Ethical managers have aimed for years to influence companies’ behaviour by exerting their shareholder rights, but Hargreaves Lansdown’s Rob Morgan believes this is becoming an important trend among more mainstream fund managers too."In terms of fund managers, corporate governance comes into their decision on asset allocation a large majority of the time. This is because there is no doubt it is part and parcel of a company’s sustainability," he said.
"If you have a situation where a company is doing the wrong things with its shareholder dividends, then fund managers have to take this into consideration and often steer clear."
Tim Cockerill, head of collectives research at Rowan Dartington, says that investor concerns have been steadily increasing over a number of years, and this trend was not caused by the financial crisis alone.
He said: "There are always a certain number of people who ask about the corporate governance of the stocks they are choosing, but they tend to be in the minority."
"However, there has been a steady increase in interest in corporate governance issues and this has been a multi-year trend."
Cockerill adds that companies without a history of good corporate governance will struggle in the current period, with a number of scandals coming to light – not just financial.
He said: "Take mining for example; there was the incident in South Africa not long ago where 30 miners were shot dead. Of course, you cannot directly blame the company, but it illustrates why this is an area that certain investors are becoming more concerned with.""As time goes on, some of these issues will come to light with a number of companies, so good corporate governance will stand them in good stead."
Chris Watt (pictured above left), who heads up the Jupiter Responsible Income fund, says that on his group’s ethical funds the team encourages its holdings to follow a more responsible route and adds that this is something it can offer to investors who want to change business attitudes.
Performance of fund vs sector over 10-yrs
| 1-yr returns (%) | 3-yr returns (%) | 5-yr returns (%) | 10-yr returns (%) | |
| IMA UK Equity Income | 21.05 | 29.18 | 6.66 | 121.69 |
| Jupiter Responsible Income | 24.01 | 31.69 | -3.50 | 117.20 |
Source: FE Analytics
"We see lots of companies and have good access to their information and we use it to encourage them down the line we want. We can influence their behaviour, even if we decide not to invest, which is a good thing," he commented.
"If we look at companies and they do not quite meet the criteria, we will have meetings and conference calls and try to explain why we can’t invest."
Morgan claims that among ordinary investors, corporate governance is not as important as it is for managers.
"I wouldn’t say corporate governance is a major concern on a client level," he said. "We find a relatively small percentage of our investors follow ethical investing."
"There are two camps of investors, some obviously want to make as much money as possible and then there are investors who look at the markets from an ethical standpoint, and these ones believe that corporate governance is crucial."
This article was written in collaboration with and is sponsored by Jupiter Asset Management.