Ian Goldin, professor of globalisation and development, senior fellow at the Oxford Martin School and professorial fellow at the Balliol College, University of Oxford, sketched an emerging world characterised by a rising Asia and a declining West.

At the Fiduciary Investors Symposium in Oxford, he said the aging population in Western economies will spend more on services, productivity growth will slow, and investment as a share of GDP will fall. These economies are still struggling with the legacy of the GFC and the pandemic, and high levels of debt mean they are fiscally constrained. Worryingly, investment is slowing down just as economies need it most.

In contrast, Asia and the Gulf have high rates of growth and investment, creating a virtuous circle that makes politics easier. In this environment, it’s possible for governments to “give without taking”, making it easier to be a politician. In contrast, when growth is low it is only possible for politicians to give by taking. It’s why politics in the US and Europe has become more fraught.

These governments are under pressure to renew key assets like their energy, transport, defence and medical systems. Meanwhile, education systems need to adapt to teach new skills.

“The rates of investment are too low,” Goldin said in an opening keynote for the symposium.

He flagged a shortfall of investment across the public and private sectors as well as a shortage in the “software” of ideas, business processes and skills. He said that regulatory systems are also out of date.

“The world is accelerating and our understanding is lagging further behind. We are not investing enough in keeping up to speed.”

In Europe’s fractious political environment, decision-making has become increasingly complex. Not only do governments not invest because they “don’t have any money”, but they also profoundly disagree because they are focused on short-term re-election. He warned of the inflationary impact and harm to the US economy if Trump delivers on his promise to export undocumented workers and hike tariffs.

Turning to global demographics, Goldin warned that today’s plunging birth rates mean fewer people will come into the workforce in 18-year’s time. The collapse in fertility has impacted “half the countries in the world” including countries like India where the birth rate has fallen below the replacement age.

He linked falling birth rates to women’s right to choose, contraception, and the cost of living, leaving more people deciding not to have children. This is despite many governments around the world trying to encourage women to have more children, like France, which has spent €1 million per additional child on its policy. Goldin said no policies are particularly successful, and all are very costly.

As birth rates fall, people are living longer as medicine advances. New drugs like weight loss drugs, as well as cures for cancers will mean that we no longer worry about the same illnesses. However, people will continue to succumb to neuro-divergent illnesses, and Goldin said the rollout of medicines that cure mental health is slower. This means societies will increasingly be made up of highly dependent, mentally fragile but physically capable people sustained by a smaller workforce.

When modern pension systems were built, they were designed for an average life expectancy after retirement of seven years. Now the average life expectancy after retirement is 25 years. Meanwhile, real risk-adjusted returns for pension funds are much lower. Moreover, rapidly aging populations become more politically powerful accounting for a larger share of the vote in democracies. These people typically don’t want to do anything that interferes with their lives like building houses in their neighbourhood – or agreeing to an increase in the age they receive their pension.

It led Goldin to reflect on the growing division in wealth between the young and elderly, most obvious in disparities in home ownership. He added that older people spend on different products (medicines and hospitality, for example) compared to young people.

Technology will transform biomedicine and pharmaceuticals. It is also set to transform the energy system, mobility and manufacturing. It will get rid of many of the repetitive jobs that have always been the middle-run on a country’s growth trajectory.

“Where are the jobs going to come from when the machines do the repetitive jobs?” Goldin asked.

Because China’s workforce has already rapidly contracted, the economy has integrated technology and AI faster than others. Wages are growing and coupled with a 5 per cent growth rate, China is far from in crisis. Moreover, he predicted China’s debt and structural issues will improve.

Goldin said that the jobs of the future will be in cities. Although the knowledge economy is footloose and people can work anywhere, he predicted they will gravitate to diverse cities. Cities offer young people an ecosystem, and he expects to see dynamic cities pull away in terms of income and productivity growth.

In another trend he also flagged that people are increasingly less mobile – the cost of housing and transport means people will become less mobile. “There will be a disconnect between the people left behind and the people doing well – the people who see a future and those who don’t,” he warned.

Globalization has created an entangled system of goods, services and people flowing across national borders. The GFC was the first manifestation of how a highly connected system can lead to instability.

