The investment industry has a vital role to play in shaping our shared future. Its core function is to provide business with capital to enable firms to grow and prosper. Institutional investors steward other people’s assets in order to both protect and increase the value of millions of savers’ pension pots, giving them a healthy sum to live on in retirement. We’re often told by politicians of all stripes that the financial sector, of which the investment industry is a large part, is crucial to the health of the UK economy; and as a country we’ve gone to great lengths to protect it.
Why, then, is the public so distrustful of the investment industry?
The overwhelming sentiment felt by many towards the investment system is deep-rooted mistrust. It is seen as a hugely lucrative and self-serving industry, in which those on the inside make lots of money without paying much heed to savers’ long term interests, let alone to business ethics. Speculation, trading and chasing quarterly performance are incentivised by the system as a whole; long-term thinking is not.
The industry’s seeming resistance to initiatives that demand real change may lead to suspicion that initiatives that industry members do sign up to are not wholehearted and meaningful. We think the risk of greenwash is high. This undermines the initiatives, and savers’ trust in the industry. The investing public may understandably draw the conclusion that this is an industry with a deep aversion to putting customers first.
So what can the industry do to restore trust? Transparency is a pre-requisite for building trust — it should be much easier for savers to find out where and how their money is invested, and how institutional investors have voted shares and dialogued with the companies they are invested in. If pension schemes and fund management firms were more accountable to scheme members and retail clients in this way trust would be built in how the system operates and what investment can achieve.
Savers are becoming more engaged when it comes to responsible investment, and the power of investors to reduce or even to solve social and environmental problems. Fund managers can build trust by showing they take responsible investment seriously. Climate change, worsening social inequality, corporate mismanagement: these are just a few examples of problems that big investors can help tackle. Investment in clean energy and firms paying Living Wages, investor engagement to hold companies to account on aggressive and risky tax avoidance, human rights abuses in the supply chains of companies, promoting gender equality – these are topics where we think people want to see real action, and where the big investors looking after their savings can have significant influence.
The investment industry controls vast sums of money, and thus has the potential to bring about positive and lasting change in many areas of life. The voices of those working for such change within the industry must be amplified. Professional investors must prove themselves trustworthy with other people’s money through a race to the top, in which transparency and responsible investment become the norm.
ShareAction is a charity that promotes Responsible Investment and aims to give savers a voice in the investment system. ShareAction build capacity among individuals, charities, faith groups, unions and other civil society organisations to engage with powerful investors, and use their own shares in companies, to bring about change.