Passive investment leads to doubts about shareholder engagement

Survey3Over half (60%) of institutional investors in Europe believe that the rise of passive investment vehicles will have a negative impact on shareholder engagement.

The report and survey, called Responsible Capitalism, by London-based Hermes Investment Management, finds that passive management will cause large investors based in the UK and continental Europe to become distanced from many of the companies they invest in.

“If anything, passive investors should engage more, not less. Engagement is the only tool passive investors have to improve the value of the companies they invest in,” says the author of the paper, Leon Kamhi, head of responsibility at Hermes.

The survey also found that a large number of respondents (21%) did not believe that challenging companies on environmental, social and governance (ESG) issues was important – though they were outweighed by 71% who did think that institutional shareholders have an ethical and fiduciary responsibility to challenge companies in relation to poor ESG practices.

However, only 46% of investors believe companies focusing on ESG issues produce better long-term returns for investors.

Kamhi says that if investors are to be responsible owners they need to engage not just with company management, but also with public policy makers.

““If we can achieve something at a public policy level, it has a ripple effect on the whole industry,” he says.

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