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UK's Investment Association explains how investors can boost productivity

The Investment Association (IA) has published an industry-wide Productivity Action Plan which it believes will boost the UK economy through long-term investment, helping to reverse the UK’s productivity problem. The action plan aims to encourage the provision of more long-term finance for companies and enhance investor stewardship.
The proposals were developed by a steering committee made up of chief executives and senior fund managers which developed a framework for considering the barriers to long-term investment and considers the role the investment industry can play in boosting the long term performance of companies. Five principal objectives have been developed for the action plan which are:
  1. Enhance company reporting for efficient capital allocation – through investment and analytical expertise the industry will identify and finance those companies contributing productive growth in the economy;
  2. Enhance investor stewardship and engagement – the investment industry will engage with companies to help them achieve sustainable value creation over the long term and support investments in improved productivity;
  3. Simplify behavioural incentives and the investment chain – the industry will work to ensure that the agreed incentives and governance of the investment chain ensure a clear alignment with clients’ long term investment objectives;
  4. Develop efficient and diverse capital markets – as key capital market participants, the investment industry has a key role in the development of asset classes and the efficient functioning of capital markets; and
  5. Overcome tax and regulatory impediments to the provision of long term finance – the investment industry should contribute to the debate on tax and regulatory impediments to investment so as to ensure  the right long-term outcomes for clients.

The action plan builds on earlier work by Tomorrow’s Company which produced reports in 2012 and 2015 entitled Tomorrow’s Capital Markets which produced a vision of capital markets investing for long-term sustainable returns. The Pensions and Lifetime Savings Association’s framework for stewardship disclosure also shows how some institutional investors are implementing he Stewardship code developed by the Financial and Reporting Council. The IA’s action plan also backs up the UK government’s own productivity plan, Fixing the Foundations: Creating a More Prosperous Nation, published last year.

Andrew Ninian, Director of Corporate Governance at the Investment Association, said, “Productivity improvements can help drive economic growth and require UK businesses to invest for the long term. The Action Plan outlines how we as investors can play a fundamental role to help improve UK productivity and support long-term investment. The Action Plan seeks to deliver ambitious and achievable remedies to the ills of some of the most serious causes of short-term thinking in the British economy. The investment industry remains steadfast in its commitment to play its part in fixing the UK productivity puzzle and help fix the challenge of our generation.”

Responding to the IA’s action plan, Melanie Mclaren, FRC Executive Director Codes & Standards said, “Improving the UK’s productivity is a key challenge for the nation’s future prosperity. The Investment Association’s proposals to increase the attractiveness of the UK market to global capital inflows are closely aligned to the FRC’s core purpose and so we very much welcome them. The Association’s membership plays an integral role in developing a long term approach to investment and productivity and we look forward to working with them more closely on this. We are pleased that  the report recognises the important work of the FRC so far on promoting long-termism, effective investor stewardship, clear & concise strategic reporting and our innovative approach to bringing market participants together though the Financial Reporting Lab. Our ‘Culture Coalition’ work on corporate behaviour has been enthusiastically received by the investment community and other stakeholders and will report in the summer. We look forward to continuing to collaborate with the Investment Association on these and other projects as our work progresses.”

What do you think?