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Emerging Drivers of Responsible Investment

An overview of The Responsible Investor Handbook and the drivers pushing a movement of responsible investing around the globe.

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Emerging Drivers of Responsible Investment

  2. 2. Solar Impulse-2 over San Francisco As the sun rose on March 9, 2015, a huge solar-powered plane called Solar Impulse 2, with a wing span longer than that of a Boeing 747, took off from the Middle East , aiming to fly around the world. The New Wright Brothers!
  3. 3. Solar plane circles the globe! “Andre Borschberg and Bertrand Piccard aren’t looking to revolutionize aviation with their solar-powered aircraft” “Rather, …they want to raise the profile of a suite of technologies on their Solar Impulse 2 aircraft—many commercially available today.”* They wanted to prove that new solar technologies can achieve what was considered impossible! *(CNN)
  4. 4. “Investors have an incredible amount of power. They have the ability to effect huge amounts of change, and they just need to come together and act.” Fiona Reynolds Managing Director Principles for Responsible Investment
  5. 5. The Handbook is a “how-to” manual for capital stewards. It is co-authored by Annie Malhotra, a young, remarkable woman from Toronto who has worked with impact investors and has her CFA. The book is being published this Sunday by Greenleaf Publishing, UK, as the 5th volume in its responsible investment series! The Handbook was commissioned by the AFL-CIO and a small group of generous sponsors, including unions and responsible investment managers.
  6. 6. The Handbook issues a call to action for all of us to responsibly invest workers’ capital. It scans responsible investments in the US, UK, the Netherlands, Sweden and Australia, and includes examples from other communities. It upholds the importance of real retirement benefits, and defends our “Commonwealth.”
  7. 7. The Handbook is written for laypeople. We tried to translate complex financial systems, showing: • The role of labor in winning social and retirement benefits across borders, and... • Shaping and financing responsible investments. • Planning pension governance and management. • Fighting for good corporate governance. • Reclaiming fiduciary duty. • Responsible investing across asset classes. • Implementing and measuring ESG performance.
  8. 8. Workers’ capital means, simply, our money, the pension funds and other savings and assets of working people, including 401ks, insurance funds, bank deposits, etc. Real pension funds—defined benefit plans—grew from $153 billion in 1978 to $9 trillion in U.S., including $4 trillion in public and T/H plans where workers have a voice. Overall, workers own $22 trillion in institutional investments in the U.S., and over $36 trillion globally. What is Workers’ Capital?
  9. 9. 6.2 million US jobs paying nearly $307 billion in labor income $943 billion in total economic output nationwide $555 billion in value added (GDP) $133 billion in federal, state and local tax revenue The impacts of paying $477 billion to 24 million retired Americans in 2012: Economic and Financial Impacts – U.S.
  10. 10. American know-how pioneered the early development of the modern solar energy. People’s pension funds provided, directly and through VC funds, the fuel to launch hundreds of solar entrepreneurs. Our ancestors--workers, engineers and entrepreneurs– also built our cities, railroads, highways, schools, homes. They created a mighty industrial commons. They advanced technology, space travel, and renewable energy. Workers and societies around the world accomplished many of the same momentous breakthroughs. Our own pension funds were significant partners in many of these advances in the last half of the 20th Century. Our money—saved by teachers, electricians, steelworkers, firefighters, hotel workers—seeded innovative industries with earth- changing impacts over the past several decades. Responsible Investing Aviators
  11. 11. • Fought and won the 8-hour workday, weekends and vacations, and • Bargained the first pensions These stewards also: • Led the charge toward responsible investment • Established the groundwork for good corporate governance Labor’s capital stewards were the original “crowd-funders.” They not only:
  12. 12. There is a long, rich history of intentional and ethical investments in the U.S., going back to the Quakers decision in the Civil War to divest in the slave trade. The Handbook highlights the pioneering work of unions in America (and globally): 1920’s –Starting the early 1900s, AFL President Samuel Gompers, Garment Workers President Sydney Hillman and Mineworkers President John L. Lewis began building social housing, banks, clinics and co-ops in the U.S. 1960’s – AFL-CIO President George Meany and Martin Luther King joined together to create housing investment institutions to achieve social and economic justice, partnering with construction pension funds. 1980’s – Industrial unions began designing shrewd capital strategies, deploying worker- friendly investment banks and new capital vehicles for turning around or expanding critical industries. 2000’s – Teachers, public and service employees began investing their pension funds in energy, transportation, and infrastructure innovations to grow the clean economy.
  13. 13. The Momentum Towards International Responsible Investment Labor in the Netherlands, Sweden, UK, and Australia began investing in social housing, mutual societies, banks, co-ops dating as far back as 1850, when Amsterdam’s unions responded to the city’s unlivable slums. Labor and social democratic governments historically have provided better protections for citizens and working families, and many Euro communities foster workforce participation through consultation rights and “stakeholder companies.” Many of Labor’s institutions—built a century ago--play important roles in their societies today. In recent decades, peoples’ pension funds began investing in workforce housing, essential infrastructure and amazing cross-border renewable energy platforms. When the UN and partners launched the Principles for Responsible Investment (PRI), the founders included labor capital stewards who, on behalf of workers, aligned the new global ESG (environmental, social, governance) framework with their consistent humanitarian values.
