Superannuation funds and institutional investors worldwide are due to have a bigger impact on the way government and our society is run over the next 10 years, predicts Ross Barry, head of research at First State Super.

Barry, whose recent book Crisis and Complexity, charts the change in economic theory through each major financial crisis of the last 200 years, believes the world’s 100 largest institutional investors, which represent $30 trillion of assets, will play a bigger role in not only resolving such crises but in how societies are run.

He cites how CVS, the second largest pharmacy chain in the US, recently made the decision to end the sale of cigarettes, a product that was contributing 4 per cent of its revenue – $2 billion a year. The company positioned the move as part of its desire to reposition as a healthcare provider with its chief executive Larry Merlo saying at the time: “Cigarette products have no place in a setting in which healthcare is delivered.”

Barry points out the move coincided with a rising number of institutional investors taking action against companies that derive revenue from tobacco. In the past two years HESTA, Cbus, the Future Fund and First State Super have all divested from companies manufacturing tobacco products.

“Companies like CVS are dependent on institutional investors to fund their expansion into the growing healthcare industry,” he said. “And institutional investors are, one by one, screening out any company involved in tobacco products.”

He predicts more companies will make similar decisions to align themselves with the ESG policies of institutional investors, not least because of the way such investors are increasingly collaborating on these issues. In the last six months he has measured a growth in this activity and foresees it increasing steadily over a 10 year period as more institutional investors collaborate over shared ESG beliefs. He cites Canadian pension funds and sovereign wealth funds as the most active in exchanging information.

Barry attributes the growth in collaboration to lessons learnt from the GFC. “That has been quite a unifying experience for a lot of them and they have a better understanding of Wall Street and all the traps that go with that.”

Reputational risk is a key driver for such funds, unlike fund managers who Barry says are largely invisible to the public. He predicts such “substantive shareholders” will take on a bigger role in forming boards, engaging with employees, ensuring industrial relations issues are done fairly and limiting the environmental impact they have.

He says the change is having a local impact too. “Australian superannuation funds are busily forging a social contract with their millions of members. Not only do they want to ensure their members have sufficient income to live with dignity in retirement, they are doing their very best to sustain the environment, the community amenity and, indeed, the very social fabric of the world into which they will retire, the world they will leave their children and their children’s children.”

Barry also sees a role for institutional investors in interacting with governments which are heavily indebted, citing the negotiations recently held between the governments of Greece and Argentina on rescheduling government debts.