The shift is going to long-term holding of securities without the real understanding of companies
The members of the editorial board of SHIFT TO all have professional but also very personal reasons to join this initiative. In these interviews we learn more about their motivations as we ask: ‘Why do you want to SHIFT TO?’
INTERVIEW - Meet the editorial board: Narina Mnatsakanian
What is your personal motivation to SHIFT TO?
'I believe that long term investing is essential. If you look at the asset owners, the ultimate beneficiaries have a long-term horizon; and you also have companies that make decisions with a longer term horizon to be sustainable. But in the middle there are managers who may or may not think long-term; there is a disconnect between the long-term interests of owners and companies. Personally I am very motivated to see how we can use the financial sector and capital for long-term sustainable outcomes for all stakeholders, which is why I joined UNPRI (the United Nations-supported Principles of Responsible Investment) some time ago.'
How does this fit into your professional ambitions?
'It’s very similar. My personal ambition is about how to make the world more sustainable. One of the big drivers in this is how financial capital is allocated. If shareholders only focus on short-term shareholder interests and short-term performance then it is hard for companies to focus on long-term, overall stakeholder interests. So the question is: how can I use my time most effectively to work on the biggest drivers and levers that enable shareholders to consider ESG factors more holistically in their investment process, for the long-term interest of all stakeholders?
For example impact investing, which is still quite small but is rapidly emerging (and it depends upon how you define ‘impact’, of course). What I have been working for in the last years is moving impact investing into the mainstream, so institutional investors are increasingly looking to invest with a double bottom line. They want measurable social and environmental outcomes as well as financial ones.
Impact investing is a growing field and in the long-term, all or most investments will be measured for non-financial impacts, positive and negative. That’s where our industry is going. Of course we have listed and non-listed markets. Impact investing has been more focused on the non-listed, and currently is also moving to listed markets. Increasingly impact investing is being linked to the UN Sustainable Development Goals (SDG). So now instead of just talking about ‘what is impact’ we have agreed on certain global problems that need to be solved and we have the SDGs as goals that need to be achieved to get there, and investors can align their investments with the goals or to make allocations to them.'
In your opinion, where should the financial industry be in seven years’ time?
'If I look at the institutional investors, you see that more needs to be done in terms of specific contacts and relationships between asset managers and owners - and clearly much more in the listed space. The nature of most non-listed space (such as private equity or infrastructure) is long-term investing, which is why this is really much more important for the listed space.
If the financial industry looks more broadly and holistically at both positive and negative impacts of investments and is transparent about that, and can tell us how it is adding value to the real economy, that’s very important – this [adding of value] can often seem abstract.'
Who should we definitely hear from in this newsroom?
'The issue in the shift to the long-term is finding efficient ways to join forces, in more private markets and listed markets. So maybe we should hear from academic Dr. Andreas G. F. Hoepner, who is looking at big data, and who has an advisory position in a variety of initiatives. Dr. Raj Thamotheram from Preventable Surprises has some interesting perspectives. And from UNPRI there’s Kris Douma who is focused on Investment Practices and Engagements – since one of UNPRI’s goals is around long term and sustainable financial systems, SHIFTTO should consider interviewing someone from the organisation.'
Which issue is most urgent in your view/field of work?
'For listed markets I think it’s about transparency and making things more explicit. What you see is an ongoing shift to passive investing, and the nature of that is long-term as long as the companies are in the index; but as a passive investor you don’t know or understand the company, so the shift is going to long-term holding of securities without the real understanding of companies. It’s tricky. It can be that the whole market turns passive, but is that what you really want? What is the end goal of long-term investing? Ideally you want investors to know and understand companies and to be good stewards of their assets, which goes beyond just being long-term investor. Passive investors also need to be more engaged. There must be more dialogue and informed voting, and that increases costs; still we need smarter passive investors.
On the active management side, I think it’s about having the right incentives and the right contracts between asset managers and asset owners:- to incentivise the long-term thinking and behaviours. It depends upon what you want to achieve. It’s about really clearly defining the types of behaviours and activities that we want, and how they can be implemented via active and passive strategies.'
What are you reading?
'I’m reading a book called The Fifth Discipline (Peter Senge, Doubleday 1990) which is about why certain organisations die and others survive, and about the whole (organisational) capacity to learn and systems thinking - how we set up systems that encourage certain behaviours and not others. The reason it’s a relevant book is because to incentivise long-term investing we also need systems thinking, and to understand how to set up certain systems, including the regulatory and governance systems that encourage stewardship and long-term perspectives.'
Narina Mnatsakanian is Director Impact & Responsible Investment for Kempen Capital Management. A valued expert in the field of responsible investment with a significant international CV, she is an active member of the PRI and has been a member of a variety of PRI Advisory Committees (notably for the UN’s Sustainable Development Goals). She joined Kempen 1 June 2017.