Put the bee back in beta
What is the price of a bee? And more generally, where does the extinction of bee populations – and with bees much of agriculture as we know it – fit into discounted cash flow and other investment/risk decision-making tools?
The simple answer is that they don’t. That was confirmed by a client who contacted one of the chief investors in Bayer, the main company at the centre of this particular storm.
The scientific case that one class of pesticides is particularly dangerous to bees is now very clear. And Bayer is the biggest producer of these chemicals. It is also leading a powerful industry push back against regulatory action that is already much too late.
The role of investors is clear – they incentivise corporate management to worry more about shareholder returns than contributing to a form of ecocide that could be economically disastrous for asset owners and members. Investors also show no real stewardship activity when management lobbies against the interests of end beneficiaries.
Systematically undervaluing beta risks is nothing new. But undermining ESG beta is probably the much bigger issue. As Jeremy Grantham has said about climate change,
“we should not unnecessarily ruin a pleasant and currently very serviceable planet just to maximise the short-term profits of energy companies and others”. Of course, he could also have been talking about any of the other market-critical ingredients that professional investors tend to think of as ‘saving the world’ activities and that, at best, require tokenistic activity.
I don’t really blame investment managers for this failure to do what end beneficiaries need. It’s not, in general, what they were asked to do. It’s not how they are monitored, rewarded (or sacked). And it’s not what their professional training equips them to do.
But I don’t think the engagement overlay providers (EOPs) – who were set up to capitalise on this unmet need – are today able to do it. They are often there to manage ‘CYA’ risk for the client; they offer great reports at regular intervals. Clients also express competing demands and these providers are completely over-stretched, especially given the resources they have.
This column has previously discussed the madness of responsible asset owners and their EOPs largely ignoring the financial sector. Things still aren’t much better – only one US bank has faced a ‘no’ vote on its executive pay.
We urgently need a new approach to stewardship that is much more focused on critical strategic priorities. Where the people doing the work have as much credibility as investment professionals, and where clients themselves and can take on ‘tough cookies’ in the corporate sector.
The scale of the issues is huge but yet everyone tries to do a little of everything. This really is madness and fails to make use of the fact that the members of pension funds are in competition with each other for a better quality of life. If one pension fund can lead on action to protect bees, members of all other funds benefit. And the other funds can lead on other critical issues and problem companies.
This calls for a much more collaborative, strategic and joined-up approach to stewardship.
As John Kay has said, stewardship is today the primary role of investors – to make sure capex is well deployed and at an absolute minimum, to ensure it is not harming the interests of society.
Should the bees hope that the investor cavalry is coming? What can we do to help the UNPRI and ICGN scale up to meet this twenty-first century challenge? Or is this impossible and do we need to create a super mind of the biggest and most committed of the asset owners – a real coalition of the willing? Time will tell and we won’t have to wait too long to find out.
Raj Thamotheram is an independent strategic adviser, co-founder of PreventableSurprises.com and president of the Network for Sustainable Financial Markets and Aidan Ward is director of Antelope Projects, a UK-based consultancy