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The investment management industry is today falling short of its duty to create long-term, sustainable wealth and must now put active stewardship at the centre of its activities, operations and purpose. This is the conclusion of a new paper from Hermes Investment Management.

There is usually a silver lining to every dark cloud, and the one hanging over the UK accounting sector is no exception, says Leon Kamhi, Head of Responsibility at Hermes Investment Management.

When assessing a company, investors spend a great deal of time examining factors such as its balance sheet, past performance and potential for future growth.

Hermes Investment Management, the £33.0 billion investment manager, has today announced that it has established a participation agreement with Util, an Oxford-based financial technology company. Hermes will be accessing Util’s proprietary holistic company valuation methodology which addresses the need for a standardized and comparable analysis that considers a company’s social and environmental performance alongside its financial performance. This analysis will help identify and steward investments to deliver superior financial and non-financial performance. The methodology builds upon the best practice of existing global frameworks, including the UN Principles for Responsible Investing, Integrated Reporting and the UN Sustainable Development Goals (SDGs).

Ahead of the Sports Direct AGM tomorrow, Leon Kamhi, Head of Responsibility at Hermes Investment Management, assesses the company’s progress and highlights areas for improvement. “We welcome a number of positive changes that have taken place since the 2016 AGM. This includes the appointment of Mike Ashley as CEO, Jon Kempster as a permanent CFO, two independent directors and a Workers’ Representative who will attend board meetings.However, we are greatly concerned about the lack of one to one engagement the company has had with shareholders following the publication and implementation of the board’s Engagement Statement to investors, analysts and the media. It is our view that the absence of face to face engagement falls short of best practice and creates a multitude of missed opportunities to build positive and constructive relationships with interested third party minority investors.

Leon Kamhi, Head of Responsibility at Hermes Investment Management, comments on today’s publication, Corporate governance reform, by the UK Government: “The additional measures proposed today by the Government look set to strengthen investors’ hand on pay, and it is now incumbent on both companies and us as investors to respond to the challenge of excessive executive remuneration." “Whilst it is not a panacea and the appropriate ratio will differ from company to company, increased transparency provided by the publication of the CEO-to-median-employee pay ratio is to be welcomed as it puts pressure on boards to explain the rationale behind the level of executive remuneration and disparities in pay across the organisation." “We strongly believe that boards of both public and private companies need to be more diverse and recognise the critical contribution that employees make to the success of every company. Whilst we would have liked the Government to go further and propose elected employees on boards, we are encouraged to see recognition for the clear benefits that are gleaned from greater employee voice in a company’s governance."