Passive and ethical investing strategies have the capacity to co-exist, according to FCA chief executive Andrew Bailey.
Speaking at the Investment Association Culture Conference yesterday, Bailey said that the investment management industry might see a re-definition of what is termed “active” management.
Bailey linked two often contradictory trends in the investment management industry: raising popularity in passive investing, and environment, social, governance-oriented investing.
Some active management figures have argued that passive (or index) investing goes straight against ESG-oriented investment, as the lack of active management means that investors cannot opt out of their investments in case a company’s ESG ratings fall.
Bailey said: “A longer-term shift towards passive investing goes alongside a desire for more ethical and socially responsible investing and a desire to encourage longer-term patient capital.
“Of course, these two developments can co-exist. Indeed, I would go so far as to say that they will, and that in doing so there will be some re-clarification of the meaning of active investment.”
Bailey also said the regulator is looking to task institutional investors to report on how they are incorporating ESG issues into their investment strategies.
He said: “We are consulting on rule changes to require the Independent Governance Committees of contract-based pensions to report on how they manage environmental risks in their investment strategies and how they take into account the ethical concerns of investors.”
He added: “Industry which enables the support of patient capital and innovation, and of ethical investment and social responsibility, will be one where the trust will be stronger and deeper, and the culture will prosper. And, the regulator can help by enabling change to happen.”