Goldin traced the rise of Trump in 2016 and Brexit, as well as support for populist and nationalist politicians to the dramatic loss of trust in government after the GFC. The pandemic was another manifestation of this “butterfly effect” where consequences ripple throughout the world. “Globalization spreads risks and opportunities,” he said

Goldin noted that the rise of populism is not apparent in Asia, where people still see the opportunity of globalization. “Globalization is alive and well and living in Asia. It’s just dead in the Atlantic,” he said.

He warned that “high walls” keep out skills and investment, and hinder coordination. Nationalism and protectionism make it harder for countries to manage risk and increase productivity.

He believes that the buoyant mood in Asia makes war in the region unlikely because it would be an act of self-harm. China has grown and benefited from globalization, but he noted that China is also fragile – incomes are still low and climate change requires huge investment.

In contrast, countries like the UAE are able to navigate climate change because they are wealthy. He described the UAE as the “new Switzerland” increasingly attracting people and investment in an unstable world. He pointed out how many Gulf states illustrate a business model where immigration works, showing how countries can be “a hive” for foreign workers.

Goldin’s positive future for China contrasted with his outlook for Russia. He said Russia’s dependency on fossil fuels at a time the world is moving to net zero, plus its aging population, will lead to long-term decline. He suggested a future where Russia joins the EU and becomes a breadbasket once Siberia thaws.

The past 20 years have seen large pools of capital become larger, more global and more diversified across asset classes. The Fiduciary Investors Symposium has heard how Bridgewater Associates is allocating capital and resources to meet this shifting paradigm and why investors can’t try to bet on certain geographic regions overperforming. 

The past 20 years have seen large pools of capital become even larger, more global and more diversified across asset classes. 

But at the same time, the world has become multipolar and liquidity cycles have become desynchronized.​ 

Facing these challenges, the Fiduciary Investors Symposium in Oxford has heard how Bridgewater Associates is allocating capital and resources around the world. 

The firm’s senior portfolio strategist, Atul Lele, told the symposium that these challenges have been presented by their long-term strategic partners to solve. 

To achieve this, Bridgewater uses three questions to assess global asset allocation: how attractive the country’s assets are, which assets to buy and what currencies to hold and invest with. 

“If you look at the secular growth outlook for any economy, it’s driven by two things, productivity and indebtedness,” Lele said.  

“On a market cap weighted basis, the secular growth outlook has slowed quite materially when you think about where the US or Europe are.” 

Lele said the past two decades have seen the global economy shift eastwards with a greater share of global output now coming from Asia. 

“The share of global output that is driven out of Asia is roughly double what you see out of the US and Europe. The contribution to global growth is around six times,” Lele said. 

“The Asian economic bloc is now highly interconnected through trade and capital flows. Asia’s largest trading partner is Asia.  

“Even if you remove China, Asia ex China’s largest trading partner is Asia ex China. We now have a deeply interconnected trade and capital bloc. This speaks to the idea of having a very multipolar world relative to even 20 years ago.” 

Hedging your bets 

If investors are asking themselves whether being in every geography is worthwhile – and whether it was instead better to take bets on certain regions – Lele said the former is more important. 

“If we look at most institutional portfolios they’re essentially betting on a continuation of US and to some degree European outperformance,” he said.  

“They’re US and European-centric portfolios and we do think that geographic diversification is important in this multi-polar world.” 

Lele noted this doesn’t mean there needs to be a rush for diversification for the sake of it, but portfolio managers need to be mindful of missing out on broader diversification. 

“Where we are right now, it [the level of diversification] is low, as in investor allocations towards the US and Europe are so high and making this bet that you’re going to continue to see a unipolar world, when it’s very apparent you’re in this multipolar world,” Lele said. 

With US President-elect Donald Trump winning a second term, investors are expected to face similar uncertainty as with his previous term. Lele said by taking Trump’s policies at their intent, it’s likely to be an inflationary environment rather than deflationary. 

Trump had campaigned on placing tariffs on Chinese imports, potentially as high as 60 per cent, while he also promised to clamp down on undocumented immigrants.  

