Improving companies through corporate governance will remain "a fantasy" until pension trustees better align their managers' incentives, said Mark Fawcett, chief investment officer at the UK's National Employment Savings Trust.
Fawcett told delegates that pension trustees were too focused on short term returns.
With UK stocks falling drastically, environmental, social and governance risk factors affecting the next 20 to 30 years are not top of the agenda for fund managers.
“Pension funds exacerbate those incentive problems. They hire and fire managers on a three year cycle. They should be looking at five years as a minimum, maybe ten,” he said.
“Until pension funds start behaving the right way by aligning the incentives for fund managers, and get them to centralise their employees and then work on a corporate level, the idea that corporate governance is going to make a change is unrealistic,” delegates heard.
Fawcett was speaking in response to a presentation by Mario Catalan, economist at the International Monetary Fund, who said pension fund activism can promote financial development in the developing economies as well as promote equity and foreign flows which will result in reduced financial fragility.
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