The ability of passive managers to influence companies’ approaches to environmental, social and governance (ESG) and socially responsible investment (SRI) issues sparked a clash between pressure group Share Action and investment house Charles Stanley Pan Asset.
Speaking at a debate at the Transparency Task Force symposium in London yesterday Charles Stanley Pan Asset head of institutional Bob Champion said that it was difficult if not impossible to reconcile the twin goals of reducing active management cost and increasing engagement with company boards on responsible investment issues.
Share Action chief executive Katherine Howarth countered that there were numerous managers and pension schemes that used passives and succeeded in significant levels of engagement on SRI and ESG issues.
In a wide-ranging debate Howarth also called on providers and pension fund operators to promote greater engagement amongst scheme members in relation to the companies in which their funds are invested. She argued scheme members often have a direct benefit from shareholder action – citing the case of Nest, which had lobbied hard on the living wage in part because a high proportion of its members would benefit from such a policy.
Champion said. “There is a tension between cost and responsible investment. It is almost impossible to completely focus on cost in a passive environment and be responsible. The products simply do not exist.”
Catherine Howarth said: “We disagree – Legal & General, which runs a lot of passives, is one of the largest asset managers and are mighty in times of their voting. They are really engaged with stewardship of assets for the long term. A lot of active managers are trading too much. They need to stop trading and focus on wealth creation.
“Nest has lobbied for the living living wage because is in the interests of its members to do so.
“Aviva has agreed to hold an AGM and at Scottish Widows we have succeeded in getting a climate audit for the default fund. We are also getting positive engagement from L&G and Aegon. And the USS has 3,000 members engaged online who say they want to be part of the discussion.”
Scottish Widows head of industry development Peter Glancy highlighted the challenges the pensions industry will face when full transparency is achieved. He said: “One newspaper told us that when it puts a negative pension story on the front page, it’s circulation goes up by 300,000.
Explicit capped charges are the tip of the iceberg. When the full amount and I shown to be much higher than this, the media are going to make a big thing about it. Tabloid newspapers and opposition politicians will have a field day.”