Stewardship and engagement will become an integral part of investment in the future, and asset owners need to write stewardship and non-financial objectives into their mandates with external managers, according to Saker Nusseibeh, chief executive international of Federated Hermes.
Because investment- unlike trading the financial markets – is long-term, investee companies’ actions over the long term are crucially important. Speaking at Sustainability Digital, Saker Nusseibeh, chief executive international of Federated Hermes told delegates that assets held in an index fund give investors no connection with the company over the long term. There is no conversation with the company about strategy, how they treat their workforce or mitigate black swans. Investment, by contrast, is about being a responsible owner for the long term.
Nusseibeh told delegates that long term investment also required a different kind of analysis. You need people who can talk in the same language, he said, adding: “It’s very labour intensive.”
He urged delegates to learn about ESG and plough resources into garnering a knowledge that goes deeper than just claiming to integrate ESG.
Regarding engagement, Nusseibeh advised working with companies on the issues that they care and worry about. Run it in a democratic way; ask them what issues concern them, he said.
“If you want to help make the company better, think about the issues we face together.”
He said that changing company behaviour involves measuring performance, including how corporates perform against peers in their sector. Over time those that meet sustainability KPIs outperform their sector substantially because they are simply enhancing their ability to make money over the long-term, he said.
“It is about doing capitalism better. Discussions about ESG and sustainability should always be about investment.”
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Nusseibeh, who was awarded a Commander of the Order of the British Empire in the Queen’s 2019 New Year’s Honours list for services to Responsible Business and Finance, said few active managers outperform the benchmark but investing long term leads to outperformance.
However, investing for the long term doesn’t mean holding and then leaving. Being owners of a company involves making sure the business is sustainable and thinking about risk and how to mitigate it. For example, not integrating diversity in a business “halves supply chains” and not acting in the interests of stakeholders like the local community invites regulation.
He said sustainability involved doing long term economics “properly” and that by ensuring society is prosperous, individuals also prosper.
“The companies we own shape the societies we live in, and people want to ensure that the society they retire into is sustainable,” he said.
He told delegates that this belief in stewardship will increasingly impact funds management. All investors will recognise that ownership of public or private companies involves an element of stewardship “to look after their investments over the long term.”
Stewardship and engaging with companies will become an integral part of investment, he predicted. Hermes first started engaging for stronger UK corporate governance in 1983, was a founding signatory of the PRI in 2006, and spearheaded the Climate Action 100+.
The audience, made up of asset owners from 42 countries, was in support of integrating stewardship into the investment process, with 60 per cent saying that stewardship should be mandatory in a live poll at the event.
Nusseibeh said that asset owners need to write stewardship and non-financial objectives into their mandates. You can’t just allocate to passive or active funds without a stewardship target assigned, he said.
He also urged investors to talk about long-term realistic targets that incorporate the value of integrating ESG whereby value is attributed to aspects of a business other than the financials.
For example, COVID-19 has taught people that culture is very important within a company.
“Companies with strong cultures survived COVID but how do you measure culture?” he asked. There should be outcomes that are related to behaviour. “This is the only way to invest separate from betting on the markets,” he said.
He also said that low cost, passive investment would come back to “bite” because of the wider costs incurred by society as a whole. If global warming reaches three degrees the savings investors will have made via passive allocations will be wiped out by the increased costs of water, food and energy.
“The money we save has got to be able to let us retire well,” he concluded.
Sarah Rundell is a staff writer for Top1000funds.com based out of London. She writes on institutional investment across all asset classes, global trade and corporate treasury.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
