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Financial services companies should listen to the voices within

02 September 2021

By Henry Adefope

Recently, DWS (formerly Deutsche Bank) became aware that they were being investigated by the Securities and Exchange Commission in the US, and the regulator in Germany (BaFin) forgreenwashing – an increasingly distasteful term in financial services (‘FS’).  

The Hercule Poirot fans among you may be wondering where did the SEC and BaFin get their big scoop from? From none other than a former employee (now working in a new regulatory capacity). The accuser came from within.

Seriously, if you think the closet tracker debate was heated (when many fund brands were pretending their funds had a higher active share than in reality), the greenwashing accusation, is nigh on criminal to some investment commentators, purely because the practice of it is so rife in the sector. Asset managers and other FS companies that manage assets really try and avoid this accusation like the plague (which DWS are trying to do just now), and they must.

As we return to some sort of normality, greenwashing is but one of the key factors to be mindful, or even fearful of, particularly if you are an external-facing executive at a behemoth investment manager or major FS brand that is firmly in the steely gaze of the regulator. Not just the regulators mind you, as the DWS case shows, the group that poses the greatest threat to those firms that deviate from the straight and narrow are employees, both current and or former.

Another ‘whistle-blower’ from within who has hit headlines again recently is Tariq Fancy, the former Chief Investment Officer for sustainable investing at Blackrock. In an exclusive interview with the FT, he stated that there is no reason to invest in ESG funds and calls for government action, especially in introducing a carbon tax. The large asset managers are all in the spotlight of his scrutiny, and he argues that ESG is distracting us from what really matters, genuine impact to reduce climate change effects and transition us to a net zero world.

Regulators are encouraging whistleblowers, and this is of growing concern to some of the larger organisations.

So, what are the other factors on the horizon that have the power to affect shareholder sentiment and potentially the share price, that could be flagged by employees?

  • Gender pay gap
    • Progress must be demonstrated regarding a reduction – 5th October 2021 is when the next round of reporting is due.  So not long!
  • BAME and female representation at senior levels/ on boards
    • Again, meaningful progress must be demonstrated regarding a proportional increase (no matter how small).
  • BAME and female spokespeople
    • Share of voice in the media will decline without input from these new voices that the business media-at-large demand…
    • Female investment spokespeople really are required, and will be welcomed with open arms by broadcast, print, and multimedia platforms alike. Yes, there are (Still) more funds Run by Dave’s than Women – meaning the appetite for Dave’s, are declining, and fast.
  • CEO pay ratios (for quoted companies)
    •  Progress must be demonstrated regarding these ratios.
  • Response to technological evolution
    • Artificial intelligence and robotics are being integrated by some of the largest asset managers with scale; those that haven’t made any inroads into this area (i.e., machine learning, sequencing), could be exposed further down the line.
  • Lack of workplace/career flexibility (corporate)
    • The pandemic changed the way we work; corporate policies must not go back in time; a balance must be struck that works for all parties.
  • Assessment of Value (AoV)
    • This annual exercise will increasingly influence investment decisions - fund brands demonstrating good relative value per the cost they levy, will strengthen their customer base (Vanguard UK is a great example); those that are not, will be exposed, and inflows will reduce.

Needless to say, in respect to these looming challenges, internal communications, becomes as important as external. Getting a grip of these issues early and helping your orgnaisation define its corporate position as well as journey, and pace of progression, will help maintain market share, and avoid an unwelcome Christmas present for the Board.