Is passive investment responsible? Put another way, are long-term institutional investors the new activists?
1 minute read
At their core, businesses attempt to combine scarce inputs – capital and labour – in a way that generates an output of greater value than the sum of the combined inputs and in doing so, report profits. However, while profit is the first indication that a business is functioning well, it cannot be the sole objective as this would fail social justice. Companies are responsible to society for the economic and ecological effects of their operations because the activities are complex, and decisions made by companies produce a significant number of interrelated effects in both the economic and social spheres. Capitalism, yes – but ‘capitalism with a human face’, and shareholders have a crucial role to play.
Being responsible stewards of clients’ assets is non-negotiable for us
The rise of passive investment vehicles continues to transform the investment landscape. However, this transition brings with it a growing question of responsible ownership: lacking a profit motive, passive funds do not have an obvious incentive to hold companies to account and their low fees mean they frequently lack the resources to fulfil whatever environmental, social and governance ambitions they have. Active fund managers should therefore reassert their role as long-term owners of businesses and reclaim the activist title from shorter-term predatory approaches. By doing so, active funds can showcase the important benefits that they bring to wider society in addition to their role as price-setters.
Activist investing is a growing focus of our investment process. We contend that building a proactive and value-enhancing dialogue with management teams is the responsibility of all long-term shareholders. We pride ourselves in being ahead of the industry in this. Exploring the elements driving the business, as well as having the ability to change and shape the future through open and constructive management engagement are key parts of our ownership and monitoring process. Such engagement need not come through a high profile, combative media campaign or other hostile actions frequently seen across the corporate landscape. As long-term shareholders with direct management access and thoughtful, creative, insights into our owned businesses, we are able to work together with companies to enhance returns for shareholders.