“If we start to move up to the inflation limit which these tariff policies, these immigration policies will do then it starts to make it a less favourable environment for liquidity and therefore into assets,” Lele said. 

“An environment which is likely going to accelerate a lot of the multipolar aspects that we see about the world.

“What the practically means is we’re in a trade war that’s expanded to a capital war and a tech war. We all hope it doesn’t escalate beyond that and hopefully it de-escalates into strategic competition as we saw between the US and Japan in the 1980s.  

“But not only are we seeing the world that President Trump is articulating as being inflationary from purely a US perspective, but if you talk about the of reshoring it’s all very cap-ex intensive and that’s inflationary as well.” 

Maintaining exceptionalism 

As the largest global economy, Lele noted the US is currently 70 per cent of the global market cap for investors. 

“That means to even maintain where it is, every marginal dollar that everyone in this room invests 70 cents of it needs to keep going into the US market and there’s going to be limits on flows and limits on discounting,” Lele said. 

“If you look at what’s priced in for the S&P 500, it’s pricing in another decade of exceptional growth. It could happen but we’re going to be hitting some of the limits on the pro corporate side and on the flow side as well.” 

Global markets have been dominated by US exceptionalism, but Lele said the big question is whether they will continue to maintain this status longer term. 

“We’re asking ourselves what the limits are on it is because over the last 15 years you’ve seen the US outperform and if we look at the underlying performing it isn’t because it’s just a tech story,” Lele said. 

“One third of it has actually been driven by the US tech and the sector composition of the US market but two thirds of it has actually been driven, within sectors, just US companies operating at a much better way than what you see around the world.” 

Lele said the limits of US exceptionalism come down to how much further it can make gains in a pro-corporate environment. 

“The last 40 years you’ve seen a pro-growth, pro-liquidity, disinflationary environment,” Lele said. 

“Deregulation has been on a one-way street, de-unionisation has been on a one-way street, corporate taxes on a one-way street, interest rates being eased on a one-way street. There are limits to which those pro-corporate policies can continue. There are limits to how big the US can become as a share of market cap.” 

The CFA Institute, the global association of investment professionals that sets the standard for industry excellence and champions ethical behaviour, is seeking to promote stronger leadership and more robust governance in the sector.

In a wide-ranging discussion at the Fiduciary Investors Symposium at Oxford, CFA Institute chief executive Margaret Franklin, and global head of content at WTW Roger Urwin, examined some of the challenges the industry faces and the need for evolution.

Asset owners sit at the heart of the Institute’s work, but it is also a platform and voice for the wider industry including asset managers, consultants and adjacent services. As a not-for-profit, Franklin and Urwin said the CFA Institute has a unique currency of neutrality in its mission to lead the investment profession with a louder voice.

Leadership and skills

One area the investment industry needs to improve is the system’s leadership to help navigate growing risks like geopolitics. The CFA Institute is involved in skilling and upskilling investment professionals throughout their career, but key challenges include the fact employers often don’t know the precise skills they need to deliver the outcomes they seek.

Urwin and Franklin flagged concerns that the wider asset management community lacks competent leadership through the value chain, and is too focused on short-term performance. They also spoke of the risk in the industry whereby complexity becomes dialled into the system.

The Institute has doubled down on net zero and conducts thought leadership to help overcome structural barriers to net zero. Much of that work involves making net zero practical, structural and relatable, and enabling asset owners to implement targets. The Institute has published research from a range of authors that covers carbon pricing to research on benchmarks. But Urwin and Franklin noted much of the work it does in this area in the US, is met with resistance.

Another challenge is diversity. Franklin noted the challenges around gender diversity in the investment sector and that the number of women working in the industry over the course of her career has not significantly increased.

T Shaped skills

The CFA Institute also espouses the importance of T-shaped skills that combine deep technical knowledge with a broad understanding of other disciplines. It is these kinds of investment skills that best support a total portfolio approach, the ability to design an organization or ensure diversity to capitalize on portfolio outcomes.

