Social Conscience: The New Asset Management Competitive Advantage

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They’ve done the hard work so you don’t need to.

It was great to see ShareAction’s list of the top 13 shareholder resolutions to watch this AGM season – every investor or adviser should be putting this to the asset managers they work with to hear where they stand on these issues.

We’re in a new world where this really matters. Whether it’s racial equality at Citi, human rights in the Wendy’s supply chain or climate finance at Barclays. For sure these are nuanced issues and I’m not saying the answer should be a blanket “yes” to all, but I argue it’s a core competence now for asset managers to take a view on these things AND communicate a clear strategy to their clients.

Social issues are investment risks – if you don’t believe me just look at the recent Deliveroo IPO, supply chain scandal at Boohoo or private prison companies in the US.

Voting with your dollars

Last year, about a quarter of failed climate and social shareholder resolutions could have passed with the support of just one more big asset manager (report by Share Action again). Some of the world’s biggest managers like BlackRock and Vanguard were simply MIA, voting on less than 1 in 5 resolutions.

Source: ShareAction

Only 6 managers were found to vote for more than 95% of resolutions – all of which were in Europe, and there’s a clear US/Europe divide emerging here with US based managers seeming a step behind their European counterparts.

In the past much engagement by asset managers with the companies their clients own consisted of little more than a cosy chat with a smooth-talking chairman, a little bit of hand-wringing and vague assurances. No longer.

This is now a competitive landscape for asset managers, no question about it. LGIM had a head start on its larger competitors, but BlackRock is talking a better game. In the future, managers will be selected at least partly based on these criteria, especially in an increasingly passive-dominated world where there are few other criteria to compete on.

In some ways, asset management is going full-circle here. The last two decades have seen huge dis-intermediation and automation in the investing value chain. This has left the ultimate asset owners holding portfolios of funds rather than stocks, giving them low-cost diversified global exposures, but making them more distant from their underlying holdings – which become numbers in a spreadsheet rather than living, breathing companies affecting the lives of millions. Stewardship considerations fell through the cracks during this boom time for asset managers . But this trend is now firmly in reverse and moving fast.

I see that as an extension of a trend I first mentioned 2 years ago: investors becoming Universal Owners who recognise they own all the mess and externalities associated with their investments. The most obvious example is pollution and climate change, but social issues are not far behind.

Investors who use asset managers rather than own shares directly (and that’s most of them) will rightly look to their handsomely-paid asset managers to fulfil these responsibilities for them.

Where does your manager stand?

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