For some reason I’ve been allowed to have a soapbox to talk about some of my reflections on working in the investment industry during a time where the world is apocalyptic enough that a Korean TV show about contestants that fight to the death to get out of debt is considered ‘relatable’…

…But still normal enough that spending your days in front of a screen is considered a sensible thing to do. 

I have to admit, sometimes working on spreadsheets in my house while watching a global pandemic and a looming climate crisis build up around me does make me feel a bit like the dog from that fire meme.

Everything is connected

Now when I first heard the news about this ‘Covid-19’ thing back in January 2020, I was one of those people that was telling people to stop making such a fuss about some virus on the other side of the world.

This virus thing that I read about in the news, and thought had nothing to do with me, had a profound impact on my life – both personally and professionally. Personally, it meant getting really good at zoom quizzes, not seeing my family for months and months on end, and really being pushed to my limits mentally.

Professionally it meant seeing equity markets crash, interest rates go all over the place and forgetting that all of my colleagues had lower halves to their bodies too.

And it made me realise that the pandemic is not the only thing going on in the world that can have a major effect on myself and my work. You know what I’m talking about: climate change.

I joined the responsible investment team midway through this year, and what I learned was that:

1. Climate change and other issues in the world around us (like those around health, inequality and nature) can have a major impact on our investments. But also:
2. What we do with our investments can have a major impact on the world around us – it works in both directions.  

Now when the word ‘impact’ comes up, in the context of investment – it’s often used to describe investment opportunities where your money is specifically used to fund some kind of positive project – something that results in a good outcome around a specific sustainable issue.

But I’ve come to the view that, actually, every investment is an impact investment.

It just may not be a positive one.

Everything we do as investors influences what happens in the wider world. And ultimately, what happens in the wider world affects what happens to your investments.  

So that really made me realise just how interconnected everything in the world is.

Things that should be exciting are somehow made boring

As I mentioned earlier, I’ve had the privilege of joining LCP’s Responsible Investment team earlier this year, and this is an area that really excites me. I genuinely believe that the financial sector, and asset owners, in particular, have a huge potential to use their influence to change the world for the better.

Now, this sounds like a big statement, but here’s where I’m coming from. As an individual, a citizen of the world, a human being – whatever you want to call it – I care about the world. I care about the fact the planet may not be liveable in when I ‘grow up’, I care about the rainforests being destroyed, I care about human rights exploitation around the world, about racism, sexism and much more.

And I make quite a lot of choices in my life around where I choose to shop, what I choose to eat, and generally how I live my life in order to try and have a positive impact on the world.

But all of that is just small beans compared to what financial entities are able to do.  

If every asset owner worked with the companies they were invested in to make sure they were aligned with the net-zero standards needed to protect the planet (some of which are extremely large, powerful companies) or if every asset owner interrogated their managers about whether the companies they were invested in had exposure to modern slavery – and demanded a change if they found out this was the case – this would have a HUGE impact on the world.  

It would mean some of the biggest emitters, or some of the dodgiest companies would have no choice but to improve their practices and basically help save the planet!

So realistically investors coming together to make Exxon Mobil move to renewable energy is going to have a much bigger influence on the planet than me swapping steaks for tofu (#ProudVegan).

For me, the idea of this is incredibly exciting – it makes me feel hopeful for the future and like we may actually be able to get the world back on track.

So how do investors actually do this – how do they use their influence to get these big companies that they invest in on track?

Well one powerful tool is through stewardship: it’s through exercising their voting rights and engaging with investee companies.  

So if that’s the case, then I think that stewardship is something that all asset owners should get really excited about. I think it’s exciting to use those votes for the good, to speak to your managers and find out exactly what they are doing and whether its aligned with your values and what you want the world to look like.

But for some reason, the way that most pension schemes have been introduced to stewardship is not through this exciting idea about the incredible power they can have on the planet, as asset owners, but instead through legislation and regulations. 

That’s right, I’m talking about the Implementation Statement.

Now don’t get me wrong, I’ve been involved in some of the consultation responses on implementation statements and I know for a fact that a lot of thought has gone into the rules around it and the structure that’s needed. There are clear deadlines in place for when trustees need to respond on it, and outlines of what kind of stuff should be included, which, in practice should help trustees stay on track at keeping an eye on how they are influencing their investee companies.

But sadly, implementation statements are often just seen as tedious legislation, as a tick box exercise that Trustees are required to do, and as something they make publicly available, but don’t actually expect any pension scheme members to read.

There’s also another, more neglected way that investors can use their influence – one that involves an ever-growing proportion of many pension scheme investors’ portfolios: by deciding whether or not to participate in new debt issuance. Historically, debt investors assumed they had little influence – after all, it is shareholders that get to vote. However, debt holders get to vote with their pounds (or dollars). Large companies will typically come to the market every year to borrow money, often to refinance existing borrowings. This is new primary capital that goes into the business (or doesn’t, if investors don’t participate in the issuance). If large influential corporate bond managers signal their unwillingness to participate in debt issuance for companies without a science-backed Net Zero target, for example, this would exert direct pressure on companies via their treasury teams. 

So what would I like to see happen over 2022? Well:

1. I’d like people to think about how interconnected the world is and broaden their view of what their responsibilities as investors or trustees are.
2. I want more excitement! Let’s get inspired by the power that stewardship can have and use it as a force for good, and not just the basis of a boring compliance requirement.  
3. Most importantly, I’d like to see a second series of Squid Game come out.

More in the series: 

Uncorrelated reflections - Richard Jenkins