Alright LCP and First Actuarial – here’s my ESG challenge to you!

I’d alert readers to an excellent thought piece by LCP consultant, Sam Cobley. You can read it here.

LCP Partners 2

Sam ponders why, while every trustee and IGC chair is now commenting on Responsible Investment and Environmental, Social and Governance issues. So few are doing anything about investing in a responsible way.

His conclusion is that fiduciaries and consultants don’t want to be the first movers.

I’d be a little more blunt. They’d rather see someone else making mistakes and hoover up after them, avoiding the risk of reputational damage.

The problem with #metoo is that it doesn’t progress matters very far. This week LGIM, the investment arm of L&G decided to stop being #metoo and start voting against the constitution of boards where less than 25% directors are female. It’s comment was that the pace of change in this area has been too slow.

And of course there was a backlash in investment circles at what was taken as an unnecessary intervention into the governance of companies.

What is really scary about LGIM is that when it votes, it’s vote is a matter of public record and their sustainability team aren’t shy about naming names. That’s a long way from almost any consultancy I can think of. Even LCP have to publish data from surveys without putting names to data or opinion.

In my opinion, the tipping point for Responsible Investment will come when IGCs and Trustees stop being shy and demand action of their fund managers. Rather than hiding behind RI and ESG policies, fiduciaries need to actively boast that they are helping their members to the added value that can be garnered from the green pound.

The advisers to such fiduciaries need to be more rigorous and assert the need to include ESG strategies in the default investment options they advise on. Trustees need to be proud of going green with their investments, rather than awkward.

But here there is a further problem. Advisers, like their clients, are caught by the tide that always sweeps them back to where they were. So proposals to adopt a green default – appear and then recede. How rare is it that they sail out to sea!

One board of trustee that has gone public with its default is the staff workplace pension scheme of the HSBC Bank. Not only did it create in “Future World” a default for its own staff, but it shared the product so that it can be invested in by others. My personal DC money is invested in Future World and I am happy to pay twice as much for the management of my money the “Future World” way, than in L&G’s equivalent passive global equity tracker.

There – I said it – a consultant outing himself over RI and ESG issues and like the “only gay in the village” – parading around in all his green vulnerability.

So here’s my challenge to Sam Cobley and the authors of LCP’s  “Behind the scenes: Are investment managers delivering on their responsible investment claims?” and “The LCP Responsible Investment Survey “- Matt Gibson, Claire Jones and John Clements.LCP partners

“Are your personal pension pots invested in a green way? If they are, are you prepared to share why? If not – are you prepared to share why?”

I suspect that #metoo can work both ways and when we see consultants adopting green strategies and boasting they are prepared to have the courage of their convictions, then we will see positive #metoo behaviours among clients.

Other than First Actuarial, I know no other consultancy to which I can address this question.  So how about it LCP – are you up for that challenge – and First Actuarial, will you respond to it?

Do we really believe in Responsible Investment? The proof in the pudding is what we do with our own money!

 

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in actuaries, First Actuarial, pensions and tagged , , , , . Bookmark the permalink.

4 Responses to Alright LCP and First Actuarial – here’s my ESG challenge to you!

  1. Simon Grover says:

    Two points. One: referring to RI or ESG as investing as ‘green’ may not be a useful shorthand. It implies that the point of RI is to help the environment. The core of RI should be about bearing ESG factors in mind IN ORDER TO get better investment results. At one end of that we get into ‘doing good’, but it’s not at the core.

    Second point: Another good way to bring RI into the mainstream would be to tell and ask members about it. Our recent work with the DC Investment Forum found members EXPECT their pension money to be invested responsibly, and have a good instinctive grasp of what RI is. If we show them what RI can do, they will want more of it.

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  2. George Kirrin says:

    While I agree with Simon that the minority of members who engage with their pensions will expect responsibility and intuitively understand what is on offer, most pension plans hold too many individual securities (passive funds hold the lot?).

    So we end up with token discussions taking up a disproportionate amount of the limited time given over to performance review. Talking about material successes is fine, yes, and a form of exceptions reporting which focuses on the material plusses and minuses, yes too, but otherwise RI or ESG or whatever you call it is surely an ineffecient way to review saving and investment in a holistic way?

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  3. Sam Cobley says:

    Henry – thank you for your nice comments on my blog, always great to have someone else, who is clearly passionate on the topic, enter the debate.

    Your challenge is valid and accepted; personally I think consultants can definitely do much more to draw attention to the benefits of RI to our clients.

    You suggested that “fiduciaries and consultants don’t want to be the first movers”. Often I find it is trustees that don’t want to be first movers, but I agree that is just shifting the issue, eg consultants not approaching them with ideas they have full conviction in, which itself is a function of a lack of enough credible funds in which we, consultants, have conviction in recommending. We like the Future World Fund – I believe a lot of the clients/assets are actually LCP clients, which I think evidences our conviction. However, this fund is only one passive/systematic fund in a potentially very large universe of different methods of incorporating RI that should span a number of asset classes, not just equity.

    We can and indeed do work with asset managers to regularly have dialogues on industry trends and products that we believe our clients would support. But to help get a fund going, the manager normally has to have commitments. This clearly worked for HSBC as they were able to work with L&G and FTSE Russell to produce the FutureWorld index, as they had a commitment to seed the fund with substantial assets. On a personal level, it is good to hear you like it too: before I joined LCP, I was part of the HSBC internal pension team that was heavily involved in the planning and build.

    In regard to Simon Grover’s second point, interestingly some of our clients do run member communications exercises asking members if they would like an ESG/RI fund. Encouragingly, for the most part the answer is “yes” (now over 50% of Trust based DC Schemes offer an ESG self-select option), yet to refer to your (Henry’s!) closing comment “the proof of the pudding is what we do with our own money”, there is very little take up in these funds. So, maybe despite members making the right noises (something I believe you are likening us consultants to doing 🙂 ) they themselves are not yet ready to put their money where their mouth is and invest in RI pro-actively.

    Finally, you asked how I invest personally: I’m a millennial… I decided that a flat purchase was the first priority…therefore I don’t have the luxury of significant (or even any!) investments to my name, responsible or otherwise. That said, my flat is a new build and very eco-friendly (it has its own geothermal pump!). Now I have the foundation of purchasing a flat, clearly other investments will be my next consideration (including my pension) … so here’s a counter challenge for you Henry: you should discuss the whole issue of millennials saving rates and house v pension in another blog?

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  4. henry tapper says:

    Thanks Sam! I want to get someone else to kick that off for me – I’m 56! Would you like to write more on this blog – I’ll see if I can get some contributors – I’ll ask Iona Bain who has put some good stuff up. Share Action are good on this but most of all – I’d like some of you youngsters sending me whatever you want published – including vlogs and other multi-media stuff.

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