Investors may lose the ability to influence companies for long-term gain, Hermes Investment survey in London says.
The growth in passive investment vehicles will likely reduce shareholder influence over company management in coming years, according to a survey by Hermes Investment Management, NewsNow reported.
Sixty percent of 109 institutional investors surveyed in Britain for the firm’s responsible investment survey say passive investment will have a negative impact on shareholder engagement. Another 21% say they see no importance in challenging a company over poor ESG practices.
“The growth of low-cost passive management will cause large shareholders to become distanced from many of the companies they invest in, forgo voting rights and stewardship opportunities, and thereby lose the ability to influence companies for long-term gain,” the study notes.
“If anything, however, we believe passive investors should engage more, not less. Engagement is the only tool passive investors have to improve the value and manage the risk of the companies they invest in.”
The study also shows that 65% of respondents do not consider it important to examine ESG practices within the supply chain of a company they invest in, and less than half believe companies with a strong focus on ESG issues produce better long-term results for investors.
But 67% of respondents say significant ESG risks with financial implications justify rejecting an otherwise attractive investment opportunity, and 66% predict that pension funds will reject an increasing number of opportunities in the future due to ESG-related issues.
