Thomas Croft, Executive Director of the Steel Valley Authority and co-founder of Heartland Capital Strategies, shares his thoughts on the seven drivers of responsible investment.
A new wave of responsible investors is mobilising capital for smart buildings and affordable housing, civic infrastructure projects, wind and solar energy, and high-speed rail, hybrid buses and electric cars. They are sustainably rebuilding cities, renewing the industrial commons, growing the clean economy and fighting to make the ‘boss’ more accountable.
The story of this transformation and some of its innovative investment aviators is told in The Responsible Investor Handbook – a title I have recently co-authored with impact investing expert Annie Malhotra. These ‘capital stewards’ are applying a more holistic and integrated investment approach to the challenges facing cities, industries and our environment; in short, they are working to defend our common wealth.
For over a century, workers’ capital stewards have been the original crowd-funders. In addition to fighting for and winning a shorter workday, the weekend and the first pensions, these stewards have been designing innovative, long-term, investment vehicles, and they were among the savviest architects of good corporate governance.
As far back as 1850, Amsterdam’s unions built social housing to address overcrowded slums, and since then workers and mutual societies have invested in social housing, banks, credit unions, clinics, co-ops and businesses, and later helped lead the way toward dignified retirement policies.
This capital, our money – workers’ pensions and savings, insurance funds, bank deposits and endowments – represents an enormous share of economic and capital market wealth. In 2014, pension assets were valued at just over $36 trillion across 16 major pension markets globally.
But despite the progress made toward responsible investment, capital stewards still face strong headwinds, including:
- The ongoing agency separation between beneficiaries and pension managers.
- Excessive focus on short-term gains.
- A fear that responsible investing compromises financial returns.
- Lack of knowledge by consultants and trustees, and little in-house staff expertise.
- Limited worker representation on boards of trustees, unless where mandated.
These factors all contributed to the 2008 global financial market crisis, led by Wall Street and Square Mile banks, which threatened our common wealth and drained nations’ prosperity. Billionaire privateers and bankers are still working against the interests of people and communities, pillaging our treasuries and savings (just as government proxies starved the recovery through austerity edicts).
However, seven powerful drivers are challenging this short-term investment myopia:
- The UN-PRI. The surge of the UN Principles for Responsible Investment (PRI) which includes 1,500 signatories with $60 trillion in assets. Pledging to embrace environmental, social and governance (ESG) non-financial matters, the PRI represents a growing share of global capital markets.
- Fiduciary duty rules in Europe, the UK, Australia and (finally) the US that are increasingly mandating or strongly advising consideration of ESG matters in institutional investments.
- A battery of responsible investment performance meta-studies by prestigious institutions (like University of Oxford, Harvard Business School and Mercer) demonstrating that investors who pay attention to ESG and good corporate governance produce financial outperformance results.
- Post-2008 market crash reforms, which, though inconsistent across borders, brought some of the financial market players under more scrutiny.
- The Paris Climate Change Accords of December 2015, resulting in landmark commitments from 195 countries to address climate change.
- National movements and on-the-street pressure to pay liveable wages and reverse income inequality.
- Global Labor’s endorsement, better aligning capital stewards’ consideration of pension investments with the ESG framework.
We tell the story of responsible investment aviators who have worked to invest in the real economy – the part of the economy concerned with actually producing goods and services (vs. financialisation). The record shows that such investments have generated strong financial returns while also promoting positive economic development, good employment, dignified labour relations, and sustainable environmental practices.
The stewards of workers’ capital and community stakeholders stand at the threshold of the most transformational economic changes in a generation, adopting appropriately scaled capital strategies, and creating a more liveable, inclusive, hopeful planet. Steadily, capital stewards are amalgamating resources and investment capacity, and investing across borders. They are joining the movement to re-claim our cities, demanding affordable, transit-oriented housing, green jobs and sustainable energy. They are reinvesting in our makers and manufacturers, infrastructure and schools.
It is my hope that The Responsible Investor Handbook will provide capital stewards with the concrete tools and best practices that will enable them to navigate the complex decisions that they face. It’s time for us all to demonstrate active engagement and action to elevate this new generation of responsible investors into our national conscience and conversations.