Michael D’Arcy has second thoughts about role in shedding fossil fuels investments

As a junior minister in the last Government, Michael D’Arcy fell into a certain pecking order getting support for his legislative ideas. His exit, however, galvanised the Cabinet into promising law changes.

The former minister of State in the Department of Finance courted political controversy in September last year by quitting the Seanad, after losing his Dáil seat in the 2020 general election, to become chief executive of the Irish Association of Investment Managers (IAIM) – without seeking clearance from the Standards in Public Office (Sipo).

While D’Arcy had received legal advice that the move did not breach rules and he vowed not to engage in any lobbying for 12 months after leaving the Department in June 2020, it underscored how weak Sipo’s powers were. The Cabinet agreed proposals in July to amend the Regulation of Lobbying Act 2013 to make it an offence not to comply with so-called “cooling-off” rules after ministers and senior officials leave office.

“If I had my time back, I probably would have done it differently,” says D’Arcy in his first interview since taking over the IAIM. “I’m satisfied that I did everything legally. But there was probably more to be done outside of what I was legally obliged to do.”

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The organisation he has taken over is very different from when it was founded in 1986 by a club of Dublin asset managers largely focused on companies on the local market. It was not afraid to target some of the big names on the Iseq – taking aim publicly, on occasion, at the likes of Michael Smurfit’s pay at Smurfit Kappa’s predecessor group, and at DCC founder Jim Flavin’s tenure after the company settled a civil suit alleging insider trading. It also addressed various corporate governance issues at Elan.

Today, Irish Life Investment Managers is the only remaining initial member, with companies such as Bank of Ireland Investment Managers, AIB Investment Managers and Hibernian Investment Managers no longer around. Instead, units of overseas names such as BlackRock, Goldman Sachs, Banca Mediolanum and Amundi jump out from its webpage, with Irish investments only accounting for a sliver of members' €2.3 trillion of assets under management.

Domestic asset managers

The demise of a strong domestic asset manager base in the past 15 years – partly down to the rise of passive fund management and local pension funds cutting their Irish equities exposure, amid pressure from advisory firms – and rise in the power of international proxy advisory firms on corporate governance issues have done away with much of its original purpose.

IAIM's traditional role lobbying in Dublin on legislation affecting the industry has also been diminished by the fact that most of the rules and standards affecting the industry now being set in Brussels or Paris, where the European Securities and Markets Authority is based.

Has the IAIM had its day? No, insists D’Arcy. “This is an incredibly important sector. There are about 18,000 jobs in Ireland in the investment management sector and the [ecosystem] that’s attached to that,” he said. “I want to see the IAIM become the voice of the sector overall as it deals with major issues.”

Pensions coverage, diversity and inclusion in the industry, and regulations and compliance are up there, he says.

But no issue is more important than the role of investment funds in dealing with climate change. “Five years ago, ESG (environmental, social and governance) and sustainable finance weren’t big issues. Now it’s the biggest.”

As a global hub for the domiciling and administration of funds, the IAIM chief said that the Republic needs to lead in terms of “thought leadership” in the ongoing development of this area. The organisation recently set up an ESG committee to work on what its priorities in this area should be.

D'Arcy said he doesn't want to "prejudge" the work of the committee. But his own views of the role of the investment community in addressing climate change has shifted since he was a junior minister, when he was partly responsible for bringing the Fossil Fuel Divestment Act through the Oireachtas in 2018, requiring the Ireland Strategic Investment Fund (ISIF) to sell off fossil fuel investments.

At the time he said that the State, the first internationally to make such a move, was showing “real global leadership”. Now he’s not so sure.

‘Easy option’

Selling off investments in industries that are big carbon emitters is “the easy option”, he says, suggesting that remaining invested in companies with ESG problems and encouraging them to transition to a greener future is more responsible.

“The big problem is that by dumping assets on the market, they end up in the hands of others who have no interest in influencing these companies or assets. They come and do even more damage,” he said. “Having been the individual that brought that Bill through, I now question whether that is the right direction - not just in Ireland but internationally.”

Meanwhile, D’Arcy, whose period of quarantine from the corridors of power in the State came to an end in June (12 months after the formation of the current Government), is beginning to knock on doors again.

He had his first meeting with the Central Bank of Ireland in the past six weeks and contacted the Department of Finance last month about attending the Cop26 UN climate change conference in Glasgow in November.

“Is that considered lobbying? I’m not sure. But we’ll be filling in the [lobbying register] form anyway.”