SWEDEN – Communication – or the lack of it – on socially responsible investing has emerged as a key issue at a conference on SRI and corporate governance this week.
"We are doing an abysmal job of explaining SRI to investors," Peter Kinder, president of US-based KLD Research & Analytics told the fifth annual European summit on corporate governance and responsible investment in Stockholm.
"We need more creativity and a more coordinated approach to communicate the options that are available. Investors want to know how their investments will influence social and environmental change. Although this is a secondary interest for most investors it is a significant value proposition."
"We are being asked to simplify our message because trustees do not have the expertise to understand the concepts," said Christopher O'Dea, managing director of Mesirow Financial Investment Management.
"Part of the problem is that the SRI role is often seen as being unimportant and is paid accordingly."
Hard-pressed pension funds needed to have clearer objectives. "Investors are being asked to consider SRI as a long-term proposal while they are having to monitor performance on a monthly or quarterly basis," Eurosif president Robin Edme noted. "Owners need to regain control over the companies they are investing in from the asset managers."
The issue of engagement was another area of focus. Emma Hunt of Mercer questioned the myth that larger managers are better SRI managers because they have more resources at their disposal.
"Breadth and depth of engagement is head and shoulders above other factors," she noted.
"Many investors fail to engage efficiently because they don't prioritise," added Robert Barrington, senior director at F&C Asset Management. "Furthermore most investors fail to tell companies why they voted on SRI issues the way they did."
Executive pay was also scrutinised. Pernilla Klein, head of corporate governance at Swedish buffer fund Tredje AP-fonden (AP3) noted the wide variety in which pay is linked to performance.
In the US on average 36% of compensation is unrelated compared with 42% in the UK, 49% in Germany, 79% in Sweden and 81% in Japan.
"Equity-based compensation is a good way to achieve an alignment of interests," she noted, adding: "Management is too free to design its own compensation packages. Owners should be involved in the dialogue at an early stage - here the UK is at the forefront.
“Too often investors are presented with legal documents to explain remuneration, when what they really need is the strategy and rationale and the potential profit and loss impact."