A few months back, I attended a Responsible Investment Roundtable with a range of industry participants. The event was hosted by an investment manager with the purpose of discussing the implementation of responsible investment polices. They were looking to highlight the benefits of a taking a responsible investment approach rather than simply checking the box on new regulation.

For me, it was another opportunity to hear how industry participants are interpreting the changing regulatory requirements. I was also hoping I might hear something new from trustees on how they are approaching responsible investing in a practical manner for the benefit of the people they serve, pension scheme members. However, a few overpowering voices in the room left me concerned about the real change we can expect to see, irrespective of regulatory changes.

The roundtable format of 10-12 people lends itself well to discussion, but it can be easily hijacked when one or two participants simply impose their own entrenched beliefs. One needs individuals to participate and speak but they must also be open to listening and learning. That is part of the challenge of bringing change, too many people are anchored to the past and traditional theory. It is time to adapt but this requires an open mind to new approaches.

The discussion once again threw up some important talking points, which included:

– who should take the lead on responsible investment policy,
– the notion of ‘maximising returns’ and the focus on historic data,
– the responsibility of trustees and how best to represent member interests/values,
– the focus on minimising AMCs while paying little attention to the costs of climate change or poor governance
– and the reliance on loose anecdotes to make arguments for a particular policy.

Each of the above requires an article or more in its own right but one of the many things that took me by surprise was the pushback on the idea of engaging and listening to pension scheme members.

Member Values
I have read articles recently about millennials not investing in sustainable funds, despite being hailed as a more socially conscious generation. There are a host of reasons, but if you look at corporate pension schemes, the simple answer is that most trustee boards (which are rarely a representation of millennials) fail to meaningfully incorporate member values into the setting of investment policy. This is then reflected in the investment offering by a lack of sustainable investment options available to millennials.

At the investment roundtable I raised the point that it was important that pension schemes develop a set of values that align with the values of their membership, to guide the investment strategy and fund offering. There was staunch disagreement from a couple of attendees. One particular viewpoint expressed highlights the type of mindset that provides the biggest stumbling block to member values being reflected in the investment policy of a pension scheme:

‘We were all young once and we had ideals, but once we start making some money and are invested in the system our views change dramatically’.

First of all, the role of a pensions manager or a trustee should not be to judge what ideals or values are meaningful. They should be objectively representing the pension scheme members and the fact is that younger members (and others) want to see sustainability taken seriously. It is not being idealistic to want to see decision making bodies take measures to help secure the future of our ecosystem. There is no hiding behind a backward-looking asset allocation model.

Second, such a mindset depicts a bleak outlook for the future, a conveyor belt of youth institutionalised and assimilated into the system. By the time they have reached any position of authority all ideals of changing the system for the better have been eradicated. The sad part is that there is a certain truth to that. Many an idealist has been lost to the system. Every day, lots of people go to work and their own values are parked at the door during office hours.

This is why we need to listen to young people now, before their spirit is broken and they fall into line. Of course, it is not just young people, there are people of all ages who still believe in the need for a better system. For those voices to be represented, we need more diversity on all boards, including trustee boards. We need true diversity, the type that only comes from having people from different backgrounds, ages and experiences. Maybe then we will see greater awareness to the issues of sustainability, the pitfalls of dismissing its seriousness and meaningful action to bring real change.  

I am not an idealist. I am a realist.

Vincent McCarthy, CFA