Catherine Howarth: ESG statements are just the start

Ms Howarth joined ShareAction as CEO in 2008, following the organisation’s formation three years earlier in 2005. Its aim was to co-ordinate civil society activism to promote responsible investment across Europe. 

She says: “When I started, responsible investment was kind of a fringe thing… now it’s a really hot topic.”

Indeed, environmental, social and governance is no longer an ‘optional extra’, and is increasingly integrated into investment decision-making.

As of this month, pension scheme trustees will have to set out their policy on how they take account of financially material factors, including ESG considerations. 

Ms Howarth says: “That’s very exciting and positive – it reflects the fact that this is tapping into something that is both in the public’s interest, but also reflects real risks in capital markets. These issues are really material to companies’ success.”

Pensions and the investment industry must now move on from good intentions and good policies to good delivery and implementation.

Ms Howarth says: “And that’s a long road… it’s easy to come up with the idea and say, ‘yeah we’re going to have a fantastic responsible investment policy’, but implementing it is really challenging in the real world.”

Change doesn’t happen from within an industry, it happens when an industry has a really dynamic interaction with its own stakeholders and they can bring new views forward

Catherine Howarth, ShareAction

A decade of turning up the heat

Ms Howarth has plenty of experience dealing with these issues from a trustee perspective – she serves on the board of the Scott Trust and its investment committee. She also serves on the Treasury’s Asset Management Taskforce and was previously a member-nominated trustee of The Pensions Trust for five years until spring 2013.

She says these experiences have led her to the realisation that even the biggest and most sophisticated managers and pension funds “are still grappling with what ESG really looks like in practice”. 

A champion of responsible investment from its inception, Ms Howarth suggests ShareAction’s role has changed over the past decade to become a “real watchdog on whether ESG products are really authentic”, and that it is not just marketing-led greenwashing. 

She adds: “The process of investing and allocating capital into the real economy is endlessly fascinating… it is an industry in which you really shape the future.

“Change doesn’t happen from within an industry, it happens when an industry has a really dynamic interaction with its own stakeholders and they can bring new views forward. Then you get genuine change.”

Biggest barriers to better ESG integration

Pension scheme members are increasingly demanding sustainable returns, good risk management, low fees, and positive impact from their funds. 

“They expect more from the industry than they have in the past,” Ms Howarth says.

“I think they’re more than entitled to want all the above, and it’s more than possible for the industry to deliver all the above,” she adds.

But she says that “trustee herding instinct, and not wanting to go out on a limb and do something that’s different” still poses the biggest challenge.

“I feel genuinely for trustees because they have to comply with a lot of regulations and they already have a lot on their plates, so it can be hard to push some of this stuff up the agenda,” she says.

“[But] there is an increasingly helpful policy and regulatory environment that’s supportive. The products aren’t necessarily all there, but they would certainly be there if pension schemes were doing more to listen to members interests and values.”

Responsible investment presents engagement opportunity

The industry should be looking outside of pensions for the techniques that best help to understand customer views and use language that is not too jargon-heavy, Ms Howarth suggests.

She says: “Every member should be heard, which is a challenge because the investment industry itself is a bit of a bubble of very well paid people, who then have an obligation to act on behalf of people who are not.”

She adds engagement should, through technology, encourage members by giving them the tools, information and opportunities they need to take a bit more ownership over their money; not scare them away.

“Just because you’re in a default fund and you don’t feel that you want to go charging off making a whole lot of investment decisions you’re not that authorised to make, doesn’t mean you aren’t interested in what kind of exposures to the economy we have,” she explains.

“That doesn’t mean we’re saying they should be free to make decisions that they don’t have the capabilities or the support to make: we need really strong trustee oversight and really strong default funds.”