Is responsible investment the way to create change?

Investors are using their role as shareholders to influence corporate behaviour, writes Sam Burne James

ShareAction's recent report ranks 33 UK asset managers by a variety of criteria
ShareAction's recent report ranks 33 UK asset managers by a variety of criteria

There is increasing interest from both the private and third sectors in responsible investment. RI goes beyond ethical investment: rather than just screening out certain stocks, responsible investors use their role as shareholders – for example, by voting at shareholder meetings and talking directly to the company – to bring about improvement in corporate behaviour on environmental, social and governance issues. According to the website of ShareAction, a charity that campaigns for RI, the ultimate sanction a responsible investor can bring to bear is selling shares – although this should happen only if a company is unresponsive to their concerns.

ShareAction's recent report, Responsible Investment Performance of UK Asset Managers, ranks 33 of the UK's largest asset managers by a variety of criteria and provides recommendations for each of them. The nine lowest-ranked firms did not respond to ShareAction's survey, so their scores were based solely on information that was publicly available. Having taken a reputational hit, a number of these have said they will respond next year.

The Health Foundation, an £820m-endowed healthcare charity, works with 13 fund managers. Five are ranked in the report: three – BlackRock, Henderson and Investec – are mid-table, and the other two, Aberdeen (26th) and M&G (30th), were both non-respondents. A spokesman for the foundation says that the charity regrets these non-responses and will raise the issue in future meetings with the firms. "We require our investment managers to have an environmental, social and governance policy in place," he says.

The finance director of another foundation, who asks not to be named, questions whether adopting RI is the best use of the charity's time and money. The foundation might be large by charity standards, he says, but it is a small fish in the capitalist pond and he thinks it would be unlikely to influence major corporates. He says it could have a greater net impact by bringing in as healthy a return on investment as possible - in line with its ethical investment policy - and spending that money on its cause.

Others disagree. Caroline Mason, chief executive of the Esmée Fairbairn Foundation, says: "A number of high-quality fund managers would argue that return on investment doesn't necessarily fall when you invest responsibly."

Jackie Turpin, head of finance at the Joseph Rowntree Charitable Trust, goes further. "We believe companies that are run in a responsible and sustainable manner will be around for a long time and will be financially successful," she says. "It is a win-win situation." Both Mason and Turpin say they consider RI factors when working with asset managers, and that ShareAction's rankings might be a factor in future asset-management selection processes.

Catherine Howarth, chief executive of ShareAction, says RI should be a dialogue between charity and asset manager, rather than an outsourced function. "The best asset managers are likely to welcome and embrace this," she says. She believes charities should hold themselves to at least as high a standard as they ask of others. "If we're asking companies to become accredited living-wage employers, then we should do the same," she says. "If we're asking them to look at their supply chains for social and environmental risks, so should we."

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