After a year which saw many of its campaigns take centre stage, FairPensions’ chief executive talks to Sam Brodbeck about Barack Obama, responsibility and how pensions can lead the way in creating a better investment culture
Catherine Howarth - Fair Pensions
Catherine Howarth arrives at Pensions Insight’s HQ by bicycle and cannot hide her excitement at stepping inside our unexceptional media office. “I’ve often looked at this building from the street and wondered what the inside was like,” she explains. “It’s much smarter than our office.”
That humble Borough workplace is just over the Thames from the wealth of the City of London, and in the five years since Howarth became chief executive of responsible investment group FairPensions, the journey across London Bridge has taken on a growing significance. Events have placed the issues at the heart of FairPensions’ work squarely on the political agenda.
Events have placed the issues at the heart of FairPensions’ work squarely on the political agenda
It began with last year’s ‘shareholder spring’ that focused on executive pay; gathered momentum with Professor John Kay’s review of the UK equity markets; and was made more pressing by the worsening state of financial markets, which hit the funding of defined benefit pension schemes.
It is the interaction (or lack of) between different segments of the financial world that has caused many of these ruptures.
Luckily for FairPensions and Howarth, managing the interests of conflicting parties is where she cut her teeth. After finishing her studies, she spent three years researching at think tank New Policy Institute, followed by eight years as a community organiser at London Citizens.
Barack Obama was a community organiser in Chicago and was actually trained by the same people who trained me
“Community organising was an unknown occupation in the UK until an up-and-coming presidential candidate called Barack Obama appeared and everybody wanted to know about his background,” Howarth says. “He was a community organiser in Chicago and was actually trained by the same people who trained me.”
“It’s about building broad alliances between different interest groups that live in the same community,” she explains.
It was while she was at London Citizens that Howarth had her first brush with pensions. “My own savings were with the Pensions Trust [a scheme for the voluntary sector and one of the biggest in the UK].
I was always totally fascinated by economics and thought getting experience through being a trustee beat signing up to a formal course
“I stood for election as a member-nominated trustee and have been one ever since. I was always totally fascinated by economics and thought getting experience through being a trustee beat signing up to a formal course.”
The mixture of practical arbitration skills and the specialist pensions knowledge that she has absorbed from being a trustee at one of the country’s leading master trusts, dovetails neatly in her current role.
PENSIONS IN THE COMMUNITY
Howarth describes FairPensions as a “community-based organisation for the pensions sector that champions transparency, accountability and responsible investment on behalf of scheme members”. The charity has nine full-time staff and receives the bulk of its funding from grants, donations and membership fees.
As well as broadly promoting shareholder engagement, it addresses specific cases where environmental, social and governance (ESG) issues have been ignored by investors and companies. These have included encouraging shareholders to question Shell’s impact on the Niger delta; pushing for legislation to force companies to report the measures they are taking to prevent human trafficking in supply chains; and putting pressure on telecoms companies to protect human rights following Vodafone’s decision to shut down services during the Arab Spring at the request of oppressive governments.
Howarth’s predecessor and FairPensions founder, Alex van der Velden, has just launched Ownership Capital, an equities fund that aims to incorporate ESG factors and a long-term holding approach.
If you look into the future, there are a series of mid-to-long term trends around resource scarcity and climate change, where if we ignore those risks it could be very costly to schemes
So is this the kind of model fund FairPension advocates?
“It’s encouraging that products are emerging in the market that embed these ideals into them,” Howarth says, “but our approach is about mainstreaming the integration of ESG factors.”
The ‘environment’ part of the ESG acronym is of particular interest to Howarth. “If you look into the future, there are a series of mid-to-long term trends around resource scarcity and climate change, where if we ignore those risks it could be very costly to schemes.” Howarth says: “I appreciate that big DB schemes need to worry about liabilities pressure right now, but for younger savers in defined contribution schemes we have to be on the ball about risks that are coming down the track.”
What was missing was an analysis of what will trigger that change in culture, towards long-term stewardship
A recent report by the Actuarial Profession and Anglia Ruskin University says much the same thing. It claims the knock-on effect of a predicted decline in natural resources would see the extinction of a standard DB scheme “within 35 years”.
The Resource Constraints report warns that “the more extreme scenarios modelled represent financial disaster; the assets of pension schemes will effectively be wiped out and pensions will be reduced to negligible levels”.
The problem boils down to short-term thinking.
It is the same theme that ran through Professor John Kay’s analysis of the health of UK equity markets. Commissioned by business secretary Vince Cable and published last July, the Kay Review concluded the short-term incentives of investment managers do not chime with pension funds and companies’ long-term funding goals.
Howarth praises the report but is yet to find the industry “responding particularly pro-actively” to its recommendations. She adds: “What was missing was an analysis of what will trigger that change in culture, towards long-term stewardship, that he recommends.”
Historically, trustees don’t have a grip on how shareholder rights are being exercised by asset managers
She is hopeful that any change in government will not derail the momentum to increase shareholder engagement and long-term investment planning. “Vince Cable and Steve Webb understand,” she says, “and key people in the Labour Party are interested in the debate.”
Cable understands, and indeed has reacted to, 2012’s other big event in which FairPensions played a leading role – the shareholder spring. While Howarth is keen to stress that the 2012 AGM season was not the unprecedented revolt it appeared to be, enough big heads rolled to prompt the business secretary to gift shareholders a triennial binding vote on executive pay.
FairPensions’ role in the investors’ revolt was to bridge the gap between pension schemes and the companies they own. In 2011 the charity launched a web tool that enabled scheme members to identify what it perceived as ‘poor practice’ on the part of companies they are invested in – if executive directors received over 200% in performance pay on top of basic salary, for instance.
The charity also recorded the voting patterns of asset management firms and fed that information back to schemes.
“Historically, trustees don’t have a grip on how shareholder rights are being exercised by asset managers,” Howarth says, and pension funds often did not have the time, expertise or inclination to keep tabs. But a decade of poor returns and the internet has made services like FairPensions’ inevitable and essential.
However, it’s possible company directors will be awarded pay packages that are way out of line with performance and shareholder returns
When asked for her predictions on the next round of AGMs, she is cautious. “My sense is that some of the big fund managers are undertaking positive and intensive dialogue with companies,” she says. “However, it’s possible company directors will be awarded pay packages that are way out of line with performance and shareholder returns,” she says. “If that’s the case I hope shareholders make it plain that’s not acceptable.”
I ask her a final tricky question: “What kind of world would have to exist for FairPensions to no-longer have a function?”
The pensions industry would be leading the way to engage with the major sustainability and environmental risks
“In that world pension savers in every workplace would actively keep an eye on their pension providers and be aware of the role their provider plays in the wider economy. The pensions industry would be leading the way to engage with the major sustainability and environmental risks coming our way.”
Howarth leaves to cycle back over the river, but she’ll be back in the City’s boardrooms soon enough. There’s a long way to go before FairPensions can afford to disband.
Roles: Chief executive of FairPensions (2008 – ); elected as a member nominated trustee of the Pensions Trust and sits on the investment committee (2007); community organiser at London Citizens (2000- 2008); researcher at think tank New Policy Institute (1996-2000).
Education: Bachelors degree in modern history from Brasenose College, Oxford (graduated 1996) followed by a Masters degree in industrial relations and human resource management from the London School of Economics (graduated 1997).
Family: Catherine grew up in west London but now lives in east London with her furniture maker husband and two young boys.
Outside interests: Cooking, walking, contemporary design and community activism.