Governance in the sector is also a concern – and pillar for successful investment. Franklin and Urwin warned of the lack of competence on boards that could be exposed in the face of sudden illiquidity in private markets, for example. T-shaped skills help “connect the dots” and empower investors to work with specialists and ensure robust communication with stakeholders. Yet boards often don’t understand the complexity of the job; have short attention spans and are not equipped with the right tools.

They both observed how the “system is stretched” and the speed of potential change could be destabilizing.

Robust, independent governance has become all the more important since governments in some countries are looking to pension plans as a way to remedy a lack of public policy.

“We don’t believe politicians should be directing pools of assets,” said Franklin, who referenced how the board of Canadian pension fund AIMCo were recently sacked, just at a time the Canadian system is being lauded for its governance in countries seeking to change their pension system like the UK.

AI will allow investors to draw strategy from data and improve the investment process, important strengths given the fact asset management firms have stretched resources; face increased costs and lower returns because of the macro environment. But they noted that many firms are behind on their ability to incorporate AI.

Franklin added that people with subject matter expertise remain vitally important to the investment process because they know the questions to ask the technology – and can judge the quality of its response. They warned that the opportunity of AI is likely to have been overestimated in the short term but underestimated in the long-term and that important investment skills like empathy and creativity can’t come out of AI.

Urwin also flagged the importance of measurement within organizations, noting that “what gets measured gets managed.” He said the industry needed to work harder on measurement because investment performance is a poor signal of predicting something in the future.

US active managers are struggling to add value over the benchmark in the current economic environment.

At the October investment committee meeting for the Teachers Retirement System of the City of New York, TRS’ Tax Deferred Annuity Programme – which oversees so-called Passport Funds for beneficiaries seeking a supplementary retirement plan – board members heard how lower quality stocks are outperforming the broad market in what is commonly referred to as a “junk rally.”

It is making it difficult for active managers to outperform, explained board consultant Goldman Sachs Asset Management’s Michael Fulvio, presenting to trustees overseeing one of the city’s five retirement plans. One of the reasons poorer quality stocks are doing well is because they are often highly levered and are now benefiting from lower rates since the Federal Reserve cut rates.

“It has been a very challenging environment for active managers to add incremental value over the benchmarks we use,” he said, adding the latest data on active management is still to come through although the passport funds reported strong numbers from an absolute return perspective.

“We haven’t yet received active management numbers. It’s been a tough market for active managers to outperform public benchmarks and we will dive into this more in couple of months.”

Unlike assets belonging to the five New York City pension funds (TRS, the New York City Employees’ Retirement System, NYCERS, the New York City Police Pension Fund, the New York City Fire Pension Fund and the New York City Board of Education Retirement System) the Tax Deferred Annuity is not managed by the Bureau of Asset Management.

BAM poised to reengage with trustees

At the October investment committee meeting of the New York City Fire Pension Fund, the focus was on how the fund’s shared asset manager, the Bureau of Asset Management, is poised to re-engage with trustees. BAM collectively manages $282 billion in assets on behalf of nearly 800,000 beneficiaries.

In the new year, the Bureau will work closely with the different funds to ensure its strategy is aligned with their individual needs, alongside looking at headcount, staffing and compensation. The focus will be on understanding the priorities of each fund (they all have their own liabilities and asset allocation) and ensuring the Bureau meets those goals and expectations, said Steven Meier, chief investment officer and deputy comptroller for asset management, New York City Retirement Systems.

“We are looking to do much more customization. We are very receptive to that,” said Meier.

As of the end of fiscal year 2024, the pension funds collectively had an asset allocation of around 42 per cent in public equities, 32 per cent in public fixed income and 26 per cent in alternatives.

Meier added that the investment team are also concerned about the risk of over-diversification. They are trying to guard against siloed vertical thinking that ignores the overlap between, say, public equity and fixed income, or public and private markets. He said obvious overlaps are visible in real estate debt which overlaps with private credit/debt.

“We are going to look at exposure across the entire portfolio,” he said, flagging more conversations ahead on the economic factors driving performance.

Come the new year, trustees at the pension funds will also have a chance to scrutinize proposals to cease pension investments in fossil fuel infrastructure.

