On 7 and 9 March the NSFM held two ‘in person’ meetings in London and Amsterdam. 30 NSFM participants came along to debate long-term issues and systemic failures in the financial markets.
Raj Thamotheram and Maxime Le Floc’h presented their analysis of how the 2010 Gulf of Mexico oil spill was allowed to happen and what we can learn from it. They made a strong case against the view that this was an ‘act of God’ and is now ‘already in the price’. They identified a number of root causes, amongst them investors’ narrow perception of performance and risk, and their failure to adequately price it. In the ensuing discussion, members’ suggestions included: that the concept of fiduciary duty should be expanded to incorporate the consideration of ESG concerns; that investors cannot necessarily expect companies to report the right kind of data and information on health and safety, but that proper analysis is resource intensive and requires the ‘inside view’; and that investors should take collaborative action on deep-sea drilling.
Raj and Maxime will publish their book, entitled ‘Preventable surprises’, as an NSFM e-book in April. It will be available on the NSFM website and also on a dedicated website 'PreventableSurprises.com' where readers will be able to blog their reactions and ideas.
Keith Johnson presented a consultation paper that outlines an updated interpretation of fiduciary duty fundamentals to address the 21st century reality. The paper is part of a larger project sponsored by the International Center on Pension Management (ICPM) at the University of Toronto. His thesis is that the 'duty of impartiality' is a critical element of the fiduciary responsibilities of pension funds. It asks pension funds to balance the short- and long-term interests of fund participants. In recent decades, however, it has been superseded by changes in the markets and an unbalanced focus on only the standard of care portion of fiduciary duty, encouraging herding and increasing pension funds’ systemic risk exposure. This implicates continued appropriateness of current legal interpretations and requires that pension funds balance short- and long-term holdings and could lead to a longer, more sustainable focus on investments. Keith's work will lead to an NSFM consultation paper which is part of the ICPM research project. We will post the consultation draft shortly on this website for comment.
In Amsterdam, Bernd Jan Sikken from the World Economic Forum (WEF) provided further context to the debate. He presented conclusions from the WEF report ‘Accelerating the Transition towards Sustainable Investing’. One notable finding was that some companies would appreciate a more active approach from investors on sustainability issues.
Discussions at both events were lively and feedback positive. Participants made a number of suggestions on how to take the debate a step further towards actual change. The NSFM coordinating team will consider them as part of its current participant consultation on which direction NSFM should take in the coming year. We will be reaching out to members over the next few weeks for additional input and will report on our conclusions in due course.