The big agenda issues for the FSC conference were ESG non-reporting, longevity unpreparedness, and market myths. Speaking at the FSC conference last month, ACSI chief executive, Ann Byrne, said 15 per cent, or 30 companies, in the S&P/ASX 200 do not report their environmental, social and governance risks. In tandem with Byrne’s comments, ACSI and FSC published ESG Reporting Guide for Australian companies, a set of recommended guidelines to which the two groups want companies to adhere so a more complete and consistent view of ESG issues is compiled. Byrne says mining companies such as BHP Billiton and Rio Tinto are “leading the way” with ESG risks reporting. But, not enough information comes from building, construction, manufacturing and energy companies, she said.
On the second day of the FSC conference, the annual FSC and PwC survey of industry CEOs showed that bosses of major wealth managers in Australia have lost confidence that they will overcome the challenges of an ageing population. A mere 15 per cent of CEOs believe that problems such as the $900 billion savings gap can be overcome, compared to 44 per cent last year. FSC CEO John Brogden said the debt woes in the US and Europe and market volatility have made consumers, and therefore wealth management bosses, less confident. Colonial First State’s CEO, Brian Bissaker, said conservative actions such as cutting expenditure and hoarding money in a bank account showed that Australian were already bridging the large savings gap.
The household savings rate was higher than it has been in the past 20 years, he said, and people were paying off debts rather than spending. Pauline Blight-Johnston, managing director of re-insurer RGA and a director of the FSC, said “what consistently amazes me is that, as an industry, we don’t get it onto the Government’s agenda when the human train wreck is coming”. The solution was not annuities and lifecycle investments, but legislation determining how people invest in retirement. “It’s not a product solution. It’s a policy solution,” she said. On the conference’s third day, Justin Fox, editorial director of the Harvard Business Review, said a revolution in finance theory in the past decade had led to a rethink of many investment ideas – for example, the notion that financial markets were rational and efficient.
Fox, who is also the author of The myth of the rational market: a history of risk, reward and delusion on Wall Street, said other myths include: • risk can always be quantified • risk is equivalent to historical volatility • financial markets are inherently stable • corporations should use as their guiding light the movements of financial markets, and • stock prices should provide direction to CEOs, CFOs and boards of directors on what decisions to make. In the past six months or so, Fox said, yields on US Treasury bonds have not moved much. “Does that mean that markets are really, really smart,” he asks, “and they can see through all the namecalling and posturing in Washington?”