CSR: Asset managers need to rethink governance
Environmental and social issues not separate; BlackRock still not voting on climate reporting.
Companies with good corporate governance outperformed those without by some 24 basis points a month, according to a study released in November by asset manager Hermes. The research looked at the impact of environmental, social and governance (ESG) factors on equity returns in the MSCI World Index from December 31, 2008 to June 30, 2018.
Good governance provided the biggest uptick in shareholder value of all factors, despite it seemingly being eclipsed by a focus on environmental and social issues in recent years.
How governance is viewed by asset managers is constantly evolving, says Will Oulton, director of responsible investment at First State Investments.
“In the earlier days of responsible investment, there were specific governance funds,” he says. “Those tended to be activist funds, run by managers that were often confrontational in getting companies to shake up their boards, with the goal of improving long-term value.”
That approach remained niche as activist funds were seen as disruptive, requiring specific skills and were resource-intensive.
Now, Oulton says, the view from investors is more nuanced: less aggressive and more constructive.
“It’s just more common now to monitor, engage and use voting rights to improve corporate governance,” he says.