NYC Comptroller Brad Landers, fiduciary of the pension system, recently proposed the exclusion from three of the pension funds of future private markets investments in upstream and downstream fossil fuel infrastructure including midstream and downstream infrastructure, pipelines, distribution facilities and liquefied natural gas terminals.

Lander said the divestment proposal is the first in the country for a pension fund.

“That’s a big step that has not been taken by any large U.S. public pension fund, and we will have some work to do together to put it into place,” he said.

Industry participants have reacted positively to the UK government’s proposed evolution to the local government pension pools, but some pool executives say more clarity is needed on the suggestion that reform could see the establishment of new pool companies or mergers between pools. Either way, the reform signposts significant capacity building and costs for all pools, whatever their starting point.

In her first Mansion House speech last week Chancellor of the Exchequer, Rachel Reeves, launched the government’s much-anticipated, mega fund remedy to drive investment in productive assets and back Britain.

She called for more rapid reform of LGPS pooled funds, including individual funds fully delegating the implementation of investment strategy and taking their principal advice on their investment strategy from the pool.

Pools would need to set up FCA-regulated investment management companies with the expertise and capacity to implement investment strategies. In another change, the individual pension funds would also be required to transfer legacy assets to the management of the pool.

Since 2015 the LGPS has come together into eight groups to manage their investments through asset pools. But they have developed different models and less than half of the total LGPS assets have been pooled. It means the full rewards of low costs and scale that have fuelled analytical expertise, portfolio efficiency, liquidity management and access to private markets amongst Canadian and Australian super funds, remains out of reach.

“Few in the scheme would disagree that pooling has not delivered to its full potential and that change is needed to ensure that the scheme continues to perform in the long term,” states the government in a consultation document the industry is invited to respond to over the next nine weeks.

“The government’s view is that full, effective and consistent delegation of strategy implementation is needed to ensure the benefits of scale and ensure that decisions are taken at the appropriate level by people best placed to make those decisions,” it states.

Five of the pools are already standalone FCA-authorised investment management companies. But two have an outsourced model that relies on external providers, and one has a model in which a joint committee provides oversight, but the partner funds retain management of most assets.

It signposts significant capacity building and costs for all pools, whatever their starting point.

Even the five pools which already constitute investment management companies will need to develop new capabilities to build capacity on local investment – another stated priority – and provide advice on investment strategies to funds, states the government.

The government’s quest for reform has been welcomed in some quarters.

“We are supportive of the model being outlined for the evolution of pools and the way they work with their funds,” says Richard J Tomlinson, chief investment officer at Local Pensions Partnership Investments. “We strongly advocate the ability of pools to be the principal provider of investment advice and that all investment implementation is delegated to the pool, with all assets being managed by the pool.”

“Our experience at LPPI is that this model, combined with scale and the establishment of internal investment teams, delivers better outcomes for funds and ultimately the members. This experience and our track record in delivering investment advice and implementation is reflected in the structure outlined in the consultation.”

Fewer pools?

The government acknowledges the changes may trigger a shakeup in the number of pools. Reform could see the establishment of new pool companies, mergers between pools, or existing pools becoming clients of already FCA regulated managers for some or all services required.

However, the lack of clarity on this point is already a concern for Tomlinson.

“The drive for pools to have these changes in place by March 2026 should support increased engagement between funds and across pools. Whilst there was no explicit requirement for pools to merge, there is guidance that where pools have existing capabilities, other pools should look to work together. We believe this can be the catalyst for cross pool collaboration and ultimately consolidation; to create greater scale and efficiencies and we would have liked the consultation to have been clearer about this end objective.”

Calls for clarity where also made by Laura Chappell, chief executive of Brunel Pension Partnership, speaking to Top1000funds.com in the build up to the latest announcement.  “The government needs to ensure it offers a clear steer, coupled with consistent policy that is properly enforced – it’s worth remembering the role of policymakers in creating the Maple 8,” she said.

The government has also said it wants to transform governance. Committee members would be required to have the appropriate knowledge and skills; the pension funds would be required to publish a governance and training strategy (including a conflicts of interest policy) and an administration strategy. Within the pools, they would also need to appoint a senior LGPS officer and to undertake independent biennial reviews to consider whether they are fully equipped to fulfil their responsibilities.

