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Engagement no longer enough for institutionals, says AP Ethical Council

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Institutional investors are coming under increasing pressure to develop a long-term investment plan rather than simply engage with companies on individual matters, according to the secretary general of the AP Fund Ethical Council.

John Howchin, who heads the body charged with coordinating the engagement efforts of the SEK1trn (€112bn) Swedish buffer fund system, said questions on developing a strategy were catching many investors off-guard.

Speaking at the RI Europe conference in London last week, Howchin admitted the investment community as a whole was doing too little to tackle the risks posed by climate change, but he said this was down to the nature of the industry.

He said there were often hopes that, when a issue became topical, there would be a revolution led by investors.

“Well, I’m sorry to say – and I’ve been saying it for 15 years on panels – that we are not very revolutionary,” he said.

“We are very evolutionary. Although I agree, we have to be a rather quick evolutionary group, bordering on revolutionary maybe.”

He added: “People accept what we’re doing with the assets we hold, that we are trying to change these assets, but they are more keen to know what we are doing, strategically, as investors.”

He said the changed emphasis was a “fundamental shift”, leading to questions about who investors would wish to be.

“Quite honestly, a lot of investors are struggling with this,” he said. “It is a long-term change that needs to be discussed, and climate change is very much a driver in that discussion.”

Howchin also stressed that discussions surrounding the Norwegian Government Pension Fund Global’s exit from the oil sector should not be viewed as agreeing with the carbon divestment movement, but rather as risk diversification.

Prior to joining the Ethical Council in 2010, the secretary general was in charge of environmental research and corporate dialogue at the oil fund’s manager, Norges Bank Investment Management.

“Since they have such a high exposure to oil, the question was why should they have more exposure to oil in the portfolio,” he said.

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