It’s not common to sit in an industry seminar and hear a chief executive utter the words, “Firstly, let me appeal to your hearts”, yet this was the central currency to Hermes CEO Saker Nusseibeh’s keynote at last week’s environmental, social and governance-themed ACSI conference.
Addressing a diverse industry crowd, with several major fund CEOs and CIOs in attendance, as well as numerous asset managers, Nusseibeh’s point was clear: the industry should be changing its emphasis to focus on stakeholders rather than individual members.
In other words, we should be paying greater attention to the impact investments have on wider society and consider adjusting them accordingly.
Increasing the savings pots of members is important, but with the rise of the environmental, social and governance conscience, investment extends beyond the individual.
This is about creation – asking what kind of world we’ll be inhabiting in 20 or 30 years if we’re not conscious of how our investments can affect and be affected by externalities – politics, business ethics, environment and infrastructure, to name a few.
All of us have a stake in all of our savings
It might seem easy to devalue this proposition given the not-insignificant responsibility of a fund to deliver the best outcomes to its members, but Nusseibeh is hardly naïve on the role of a super fund. That and it’s a space he’s highly attuned to given he chairs the 300 Club, which is focused on the impacts market behaviours have on investment. Hermes is also owned by the BT Pension Scheme, which also oversees Hermes Equity Ownership Services, an advisory service with a focus on responsible investment.
As Nusseibeh notes, the onus on industry stewards to grow member savings is, arguably, a duty to attract growth for wider society.
“It ultimately means that all of us have a stake in all of our savings. It’s about more stakeholders than simply those who individually own the assets as individuals within the scheme,” he suggests.
And there is some agency in taking on a longer term consideration of investment, with closer thought to how asset allocations impact the world, this human and earthly collective.
Perhaps a primary issue is the terminology. Have, as Nusseibeh argues, these notions of a “collective” or “stakeholder” society become dirty words since the Reagan-Thatcher rise of Milton Friedman economics in the late 1970s?
If so, and if oil-spills, pollution and a weak economy aren’t enough of a contention for funds, Nusseibeh goes on to appeal to the almighty wallet.
“What happens to our investments if don’t take a long-term governance, environmental and social issues into consideration? What is the result of that on the prices of the assets that we invest in? On the cash flow that these assets generate, because it’s that cash flow that’s going to pay out the pensions at the end of the day?
“I would say it’s a disaster.”
No to near slavery
This taps into a wider issue of industry engagement, not just governance but, as Nusseibeh points out, investors should be holding companies they invest in accountable for risk and operational standards, otherwise they’ll feel it in the share price.
“We’re all rushing into cheap overseas production. Just think about what we’re doing. We’re creating factories around the world that have people in near-slavery conditions.”
This sort of situation has political impact, Nusseibeh says – think, the rise of extreme politics globally – and the end investor will also feel the pain.
It’s a thinking that was canvassed throughout the day. Richard Brandweiner, who has just joined First State Super as director of investment services, argued similarly that a tunnel-vision approach to investment could mean crucial longer term returns get sacrificed in the desire to deliver short-term returns for investors.
Indeed, anxious investors are nothing new, but perhaps the ESG theme is becoming a far greater consideration for an industry having to reshape its approach to how people live.
Nusseibeh argues that there needs to be a different kind of relationship between individual asset managers and their clients.
“The relationship has to be one of fiduciary care with a small ‘f’,” he said.
“We can no longer afford to simply say, for the sake of an example, I’m an asset manager and I’m selling you global equities, that’s all I’m selling you.”
Similarly, funds should be taking a wider, longer term view to how they engage with the world. As Nusseibeh told delegates, a widely integrated approach to ESG investing is doable and not that difficult.