Pool boards would be required to include representatives of their shareholders and to improve transparency.

DC reform

Australian pension schemes invest around three times more in infrastructure compared to the UK’s DC schemes and 10 times more in high growth businesses and private equity compared to their UK equivalent, says Reeves. Meanwhile Canadian teachers and Australian professors reap the rewards of investing in productive UK assets through their pension schemes rather than British savers.

In addition to forcing the fragmented 86 LGPS pension funds that collectively manage £400 billion to accelerate pooling, Reeves outlined new legislation to push the UK’s DC pension funds, forecast to manage £800 billion in assets by the end of the decade, into mega pools of £25-£50 billion.

Mark Fawcett, chief executive officer of NEST Invest who was at Mansion House when Reeves gave her speech, says the fund was supportive of the government’s position.

“We see the benefits of scale and are experiencing those ourselves,” he told Top1000funds.com. “We think more consolidation in the DC sector is positive.”

Nest Invest currently manages over £46 billion and is expected to grow to £100 billion by 2030 fuelled by contributions of about £500 million a month alongside investment returns.

About 20 per cent of the fund’s assets are invested in the UK and it continues to expand its private asset investments in infrastructure and property and announced a recent joint venture with PGGM and LGIM around housing.

“We are very committed to investing in private markets in the UK where we see attractive investments,” Fawcett says.

Will it work?

It remains to be seen whether mega funds will trigger more investment in the UK.

LPPI argues bigger pools aside, the government needs to do more to remove the disincentives that are blocking capital in supporting key strategic activities. In a recent paper, the investor argued that the government can make more projects investable by reducing execution risk for investors.

Moreover, many of the pools say they are already substantial investors in the UK.

LPPI currently has 20 per cent of its portfolio invested in the UK, the large majority in private markets where social impact is greatest.

The £30 billion Greater Manchester Pension Fund (GMPF) the UK’s largest local authority scheme recently ploughed more money into affordable housing, targeting 30 per cent of its 10 per cent allocation to real estate to the UK’s residential sector.

Private sector DB funds, off the menu

Reeves speech did not detail plans to reform the UK’s £1.4 trillion private sector DB pension fund industry (separate from the LGPS) in a source of frustration for many hoping for guidance, especially on how corporate schemes can use their surpluses.

Morten Nilsson, executive director and CEO at Brightwell which manages around £37 billion of assets on behalf of the United Kingdom’s BT Pension Scheme, BTPS, as well as assets of the DB arm of the EE Pension Scheme, believes these corporate pension funds are well positioned to support economic growth and better outcomes for members, particularly by investing in the transition.

Speaking during a webinar, he said low carbon infrastructure assets offer a particular opportunity for these mature, low risk investors looking for stable, predictable, inflation-linked returns, that also meet their net zero targets.

“You can’t have better investors in your critical assets than local pension schemes because we can’t run away,” he said.

He warned that the complexity of galvanizing investment in productive assets from these DB funds will require more than “a newspaper headline.”

 

Stewardship at British Columbia Investment Management Corporation (BCI), the C$250.4 billion ($179 billion) investment manager is wide ranging. From voting at shareholder meetings at every public company in the portfolio, to applying pressure on North American banks to finance more clean energy; advocating on tying executive compensation to sustainability targets; and cajoling oil and gas companies to incorporate climate risk assessments into their audited financial statements, stewardship is multi-faceted and progress hard-won.

“There is no magic bullet for engagement,” says Jennifer Coulson, senior managing director and global head of ESG, at BCI which has just published its first Stewardship Report detailing its methods and progress on how it uses its ownership rights and influence to drive sustainability.

Engagement with policy makers is a key element of strategy and although Coulson describes coordination and consultation with governments as “time consuming and requiring significant effort” – BCI contributed to 26 ESG-related policy consultations, roundtables and joint statements last year – she says the rewards are impactful, long-term, and far-reaching. They also have the potential to drive progress not only in BCI’s current portfolio companies but in future investments too.

“Investors can play an impactful role as the connective tissue between companies and policymakers. Now more than ever, we need coordination on policy, regulations, and mechanisms that incentivise changes in behaviour and investments in solutions,” Coulson says.

