When modern portfolio theory arrived on the scene in the 1950s, it was considered revolutionary. It changed the way that investors perceive risk, return and portfolio management and permanently altered the investing world and financial markets.
“It’s time for a new way to think about investing, one that can contend with the complex challenges we face in the 21st century,” authors William Burckart and Steven Lydenberg write in the introduction to their new book, 21st Century Investing: Redirecting Financial Strategies to Drive Systems Change.
Let’s be clear about mandated standards for financial and sustainability reporting, especially what they are and what they are not. Standards are a social construct. They are a consensus about how to represent a company’s performance. They are a baseline for analysis and dialogue that can be supplemented in many ways.
What are the biggest threats to an investor’s portfolio these days? Climate change impacts all investors across all asset classes. Income inequality threatens to polarize politics, paralyze governments, destabilize democracies, and lead to nationalistic populism, trade wars and even geopolitical conflicts.
Critics claim that today’s companies and financial markets are severely out of balance and are focused on short-term quarterly results and raising their stock price via share buybacks rather than investing for long-term success. A quick scan will generate plenty of examples to confirm that point, for example Kraft Heinz, but is this the reality?
Everyone has an opinion about short-termism. It has been blamed for underinvestment in infrastructure, basic science, human capital, and research and development.
“Tell me which of the pressing issues of our time keep you awake at night, and I will tell you how the old rules of profit maximization and short-term thinking contribute to those problems,” Judy Samuelson writes in the introduction to her new book, The Six New Rules of Business: Creating Real Value in a Changing World. The rules are changing. The COVID-19 pandemic and other recent crises have made it clear that business and society are more intertwined than ever before, and the old notions of “what is good for business” are no longer sustainable for society – or…
Finance is, or normatively should be, a service function. For example, asset management provides investors with a desirable risk/return profile for their investments and allocates capital (intermediation) where it is needed by society and the real economy.
Viewed with historical distance and perspective, the connections between norms, law, regulation and corporate behavior are quite apparent. What is considered socially (market) acceptable changes over time and location, sometimes slowly and sometimes quite rapidly.
The current pandemic and growing climate crises have thrown into sharp relief the critical role large firms now play in society, not just as economic entities, but as key social institutions and political actors. A decade ago, would we have imagined a scenario where business organizations are on the front lines of the fight to preserve democracy and to remove a president from office? (“This is chaos,” a statement from the conservative American Manufacturers Association read. “This is sedition and should be treated as such. The outgoing president incited violence in an attempt to retain power.”) Would we have anticipated…
