The phrase ‘responsible capitalism’ has become a popular slogan for those on the left and the right. However, slogans are no substitute for policies.
Responsible capitalism is sometimes used as a cover to bash the bankers, but there is much more to it than that.
Kofi Annan, in his term as UN General Secretary back in 2006 had a go at providing some definition. He brought together some of the world’s biggest investors and got them to sign up to some core principles – the UN Principles of Responsible Investment (PRI).
Under the radar, seven years later we have seen the green shoots of these principles developing via shareholder action in the equity markets. It might sound dull, but bear with me for a moment.
£35 trillion of investments signed up to Annan’s ‘Principles for Responsible Investment’. The principles were meant to cover a company’s environmental, social and governance policies (ESG).
So what, you might say. After all companies often sign up to promises to behave more ethically, and then end up polluting rivers, attacking workers’ rights and marginalising women, etc etc – all too often.
I think every political party leader who wants to take ownership of the ‘responsible capitalism’ tag should carefully read the government commissioned review of UK Equity Markets and Long Term Decision Making, by Professor John Kay.
You and I have tens of trillions of pounds invested in companies worldwide through our pension funds. Many of these companies are signatories to the PRI. The default position is for fund managers to invest pension funds on our behalf and get as big a return as possible. The asset owners (us, represented by trustees) are usually in the dark about where our pension fund is invested.
As the Kay Review showed (and no doubt the Arch Bishop of Canterbury would agree) your money is invested by equity fund managers for a short term return and usually with little or no recourse to the trustees. You might not know you’re investing in Wonga (as the Church was), or for that matter the pharma company that’s been bribing doctors, or the company that has a reputation for sacking trade unionists, but you have invested in them nonetheless.
One of the worst recent examples is the collapse of a textiles factory in Bangladesh, killing hundreds of workers. You and I may have indirectly contributed to this through the investment of our pension funds in companies that purchased these garments. The companies are reputable – they may not even have been aware of where their supply chains led from. So perhaps we need to use our investments to focus their minds on such issues.
There is some welcome news. Of the £35 trillion worth of investors who signed up to the UN code for more responsible capitalism back in 2006, a small but growing group of them, worth nearly £200 billion of investment, are taking a more responsible approach.
For want of a better name ‘asset stewards’ like F&C and Hermes Equity Ownership Services (who are a not for profit organisation) are growing the number of companies involved in a more responsible approach. They won’t get it right every time but by creating a direct link between asset owners (pension fund contributors like you and I) and the companies that our funds have shares in, they are influencing company behaviour.
I’ve taken some time out and seen it in action. The worst excesses of capitalism can (and occasionally) are being curbed. But for me, and I suspect for you, not nearly fast enough.
This is the nub of responsible capitalism and it is also where political rhetoric could and should turn in to policy.
This area of equity stewardship may be a political new ground for many politicians, but it’s a great opportunity for anyone who wants to turn political rhetoric about a better and a more responsible form of capitalism in to practical reality.
By promoting and supporting a new type of engagement between us, as owners of trillions of pounds of shareholdings through our pension funds and the boards of major corporations, we can improve their behaviour. And in a significant way change the world we live in.
These ‘asset stewards’ engage in board level dialogues on behalf of our investments. Our investments, after all, are key to keeping big corporations alive. From gentle dialogue, right through to shareholder votes at board meetings, a new form of capitalism is being shaped by a new breed of not-for-profit asset organisations.
But they are still a small drop in the ocean that Kofi Annan dipped his toe in to in 2006. With the right regularity and political framework, so much more could still be achieved.