about pension increases and, where they are capped, deciding if they should award discretionary increases. They are trying to understand the implications for the inflation-matching charac- teristics of their assets.


The conversation that is not yet taking place is how they use their influence as an investor on the cost-of-living crisis. That discussion will mature over the coming months and trustees will likely focus on the long-term systemic issues that this is throwing up. A global investor is not going to be focused too narrowly on short-term inflationary pressures in the UK but will be think- ing about global long-term issues. For example, the way income inequality affects the economy and long-term investment returns. There is a synergy there between the social impacts of inequality and the financial impacts, and hence the outcomes for the pension scheme.


That is one of the systemic issues that is thrown up by the cost- of-living crisis. The other one, of course, is the energy transi- tion because a lot of the inflationary pressures are coming from the energy market. So how does that impact the investor’s responsible investment strategy? And how can they use their influence to improve long-term outcomes?


Can private capital solve this crisis? McAllister: I want to say yes, but it is quite difficult. A war and a pandemic caused the cost-of-living crisis in Europe. These fac- tors are hard to control for individual asset managers. However, there are ways this can be weaved in. When you look at inequality, there are direct trade offs in the short term. When inequality levels have risen, so have shareholder returns over the short term, as the proportion of wealth going to the work- force falls.


That is unsustainable over the long term, so it comes back together. It is the same dynamic on the energy side. It is possible to run the energy system we have and make good returns from trading individual shares, but the sector has been pretty poor over the long term.


The focus from asset managers in the energy sector over the last five years on value not volume has caused a decline in investment. We have not seen the commensurate re-invest- ment into clean alternatives, which has driven the supply and demand crunch. So it is weaved within in various ways, but it is tricky. You can support proposals like the living wage at companies, but you are trying to solve a systemic problem with individual actors.


10 October 2022 portfolio institutional roundtable: Responsible investing


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