The rise of exchange traded funds has changed the nature of ownership between listed companies and their investors. Managers of “physical” ETFs are compelled to own shares because of the stock’s inclusion in a particular basket, they cannot readily divest in protest over a company’s behaviour.
Yet the rise of the ETF market has coincided with a growing emphasis on responsible ownership, where investors are expected to take companies to task over how they are combating climate change, improving gender diversity and curbing excessive executive pay. “At the same time as ETFs have grown rapidly, we have seen a very rapid rise in this issue of stewardship,” says Yo Takatsuki, a director in BMO Global Asset Management’s governance and sustainable investment team. Are these two trends fundamentally at odds with each other? The biggest ETF providers deny the idea that the rise of index-tracking vehicles has lessened shareholders’ ability to push companies to change.
Morningstar found that the world’s biggest index investing groups have expanded their stewardship or corporate governance teams in recent years, although conversations with asset managers indicate the workload they face is massive.
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