conference before the summer: (Click here for the report of that event)
These include targeted Twitter campaigns on particular issues around shareholder annual general meetings (AGMs), but also praising asset managers that have gone public over concerns at companies or are demonstrating real stewardship of investor money. Its ‘selfies’ gallery of pension fund members at this year’s AGMs gives activism a human face. Take a look! Significantly, ShareAction was part of a PR victory this summer when Hargreaves Lansdown, the influential UK funds platform, dropped a controversial plan to charge a fee of £10 plus VAT to retail investor customers who wish to attend the Annual General Meetings of companies they own. The fee plan also extended to making customers pay to vote. ShareAction’s online petition, which gathered significant press attention, almost certainly helped to make the highly profitable funds platform think twice about an action that flew in the face of the UK government’s attempt to encourage investor stewardship and shareholder oversight. Hargreaves said it would absorb the costs involved in shareholder voting. Bravo!
An upbeat article in the UK’s Guardian newspaper called ShareAction ‘nerdily optimistic’. Here’s to optimistic nerds!
And to academic nerds too…A fascinating research
paper titled: Public Pressure and Corporate Tax Behavior was published during the summer by Scott Dyreng of Duke University, Jeffrey Hoopes of Ohio State University and Jaron Wilde University of Iowa Henry B. Tippie College of Business. It examines whether public pressure by Action Aid, the development NGO, on companies in the UK’s FTSE 100 index to comply with a legal requirement to disclose the location of all subsidiaries led those companies to decrease tax avoidance and reduce the use of subsidiaries in tax havens relative to other firms in the FTSE 100 not in the NGO’s crosshairs.
In essence, it tests whether those companies that come under the rapid-fire public/media/social media spotlight on tax issues suffer a market performance dip and end up paying more over time to satisfy scrutiny/criticism of their tax arrangements. The research data finds both to be true: that the short-term market returns for firms that initially did not disclose their subsidiary list are significantly more negative than those for firms that initially disclosed.The FTSE 100 firms that ActionAid specified in its report (picked up by media and campaigners) as not compliant with subsidiary disclosure rules, subsequently reported higher effective tax rates following the public scrutiny, indicating a decrease in tax avoidance relative to FTSE 100 firms that were not affected by the scrutiny. That sounds to me like material investment information that fund managers should be looking at and/or engaging with high-profile companies on.
All three examples above suggest to me that a more active, challenging approach to responsible investment issues is both necessary, and encouragingly on its way. Supply-side changes to the investment world have only taken us so far. The future is in generating clever, engaging and relevant demand-side public interest in sustainable finance.