On Wednesday 25th October, ShareAction, the charity campaigning for responsible investment, will host a lecture from Sir Oliver Hart, a Nobel Prize-winner in Economics and lecturer at Harvard, in which he will expand on his work reinterpreting the legal duties of investors – including pension schemes – so that they go beyond the narrow idea of maximising financial return.
Sir Hart will argue that in the face of numerous environmental and social crises across the globe, pensions and asset managers should serve the wider ‘best interests’ of savers and working people rather than just shareholder value.
He will propose a system based on ‘welfare’ that would take into account that most shareholders care about things well outside the purview of financial returns, such as living in a safe and decent world, making sure their grandchildren do too, and ensuring this is the same for others.
Sir Oliver Hart will say:
“The conventional wisdom is that pension and other asset managers should act on behalf of their beneficiaries by maximizing risk-adjusted financial return or shareholder value; this view is flawed. Beneficiaries care about financial return, but they care about other things too. They want to live in a safe and decent world, they want their children and grandchildren to do so, and they may care also that others can do so.
“Shareholder value maximization should be replaced by shareholder welfare maximization. To make it practical for pension managers to support shareholder welfare maximization, changes in the legal interpretation of fiduciary duty may be required.”
Earlier this year ShareAction commissioned a YouGov poll from ShareAction taken found that close to three-quarters of the public would like social and environmental factors considered alongside financial returns. 71% of respondents said they would view their financial supplier negatively if they were invested in companies engaged in human and labour rights abuses. For suppliers invested in companies involved in either deforestation and environmental damage, or high use of fossil fuels, the percentage of the public with a negative impression was 68% and 53% respectively.
Chief Executive of ShareAction Catherine Howarth OBE commenting on the importance of this lecture to how pensions are managed said: "Our pensions and investment system is broken. It doesn't deliver decent incomes in old age and it fails to reign in investee companies that operate in socially destructive ways. Our pension funds urgently need a new mandate in law to serve working people's interests, properly balancing financial and impact considerations. Everyone in the U.K. with pension savings has a stake in this and can join us in demanding legislation that protects people and their pensions for the long term."
Notes to editors
- Sir Oliver Hart is currently the Lewis P. and Linda L. Geyser University Professor at Harvard University, where he has taught since 1993. He is the 2016 co-recipient of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. Hart’s research centers on the roles that ownership structure and contractual arrangements play in the governance and boundaries of corporations. His recent work focuses on how parties can write better contracts, and on the social responsibility of business.
- ShareAction is campaigning to redefine the fiduciary duties of pension trustees so that they better reflect the true best interests of pension savers, ensuring that working people can have a good income in retirement and properly considering the impacts that pension investments can have on people's quality of life in retirement.