The current economic crisis brought about by the Covid-19 pandemic could have one upside in that it might kill off the ‘greed is good’ mentality.
That’s the hope of Principles for Responsible Investment CEO Fiona Reynolds, who told RI in an interview: “The ‘greed is good’ – all of that – is a thing of the past. I think this will kill that off completely.”
In an interview she observed that responsible investment, and sustainability more generally, was “coming to the fore” in the current crisis in a way it didn’t during the global financial crisis of 2007-8.
The responses she is seeing now are more practical, more solutions oriented, with people looking to see how they could focus on the long-term, with social (‘S’) issues such as workforce, supply chain, the gig economy, which lag within the ESG space, taking greater prominence.
Governments, she said, were also taking a human-centred response.
But she argued that responsible investment is still not quite as ‘mainstream’ as some people say it is, that it is not “embedded” yet – but she hoped the crisis could be a catalyst for that to happen.
“I think we have to treat these [S] issues in a serious way. We really need to step these up, get more investors involved.” Investors are not as engaged with the ‘S’ issues as they are with climate change, she noted.
She was speaking after the PRI released guidance for investors on the crisis. The guide speaks of the need for a review of the “structure and readiness of markets to respond to such economic and societal threats”. This review was up to “all of us” to make, Reynolds said.
She points out the World Economic Forum’s 2020 Global Risks Report ranks infectious diseases among the top 10 risks over the next decade in terms of impact: “There it was, in the top 10, it’s staring at you.”
Engagement with governments
But the crisis has shown that investors’ engagement with governments has to improve, with Reynolds saying: “I don’t think we’ve made a strong enough responsible investment voice with governments.”
It was “always the corporate voice that gets heard”. So investors need a “seat at the table” – though the situation is improving as governments are looking at climate change finance, and with the EU putting such a focus on sustainable finance.
The PRI is setting up two working groups, the first focused on immediate issues such as the practicalities of AGMs and engagement, capital allocation, tax etc. One issue that has emerged is whistleblowing, which is where employees go public with issues at companies.
The second group will look at what might be termed more ‘systemic’ issues such as the bans on short selling and the investor voice in policy, with the ultimate aim of, in Reynolds’ words: “How do we make sure the recovery is green and sustainable?”
The PRI is currently in the information-gathering phase, and investors can engage via the Collaboration Platform. “After a couple of weeks we’ll take a look and see what we can do. We’re pretty open to what ends up happening.” She also sees a role for academia in this process.
An opportunity for the PRI?
Is this crisis an opportunity for the PRI: “I think it is. I see it as a great opportunity to bring our community together. But it’s a real challenge for us.” She said she wasn’t seeing the outright panic seen in the GFC, with people thinking ‘we’ve been here before, we know how NOT to respond’.
The PRI – which this week froze its signatory fees – will have to re-prioritise some of its work and re-do some of its business plans, Reynolds said, adding: “We’re not immune to what happens in the finance sector. But I hope PRI is seen as part of the solution.”
She added: “In the short-term we’re in good shape.”
The PRI was “going to have to think about” whether its flagship PRI in Person event, currently scheduled to take place in Tokyo in October, goes ahead. A decision needs to be taken by the end of May, she said.
Investor fiduciary duty vs. role in society
Is there a conflict between investors’ fiduciary duty to their own beneficiaries and their wider role in society? Reynolds said that’s it’s very difficult to separate the two things.
She cited the examples of the issues that could be faced by a defined contribution member retiring now, or of members making redemptions at the bottom of the market.
But pension funds, she said, were managing for a ‘multi-stakeholder group’ – reflecting their role within wider society.
Monitoring asset managers
The PRI’s guidance (Point 7) advises investors to “review positions and trading activity, including those of any external managers, to ensure their investment activities are aligned with the long term and economy-wide response needed – including in light of concerns around the potential exacerbating effects of short selling”.
Reynolds explained: “We need to look at how asset managers are responding, to see whether they are focusing on the long-term, keeping to ESG principles.”
A final question: are we propping up a broken system? “I do ask myself this question all the time.” But she hoped the crisis would lead to a stakeholder society serving “the global good”.