The global trend towards passive funds management is a “deep structural challenge” for the responsible investment sector, says BT Investment Management.
Speaking at the Responsible Investment Australia Conference in Sydney yesterday, BT Investment Management Australia chief executive Michael Bargholz said the rise of passive strategies poses a threat to responsible investment.
Mr Bargholz said that with the 10-year anniversary of the global financial crisis having just passed, it was more important than ever for fund managers to be "true to label".
His comments came as the Responsible Investment Association Australasia (RIAA) released new survey data showing a clear majority of investors want their funds to act responsibly.
"The key step in growing responsible investment in Australia is a stronger partnership between investors and clients. This requires active investments and active relationships," Mr Bargholz said.
One of the biggest headwinds for the responsible investment sector – and funds management in general – is the lack of active investment, he said.
"There is a tide of investor capital flowing into disengaged products. Products like broad-market index funds, derivatives, financially engineered products that offer a blanket exposure to some asset classes rather than an explicit allocation to individual businesses," Mr Bargholz said.
"While these offer cheap access to markets, taking this risk-agnostic approach can lead to being at odds with the desires and the values of the community, and the organisations represented here.
"I see this as a disengagement trend, a deep structural challenge that can treat the assessment of non-financial risks too lightly. Active management requires both company and client research.
"Active management is so important. Researching what's actually going on in companies and how they're changing and evolving and moving – really understanding where capital is invested is critical."
BlackRock’s latest client survey has found that climate-related risks are now the top sustainability concern for the vast majority of its ...