How corporations are owned and governed, and in whose interests, is a structuring force in the global economy. In our previous report, “Under New Management”, Common Wealth traced the rise of a new corporate governance regime in the UK economy: asset manager capitalism. This marks a new era of ownership and control with only partially understood implications for how corporations are governed and by extension, how society will respond to major challenges like the climate crisis.

Asset manager capitalism did not arise spontaneously. It is the product of a series of important shifts in the structure and distribution of ownership in the economy over the past several decades, not least the relentless growth of “passive” (index-tracking) investment strategies. A small cohort of increasingly vast asset management giants – chief among them BlackRock, Vanguard and State Street– has ridden a wave of enthusiasm for passive investing to positions of dominance within the UK shareholder structure. The growth of passive investing in the UK context is the focus of this report.  

Key findings:

  • Investment funds (mutual funds and exchange-traded funds) now constitute a significantly ownership share in the UK’s publicly listed corporations. Since 2010, the gap between passive investment strategies, wherein funds track an index to determine the securities they invest in, and traditional active management strategies, has been rapidly closing.
  • For no sector of the economy is this more pronounced than fossil fuels: the fossil fuel sector is the only one in which passive funds now represent over 40% of all fund ownership, as active funds begin to slowly reduce their investment in the sector.
  • Within this context, the role of index providers – companies providing indices for index-tracking investment funds – remains comparatively under-scrutinised and, critically, under-regulated. These companies have significant and growing influence over how capital is allocated in the global economy. Just three firms – MSCI, S&P Dow Jones, and FTSE Russell – dominate the index business, taking in over three quarters of all industry revenues.
  • If these index providers and the funds that track their products occupy a (quantitively) unignorable position in the allocation of both capital and decision-making power within the UK economy, our analysis shows that this is especially the case for those industries most pivotal to the question of what kind of economy we want to live in, particularly in the transition to a decarbonised future.

To read the paper in full, click here.

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