  14. 14. Making the “Boss” More Accountable The Handbook highlights Labor’s role in the U.S. in active ownership, given the lack of social democratic and co-determination rights. By mid-century, they were demanding livable wages, workers’ rights, safe supply chains, independent boards and sustainable investment. In 1949, independent telephone unions used their share ownership in AT&T to bring shareholder attention to management’s decision to cut pension benefits In the 1970’s, Amalgamated Clothing & Textile Workers Union brought unsavory employment practices to light at the J.P. Stevens shareholder meeting (Norma Rae) For over two decades, labor has joined national and global campaigns on broad governance issues, including human rights, workplace and environmental safety, CEO pay, etc.
  15. 15. Barriers to Use and Integration of ESG… Responsible investment advocates in the U.S. still face strong headwinds that prevent a greater adoption of RI practices: • Agency separation between beneficiaries and pension managers. • Regulatory complexities. • 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. • Lack of inclusion of ESG issues in financial education (PRI, 2013); and • Minimal collaboration between pension plans, big and small, on responsible investment initiatives and deals.
  16. 16. …& After-effects of 2008 Financial Crisis • $11 trillion in household wealth and $4 trillion in savings wiped out, wages and benefits ravaged, homes foreclosed. • Destroyed jobs, as 40 years of income inequality spiked higher. • Bank bail-outs crowded out real stimulus, led to austerity (across the OECD)…severely damaging cities and communities. • As gridlock led to collapse in infrastructure investments. • Working poor and more homeless are still living in tent cities or streets, marginally surviving.
  17. 17. TIME TO GIVE UP?
  18. 18. The Seven Drivers However, seven powerful drivers are challenging irresponsible short- termism: • The growth of the Principles for Responsible Investment (PRI). • The 2015 U.S. DOL pension guidance on legality of ETIs, strongly advising ESG investing. • Responsible investment performance studies demonstrating financial outperformance • Post-2008 market crash reforms (Dodd-Frank Act 2010; SEC “Say on CEO Pay”) • Paris Climate Change Accords in 2015, leading to landmark commitments. • The “Fight for $15” and national movements to pay livable wages and reverse income inequality. • Labor’s endorsement, aligning labor’s pension investments with global ESG frameworks.
  19. 19. UN-PRI Globally, there is a sea change in investment policy, signaled by the exponential growth of the Principles for Responsible Investment (PRI). The PRI has inspired investors to think more strategically about long-term ESG risks and opportunities. Launched in 2006, PRI has just over 1500 signatories representing $60 trillion in assets
  20. 20. 2015 U.S. DOL Pension Guidance The DOL guidance – Interpretive Bulletin 2015-01 – re-confirmed the legality of Economically-Targeted Investments (ETIs) and strongly advised that investors consider ESG matters. Thus, the evolution from ETIs to ESG. The new rule annulled the 2008 Bush-era rule and strengthened the responsible investment case. It not only went back to the future, 1994… The Bulletin explicitly stated that “plan fiduciaries should appropriately consider factors that potentially influence risk and return” and that ESG issues “may have a direct relationship to the economic value of the plan’s investment.” Such issues are seen as not merely tie-breakers, but “rather are proper components of the fiduciary’s primary analysis of the economic merits of competing investment choices”* (*Federal Register, 2015).
  21. 21. Responsible Investment & Financial Performance Meta-studies, academic & industry reports and sustainability data are proving the financial advantages of investing responsibly and good corporate governance. Hundreds of studies are now pointing to financial out-performance. Investors and corporations are showcasing the positive impacts of ESG considerations on both investment portfolios and corporate value.
  22. 22. New Financial Market Regulations Post-2008 The after-effects of the 2008 financial crisis shed greater scrutiny on short-termism, financialization, financial fraud and outright ponzi schemes. Supported by investors’ concerns, the Dodd-Frank Act of 2010 became law, aiming to increase corporate board involvement and objectivity and improve accountability to shareholders. The SEC passed the “Say on CEO Pay” in 2015 to disclose pay ratios.
  23. 23. Paris Accords and Global Warming Paris Climate Change Accords of December 2015 garnered a landmark commitment from 195 countries to address climate change, following many other global compacts. In the U.S., the SEC began requiring disclosures of material climate change matters. “You know nothing, Jon Snow! Winter is coming -- NOT!”
  24. 24. Income Inequality The “Fight for $15” and other national movements to pay livable wages, reverse income inequality (fighting for it) (getting it)
  25. 25. Finally, Endorsement by the U.S. Labor Movement The AFL-CIO passed Resolution 11 at their 2013 Constitutional Convention. This measure endorsed the responsible investment of workers’ capital, and moved beyond the many decades of worker-friendly investments to support the E, S and G in RI. Across the globe, unions have worked in a united front to invest more humanely and sustainably.
