 Brie, State Street Global Advisors (SSGA) has issued a call for more than 3,500 companies in which the firm invests - representing more than $30 trillion in market cap - to increase the number of women on their boards. This is welcome news, although it is interesting that investment management is a particularly tough industry for women and penetration at senior levels is still relatively low. Oliver Wyman, for example, found that it will take until 2048 to reach 30% female representation on executive committees in the financial services industry. What do you think are the main reasons for the particularly low representation of women in the investment management industry? Historically, within the financial industry, there has been a gender bias (whether it be conscious or unconscious) toward males in the workplace. However, there has certainly been a positive move from companies being accepting of diversity to actively promoting it. There has also been a great deal of work done through trade bodies, government initiatives and industry groups. All with good reason. Numerous studies have shown that companies with a strong culture of diversity and inclusion are more successful than companies that don’t. Negative perceptions also need to be addressed, such as mistrust of the banking and investment industry fuelled by factors such as the crisis; alongside a general misconception that having a work/life balance, and being a working mother are difficult for a successful career in asset management. We need to enhance the industry's reputation among millennials from these misperceptions to nurture and developing a sustainable pipeline of female talent. Whilst there is a lot of work to do, the industry is certainly on the right trajectory to achieving it.
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 Investors should be cheering Unilever’s victory over Kraft Heinz and placing a greater value on the kind of corporate sustainability and resilience Polman’s leadership has created. Lessons from other companies should act to warn investors looking for short-term gain to be very careful what they wish for.
The remarkably short-lived take-over attempt by KraftHeinz (KH) of Unilever raises some very interesting questions for investors. What price does focussing on short-term gain extract from shareholders? Unilever’s CEO Paul Polman is well-know for his brand of responsible capitalism, putting long-term sustainability above short-term profit. The Unilever Sustainable Living Plan (USLP) he introduced in 2012 laid out a bold plan to double revenues over a decade while slashing carbon emissions in half. This means moving to sustainable product packaging, wide-spread efficiency gains and ensuring high social and environmental standards across the whole supply chain. The plan should create a positive impact for 5.5 million people, but its impact on Unilever’s bottom line should also catch investors’ eyes. Delivering the goods By April last year, the plan had already led to a saving of 1 million tonnes of CO2 and €100 million through more efficient manufacturing. The company also sent zero waste to landfill across 600 sites in 70 countries, saving a further €200 million. The introduction of compressed deodorant cans reduced the aluminium and propellant gases needed by 25% and 50% respectively. (Polman also waived the patent on the can design to encourage competitors to follow suit.) Over the last five years, under Polman’s leadership, the company’s share price gain has dwarfed that of the FTSE 100.  The potential rise of the populist movement in developed economies will create clear and lasting costs for investors. As well as the social and political consequences, there are also risks to investment returns.
The tide of populism will bring with it a profound shift in the political and economic environments, which will have far-reaching implications for investors, both potentially positive and negative. The focus on fiscal, rather than monetary, actions resulting from the populist vote increases the likelihood of inflation, but also brings the threat of stagflation, an aggressive bond market correction and greater financial market volatility. Steepening yield curves, meanwhile, would provide many investors with much-needed relief as discount rates improve – as long as they can tolerate the downside pressure on bond prices. However, if populism were to threaten the eurozone, investors could face heavy losses. Inequality sits at the heart of populism. We have been through a period where the gains of the meagre economic growth achieved since the financial crisis have been unequally shared, with the elite getting the lion’s share. The benefits of globalisation have accrued to the top 1% of earners and emerging markets primarily, while the bottom 50% of earners have seen below-average income growth. READ MORE in this month's Portfolio Institutional magazine.  Tax risk presents a material threat to financial outcomes that investors are largely ignoring.
Stick with me here… I know I’m prone to droning on about the importance of corporate tax in solving the world’s ills, but there is also a very strong risk management angle to this story. It boils down to this: corporate tax risk is a growing threat to financial returns and, by extension, sustainable investment. But it is not being taken seriously enough. New research from MSCI has found that a quarter of companies in their ACWI Index have a large tax gap (531 out of 2,160) and are paying an average rate of 14.3% versus the 31.8% that would be expected based on the jurisdictions where they generated revenue. Furthermore, 71% of those with large tax gaps were multi-nationals. Were the entire gap to be plugged by regulatory reform, the report says, MSCI ACWI Index constituents would have faced additional annual tax liabilities of up to $220 billion in aggregate. $150 billion of that would fall on multi-nationals. This is no small sum. And should serve as a wake-up call to investors who, to date, aren’t paying enough attention to the risks associated with corporate tax. To put this into some kind of context, $2.7 trillion in assets was benchmarked to the MSCI ACWI index family alone in June 2016.  As global head of stewardship, what do you think the main priorities should be when it comes to engaging with companies? Would it, for example be climate change, exec remuneration, corporate tax, or something else entirely?
It is important that we engage on material issues, as we want to be sure that we are raising issues that could impact long-term value creation. Due to the range of issues, there isn’t a one-size-fits-all approach. Climate change is one of the major long-term issues and now that COP 21 has been ratified by so many countries we are going to start to see policy implementation that will create a very different backdrop for the extractive industries. We are pushing with partners like the Aiming for A coalition to get much better disclosure and reporting on companies’ transition plans. There are also geographic differences. For example, with emerging markets we have just completed a project looking at bribery and corruption risk and have had a number of good interactions with companies on the topic. We have identified potential weak spots in our holdings and entered into discussions on the topic. One of the most important things for us is that the requests we make are founded on strong economic logic. |
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