RI Interview: ShareAction’s Catherine Howarth on its Asset Manager Responsible Investment Ranking 2015

Over the weekend, ShareAction released a report examining and ranking 33 large asset managers operating in the UK on their standards of transparency and responsible investment practices. Vibeka Mair talks to the campaign group’s CEO Catherine Howarth.

RI: The survey finds many firms are failing to comply with the most fundamental aspects of the Stewardship Code – the explanations for non-compliance are often weak, or non-existent…

Catherine Howarth: Yes, explanations are weak or non-existent. It’s not happening. The Financial Reporting Council (FRC) is aware of the same issues. And indeed, our conversations with them suggest they are eagerly anticipating the report because they are eager to see the evidence. And our report shows there is no relation between the size of a fund manager and its commitment to the Stewardship Code.
(RI context: In a RI interview last year, Sir Win Bischoff, chair of the FRC, said it had to be mindful that it could be more resource-intensive and therefore harder for small fund managers to adhere to the Stewardship Code.)
ShareAction makes some strong suggestions around voting disclosure…

Voting disclosure should be mandatory. It matters to tell clients and beneficiaries how managers voted on critical votes during the year. On other things you need a long, credible explanation if you don’t comply. But the regime allows to not comply or not explain on this issue. It’s quite concerning.
(RI context: UK Shadow Secretary of State for Business, Innovation and Skills, Chuka Umunna, has said a Labour government would require investment and pension fund managers to disclose how they vote as shareholders on all issues, including remuneration.)

The report notes that the ‘E’ and ‘S’ in ESG are still receiving less consideration than the ‘G’. Why do you think that is?
Governance issues seem to be more material. It very much depends on the firm, on the sector. Governance affects every type of firm. Another challenge is that investors are not as demanding about requiring audit metrics on E&S issues. We are disappointed. One reason is that the Stewardship Code is very weak on E&S and we will make the case on strengthening the E&S factors in the code’s guidelines to the FRC when it reviews the code in 2016.Only 13% of survey respondents were able to disclose a robust strategy for managing the risks associated with stranded carbon assets…

We are disappointed, but not massively surprised. We think it will change. But they should be ahead of the curve, not dragging their heels on such a long-term risk issue. There will be more attention on climate change in this year with Paris. It should help to focus investor attention.

“Voting disclosure should be mandatory.”

How are you communicating this report to asset owners? Do they care about responsible investment?

There has been a big change – when we started discussing ESG the issues were nowhere on the radar. Clients do care now. When the report comes out we will send it to 200+ pension funds. We do anticipate asset owners taking a good look at the report. We also expect them to take a look at the recommendations and ask tough questions

On a positive note, the report finds that the application of RI strategies to fixed income assets is rapidly growing. What do you think is driving this?

Because of shareholder rights attached to equities it tends to be more on the leading edge on responsible investment. But ESG issues are a lot about risk management and bond managers think of risk in a more focused way than equity managers. It makes sense for the fixed income business to get into ESG.

In the conclusion to the report, it notes that a reluctance to engage collectively is a feature of the asset management industry which causes significant detriment to UK savers. Is the new Investor Forum going to help combat this?

The Investor Forum was designed to facilitate engagement and the jury is out on whether it will deliver against its ambition and mandate. We will watch with great interest. We have had meetings with them. It’s brand new and no-one is clear on what its aims are yet. There have been critical voices about it being a talking shop and we hope this is not the case.