Ramping up scrutiny of asset managers’ governance practices, including around conflicts of interest, is the next project for the responsible investment community, according to Anne Simpson, global head of sustainability at Franklin Templeton.
As part of a panel on stewardship, she said: “If the system rests upon our ability to act as stewards and fiduciaries then we in turn need to be under scrutiny, so the governance agenda is just as relevant… I think that this is the next project in our community.”
Simpson, who was also inaugural chair of investor engagement initiative Climate Action 100+ (CA100+), was responding to a question about conflicts of interest when it comes to asset managers voting on corporate directors over climate change, given that they might be competing to manage the pension fund assets of the companies in question.
Conflicts of interest, she said, “need to be acknowledged, they need to be managed, they need to be disclosed. It needs to be a formal part of your risk management framework… we have taken 20-25 years to get to a reasonable set of ideas to thinking about corporate governance. We are at the very beginning of thinking about investor governance”.
Simpson, who still sits on the steering committee of CA100+, described the governance of investors as the “next stage in capital markets [and] capitalism”.
Also on the panel was BlackRock’s global head of investment stewardship, Sandra Boss. She said the issue of conflicts of interest when it comes to climate votes was “definitely not” something she recognised in her day-to-day activities.
She added that there should be more focus on what managers are doing – pointing to BlackRock’s own engagement with and independent research on heavy emitters – because it’s “not as dark as could be suggested”.
Rob Bauer, professor of finance at the Maastricht University, challenged Boss on BlackRock’s transparency: “I think you cannot say, Sandra, ‘you have to trust we are doing a good job’. You have to show what you are doing… There is a lot of stuff happening that is not good and we have to bring that to the surface and discuss it.”
He pointed to issues such as those that might arise when asset managers engage with oil businesses that are also clients.
Bauer also questioned how BlackRock identified the subset of companies it engaged with on climate, to which Boss responded: “It’s very simple, it’s where the carbon is. We literally pick the most carbon-intensive and we talk to them, regardless of whether there is a commercial relationship. It does not factor into the discussion or the voting.”
Boss also highlighted that 100 percent of BlackRock’s engagements are made public quarterly – both who was engaged and on what topic – as are its votes.
Bauer responded: “[J]ust putting something on a website is not explaining to the general public what it means and where your conflicts of interest are, were or will be. That is what you have to discuss and make public in my view.”