  26. 26. About Heartland Heartland was established in 1995 by the Steelworkers, AFL-CIO and SVA to combat the deindustrialization of America and rebuild our country. Our purpose is to harness the power of workers’ capital to sustainably rebuild the built environment, renew the industrial commons, grow the clean economy, and make the boss more accountable We advocate for the adoption and growth of responsible investments, particularly responsible Economic Impact Investments (EIIs), before pension funds and the institutional investment community at large. EIIs yield competitive investment returns over the long term; yield positive economic impacts in a city, region or industry; and integrate ESG criteria into investment decisions.
  27. 27. Mobilize the responsible investment of worker’s capital through investments in the real economy, achieving competitive financial returns and positive ESG impact. Help workers secure better retirement benefits by sustainably investing in the real economy, securing good jobs, and ultimately rebuilding and strengthening our communities. VISION MISSION
  28. 28. Heartland’s Focus Areas Convene Road Shows & Roundtable Events Educate Trustees & Capital Stewards Foster the Development of a New Generation of Responsible Investors Communicate Best Practices in Responsible Investments
  29. 29. Roadshows & Roundtable Events  Facilitate the sustainable growth of cities by bringing responsible investment allies—economic impact investors, entrepreneurs, labor innovators, regional capital stewards --to set a table with Mayors, State Treasurers, Community Investors.  Explore collaborations to increase the flow of responsible capital to worthy projects and companies in the city and region.  Launch partnerships for community-scale infrastructure, the built environment, responsible enterprises and clean economy  Help create jobs and apprenticeship opportunities for union members and local residents, building new career ladders for women and unemployed youth. Pics from on the Road in LA, Boston, Washington D.C., Chicago, Detroit, Philadelphia, Atlanta and Pittsburgh!
  30. 30. Broadcasting Best Practices Heartland builds public awareness aimed at educating, mobilizing and accelerating knowledge and support for responsible investing in our communities. To this end, we:  Publishes a bi-monthly e-journal, the Thursday Espresso, featuring news updates and opinion pieces, reaching thousands of capital stewards and policy leaders  Operates a robust blog and website  Creates publicity at Roadshows and Roundtables  Engages through traditional and social media channels
  31. 31. Thought leaders since 1995 In addition to the Responsible Investor Handbook: Heartland’s authors and colleagues have contributed numerous books and papers to the literature of responsible investment, and inspired other authors.  Up from Wall Street: The Responsible Alternative, Croft (2009, Cosimo Books)  The Next Generation of Responsible Investing, Edited by Tessa Hebb (2012, Springer Publishing)  Helping Workers’ Capital Work Harder: A Report on Global ETIs (2009). Commissioned by the Global Unions Committee on Workers’ Capital (CWC)  Working Capital: The Power of Labor’s Capital, edited by Tessa Hebb, Archon Fung and Joel Rogers. (2001, Cornell University Press) Educating Capital Stewards
  32. 32. Growing the NextGen of Impact Investors Heartland is exploring a responsible investing training and education platform for capital stewards and students alike. We want to expose a younger generation of investors, students, and citizens to the responsible investment field… And create fellowship and internship diversity opportunities for the impact investment leaders of tomorrow.
  33. 33. There is a New Wave of Responsible Investors.. Mobilizing capital for: Smart buildings and affordable housing Community infrastructure projects Wind and solar projects High-speed rail, hybrid buses and electric cars
  34. 34. And they are Paying It Forward! We are at the threshold of the most transformational economic change in a generation! Capital stewards are reclaiming our cities, as citizens move back to the urban core, where they demand affordable housing, transit-oriented housing, green jobs and sustainable communities. They are backing “Making It In America,” which has gained ground from the White House to the coffee house, and working to re-shore American jobs. Globally, capital stewards are amalgamating resources and investment capacity to co-invest across borders and working for a healthier planet. With our Responsible Investor Handbook, we hope to spur active engagement and action to elevate this new generation of responsible investors into our national conscience and conversations.
  35. 35. Join Heartland!  Sponsor and participate - we need contributors! (and buy lots of books!)  Help us host and organize roadshows and capital roundtables.  Co-invest and partner with Heartland investment leaders.  Collaborate to help us create new activist learning programs for trustees and real world fellowships for student, advancing a cool network of next gen investors.  Write blogs on projects capitalized with workers’ capital, with an emphasis on ESG.  Spread the word about the role of workers’ capital, and the importance of investing our money responsibly in the real economy! Tom Croft Managing Director, Heartland Capital Strategies Email:
  36. 36. In closing, we return to Solar Impulse 2, set to end its epic journey by July 26. With its wings covered with 17,000 solar cells running four electric motors, its energy stored by batteries, one of the pilots said that the plane: “can fly a day and a night, it can fly a week, it can fly a month—theoretically it can fly a year.” It might be able to fly forever. Now that’s long-term!