Investors commit $2bn to new corporate governance-focused index

A group of six global pension plans and sovereign-wealth funds with a combined $700bn AUM, has launched a new index. The S&P Long-Term Value Creation Global Index comprises of 246 companies with good governance and focus on long-term goals, based on analysis provided by RobecoSAM. The group, which has committed to allocating $2bn of funds to the index, believes corporations have become too focused on the short-term satisfaction of investors, particularly activist investors, at the expense of growth, it aims to build awareness within the asset management community about the importance of long-termism and hopes to change corporate behaviour. 

ATP and PGGM have backed the launch of a long-term equity index by S&P, joining sovereign funds and two of Canada’s largest pension investors, as several of the investors allocate $2bn (€1.8bn) to the benchmark.

The S&P Long-Term Value Creation (LTVC) Global Index comprises firms that have, according to the index provider, a proven ability to manage the long-term economic and governance opportunities in the market, based on analysis provided by RobecoSAM.

The creation of the index was recommended as part of the Focusing Capital on the Long Term Initiative (FCLT), founded by the Canada Pension Plan Investment Board (CPPIB) and consultancy McKinsey in 2013.

CPPIB’s chief executive and president Mark Wiseman argued that those availing themselves of the index would be sending a “clear signal” to company management to focus on long-term value.

The fund, responsible for CAD273bn (€181bn) in assets, has been joined by ATP, PGGM, the Ontario Teachers’ Pension Plan, the New Zealand Super Fund and fellow Singaporean sovereign investor GIC in backing LTVC’s launch, as a number of the consortium allocate $2bn to the index.

Together, the asset owners manage approximately €650bn in assets.

Else Bos, chief executive of Dutch pension provider PGGM, said the launch was an important step in the right direction, as it would build awareness within the asset owner community about the importance of long-termism.

“Benchmarks are a necessary ingredient for the road towards investing on a longer horizon,” she added.

“When combined with a long-term mindset in investment decision-making, active ownership and proper ways to evaluate the value created by investors on a long horizon, we see the emergence of a powerful tool-kit for long-term investing.”

Carsten Stendevad, chief executive of Denmark’s ATP, agreed the index was the kind of “innovative solution” required to drive companies’ long-term behaviour.

The chief executive of S&P Dow Jones Indices, Alex Matturri, said the past few years had seen increasing investor demand for benchmarks capturing companies willing pursue a long-term approach when reaching decisions.

“The launch of the S&P LTVC Global Index,” he said, “is a manifestation of the long-termism concept with an independent and transparent approach.”

Stendevad has previously praised the FCLT initiative, which led to the index’s creation, telling IPE last year that it started by examining the “paradox” of long-term institutional investments remaining focused on short-term gain.

“This is an example of where we’re grappling with some issues, and they’re grappling with the same issues,” he told IPE in September. “We should just be very humble and say, if we can be inspired by others, then absolutely, we should try to do that.”

For more from Carsten Stendevad, read his interview with IPE from September 2015