The Fiduciary Investors Symposium (FIS) at Harvard University has identified several of the key barriers to pension funds, endowments and sovereign wealth funds adopting more effective long-term and sustainable investment strategies, and is preparing a communiqué to the upcoming meeting of the G20 to convey its concerns and its policy requirements.
FIS, organised and hosted by Conexus Financial, the publisher of top1000funds.com, acknowledged that asset owners have a critical part to play in influencing policy to ensure long term strategies can be implemented and that they are fostered and supported by appropriate policy frameworks.
Sharan Burrow, general secretary of the International trade Union Confederation (ITUC), told FIS that “any recommendations you make, I will take to the current chair of the B20, Richard Goyder”.
“We have just prepared a joint letter from labour and business – I think we’re struggling over a couple of sentences – and we will make sure that in my presentations to the G20 leaders and in his that we have some understanding of this.”
The G20 Leaders’ Summit 2014 is being held on November 15 and 16 in Brisbane, Australia.
“There’s nothing stopping this conference writing a letter to the Australian Prime Minister saying we met…and we believe that these recommendations are critical for the future of sustainable investing and long-term investment principles,” Burrow said.
“And we can do the same to bosses around this table: you’ve got the World Bank, the IMF and indeed the OECD, that have significant influence on this question – particularly the OECD.”
Six organisations participated in a FIS panel session chaired by David Wood, adjunct lecturer in public policy and director of the Initiative for Responsible Investment (IRI) at Harvard University’s Hauser Center for Nonprofit Organizations.
The managing director of Principles for Responsible Investment (PRI), Fiona Reynolds, said discussions about encouraging the right policy settings to foster sustainable long-term investment have to take place “everywhere where there are asset owners”.
“They have to take place on a global scale,” Reynolds said.
“PRI is a global organisation and we try to do that, but we need to work with other organisations at the local level around the world.
“I want to try and make sure we use our report on progress…as a way of having those discussions. Some countries are doing this better than others.”
Conor Kehoe, a director of McKinsey & Company, said that at a more micro level it has been suggested “for several big asset owners to get together and represent their views through a joint organisation to a corporate, because if you add it up, they own 15 or 20 per cent of it”.
“That’s also been encouraged by the Stewardship Code in the United Kingdom, where asset owners do get worried about concert party regulations. But they’re being encouraged nonetheless to associate more – this is very micro – to bring a well-thought-out viewpoint to a corporation they might be worried about.”
If asset owners do not make their voices heard, then change won’t happen, said Ethiopis Tafara, vice president of corporate risk and sustainability and general counsel at the International Finance Corporation (IFC).
“I used to be at the SEC [Securities and Exchange Commission] for a number of years and I was amazed the number of times we engaged in conversations internally; for example, around materiality and whether or not ESG should be part of the materiality standard, whether we should issue an interpretive note asking companies to do that,” Tafara said.
“Frequently the debate in the building was: investors are not asking. We haven’t heard, with enough force and enough insistence, that this matters to them. And as a consequence, the SEC was not prepared to take the risk of making that part of the materiality standards. So engagement – micro and macro – is critical.”
Jane Ambachtsheer, partner and head of global responsible investment at Mercer, said “long-horizon investing [is] an under-utilised asset that a lot of long-horizon investors have”.
“It doesn’t mean you move everything into long-horzion strategies; it just means that often you’ve under utilising your ability to be able to do that.”
However, the forces ranged against long-horizon investing are considerable, Ambachtsheer said.
“I can name 20 people who lobby on behalf of global pension funds, and there’s many more than that in the global investor coalitions that I see,” she said.
“But if you think about the number of people who are lobbying for long-term capital markets on issues like climate, versus folks lobbying on behalf of shorter-term financial outcomes, the scales are not in balance. what will it take for long-horizon investors to invest more in having those types of individuals on staff?
“What does that job description look like? And how do you measure their success? How do you [ay them their bonus? These are really new challenges.”
Jameela Pedicini, vice president of sustainable investing at Harvard Management Company, said the ability to genuinely think and act over the long term held very significant benefits for asset owners. The $36 billion Harvard endowment was the first university endowment in the world to sign up to the PRI.
Centuries, not quarters
“We have the great fortune, should I say, to have the one client, and also to have that client that’s now been around almost 400 years – a client that thinks in decades and even in centuries sometimes, as opposed to quarters,” Pedicini said.
“That is extremely helpful as we look at our performance, as well as when we look at our investment strategies.
“One of the challenges we face is: how do you actually implement a long-term investment strategy? What does it actually mean for each individual investment decision?
“What we need is a more comprehensive evaluation criteria.
“What we’re starting to do is look at a broader set of risks – environmental and social and governance risks across our portfolio.
This is a huge project. This is a long-term project. We’re a year into this project.”
Note: This article was edited on October 27, 2014, to remove a quote incorrectly attributed to Jane Ambachtsheer and to insert a correctly attributed quote.