22 Dec 2019 A new paradigm unfolds as asset managers demand companies greater ESG transparency
Asset managers and younger age groups are driving the change to a more sustainable financial sector. As the second decade of the XXI century has now officially began, people are eager to rethink the very purpose of the current economic system.
In October 2019, the UK passed a law that requires pension funds to take into consideration Environmental, Social and Governance (ESG) issues in their investment decisions. Among the ranks of agitators calling for reforms in the financial sectors, there is an increased number of asset managers.
They have long been considered as driven only by financial performances, but more and more asset managers are joining the ranks of activists pushing for governance reforms and environmental disclosure. In response to pressure from clients, public opinion and politicians, they are pouring resources to hire staff and upgrade technology to gain knowledge and competence in ethical investing, as well as they are lobbying boards to implement ESG-oriented policies.
For instance, listed businesses face severe shareholders’ scrutiny, and executives’ pay has been by far the hottest debate. According to Proxy Insight, there were investors’ revolts over pay at 33 of the UK’s 350 biggest listed companies in 2019, up from 22 in 2014. Similarly, S&P 500 in the US shows that revolts over executives’ pay have risen by 75% since 2014. In 2019, average support for human rights proposals (a sub-category of Social issues) increased by 15% from 2018.
There are other signs marking a shift to ESG-oriented investments. Union Investment, Germany 3rd largest asset manager, sold mining company Vale‘s shares after a dam collapse in Brazil that killed 272 in January, 2019. Moreover, Norway’s $1tn oil fund dumped security company G4S, after it had found that company’s migrant workers in the Middle East suffered harassments, passport confiscation and extremely low wages.
Young people are also pathing the way to a more sustainable financial sector. The activist and environmentalists Greta Thunberg was nominated Times 2019 person of the year. Despite her young age, she is the living proof that future generations are not sitting in silence watching current leaders tearing their hopes and dreams apart. Instead, they are stepping up to stop leaders messing around with their future. As Cerulli Associates highlights, more than two third of under 30 investors would prefer their investment to have a positive and environmental impact.
As Sarah Wilson, chief executive of UK proxy advisory firm Minerva, puts it “fund managers were taught to think narrowly, non the paradigm has been broken”.
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