Most recently, BCI’s engagement with the Canadian government together with peers in the Sustainable Finance Action Council contributed to policy makers announcing next steps for Canada’s long-awaited green taxonomy at PRI in Person in Toronto.

“Seeing the federal government officially back this taxonomy is a promising step forward on climate and a positive development for attracting green and transition capital to Canada,” Coulson says.

Elsewhere, BCI has actively engaged with the regulator and global capital markets to help shape the creation of the IFRS sustainability disclosure standards. The stewardship team communicate disclosure expectations with public and private companies, and she notices an increase in companies voluntarily reporting against the SASB Standards.

Coulson says she also notices positive momentum at the policy level on issues like gender diversity on boards.

“When BCI began engaging on the topic of women on boards average representation for TSX Composite Index companies was 9 per cent, last year it was more than 36 per cent,” she says.

“This was achieved by working with the securities regulators on disclosure requirements and engaging directly with companies at the same time.”

Direct engagement with companies can often feel more immediate and productive than engaging with policy makers. But she warns this “does not necessarily translate into easier” given the effort and resources required to research, coordinate, and engage in constructive conversations. Engagement is a complex, non-linear process that varies from company-to-company in the depth and breadth of topics as well as the type of outreach.

BCI’s stewardship report reflects just how tough it is, stating that 40 per cent of engagement outcomes are “neutral” indicating that a company hasn’t taken steps towards the “desired action” and there is more work to do.

Coulson counters that in instances with a single request, like asking companies to respond to CDP, the engagement could remain neutral while BCI waits for the disclosure results before moving from neutral to objectives-achieved. Some of the investor’s more complex, long-term engagements that have multiple topics and milestones can be assessed differently year-on-year depending on the overall progress.

More encouragingly, direct and collaborative engagement with companies can be highly effective for targeting niche issues or in instances of  gaps in regulation, where BCI can drive standards.

For example, Canadian investors have been engaging securities regulators for more than a decade on say-on-pay. Despite most Canadian issuers taking this on voluntarily, a mandatory requirement does not exist other than for companies incorporated under the Canada Business Corporations Act.

“Because of the policy gap, it was easier to achieve the desired outcomes by engaging directly with the corporates and filing shareholder proposals,” Coulson says.

One area BCI is engaging with corporates is around bond issuance, helping shape the sustainable bond market and trying to increase the product offering available to fixed income investors. While public equities come with explicit and well-defined shareholder rights like voting, she insists investors in fixed income have equally powerful levers through their financial commitments and support for new issuances.

“The bond market is evolving and strong ESG practices are now a basic requirement for conventional and sustainable issuers alike, Coulson says.

“By meeting with companies to express our expectations and share our expertise, we can actively shape bond programs and instruments that align to globally recognized best practices, while setting a high bar for future issuances.”

She is outspoken on the shortcomings of sustainably linked bonds.

“Unlike labelled bonds, sustainability-linked bonds (SLBs) often lack ambitious targets and have minimal penalties for missing the targets they do have, limiting the incentive for an issuer to actually pursue sustainable solutions. We have seen less enthusiasm from the market for these instruments.”

BCI is a member of the ICMA Sustainability-Linked Bond Working Group and the Sustainability-Linked Loans Refinancing Instruments Taskforce to try and help improve the overall product offering for SLBs.

Coulson also shares her concerns about the lack of progress at the PRI, reflecting that although the right conversations have happened, notably on climate, they remain insular.

“Conversations are generally taking place between those who are already bought-in,” she says.

“To see real, meaningful progress, we need to expand our reach and engage in broader dialogue, particularly with groups that have differing views. We must keep top-of-mind that these challenges affect everyone and demand collective action from all players, not just the most passionate.”

One area she’d have liked to have seen more progress was around “getting back to basics” on corporate governance. She believes a lack of effective governance fundamentals related to board independence, management compensation, and diversity, even in developed markets, continues to impact long term sustainable returns.

“We can’t overlook the power of good governance practices in providing a solid foundation for progress on material environmental and social issues,” she says.