Are we Flying in Formation to Value or just Ornamental Quacks?
By JB Beckett
Warm greetings, my fellows of Fund Boards Council members.
For my second iNED blog I wanted to consider our impact and sustainability, both, at the personal level and for customers. Most iNEDs will now be well into their new roles; having at least attended their first Board and engaging on the who, what, where and when delivery of the first Assessment of Value (AoV). Like me, you may be joining sub-committees such as Risk, Fair Value and involved with other projects in addition to the AoV delivery. Equally, you will be getting to know your Chair, fellow iNEDs and the rest of the Board. As we engage, how do we measure our own impact as iNEDs?
Impact? Every action (and inaction) we do has some impact. For example, I began writing this blog just before my wife and I headed to the local antiques store, a journey that involved a 20-minute car journey in our 10-year old Mini Clubman. It cannot be easily reached by public transport. The Mini has a 1.6 turbo engine. It is neither a heavy diesel polluter or a zero-emission electric vehicle but arguably more sustainable than an equivalent Euro Emissions VI small car, by virtue of having expended its largest impact 10 years ago during production.
We should own our impact. We have reduced our annual car mileage by about 60%. We use the electric rail network as much as possible and I have reduced my own air miles by 90%. We then carbon offset what’s left through a reforestation app. We recycle as much as possible into recycled plastic bins, minimise our plastic use, reduced our clothes washing by about 50% and use biodegradable and plant-based cleaners where possible. Lastly, we have aligned all of our investments to more sustainable companies. It doesn’t feel like enough, but it’s a start. I felt a little less hypocritical when speaking to Risk colleagues about existential risk from climate change; and likewise, when I chair the Ethical Finance conference this month in Edinburgh.
The journey towards the first Assessment of Value (AoV) is much like this. Existing work, reports, marketing materials, investor feedback, regulatory reporting, staff and analysis can all be repurposed and up-cycled. Indeed, to treat the AoV as a silo exercise is a wasteful missed opportunity. We should also be asking what positive impact the process will have for fundholders and to look beyond simply Compliance, to improve the sustainability of our industry.
Impact here then takes two meanings. Firstly, the authorised fund manager has a positive impact (value creation) for fundholders and how do we rationalise and communicate this with investors? Secondly is the business sustainable? From its buildings, employees, intensify, footprint; through to the investments it makes for fundholders?
Boards too can reduce their impact by reducing paper use by using secure electronic tools like Diligent Boards (other providers are also available!) and promote remote board attendance to reduce travel.
Much has been said and written about Environmental Social Governance (ESG) and Stewardship as a determinant factor of adding value. Whilst there is a lot of truth in this; how it is actually quantified and scored is far from transparent. The risk of greenwashlurks in the boardroom and iNEDs may need to challenge executives whom seek to override all other factors with an overly enthusiastic and positive green narrative.
It is right to talk about sustainability as something integral, contributing towards value, rather than tangentially acting as a distraction from it. Many investors assume a fund manager is already applying ESG; and as a hygiene factor it offers some utility, like safe custody, but not necessarily value accretive in itself.
Like poor custody; failure to have a responsible investing approach is unlikely to be sustainable and therefore value reductive. However, boards may recoil that simply doing the minimum is not enough to score positively. iNEDs will need to bridge what the board believes to add value with customer expectations.
For instance, the notion of value derived from green product development is a clear and present scenario for iNEDs. Fund executives, and especially those on fund boards, may be keen to launch new products to meet demand and laud ESG process changes. Consequently, we have seen the rapid product development of new funds and the repackaging of existing. Boards may want to uplift their Quality of Service scores in response. iNEDs will need to ensure the value disclosure is not green-washed and remains fair, clear and not misleading across the minimum seven considerations.
I forgot to say that whilst at the antiques shop, I bought a used wooden walking stick, adorned with a silver duck’s head. The metaphor is striking, as the sustainability debate waddles on; do we fly in formation towards the first round of AoV disclosures or are we mere ornaments hanging on the wall? Quack quack.
Till next month,
JB Beckett, FBC Corporate iNED Member
iNED, Author ‘New Fund Order’
JB Beckett writes a monthly column, Diary of an iNED, for Fund Boards Council, recording his experiences on the boards of two very different organisations as he navigates the highs and lows of a plural career at a time when the fund industry is beset with challenges and opportunities in equal measure. JB can be contacted at firstname.lastname@example.org.
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