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What will it take to move ESG from the margins to the mainstream in capital markets?

Judging from the $59 trillion in assets under management now committed to the UN Principle for Responsible Investment (UNPRI) and rapid growth of socially responsible investment funds, it would be easy to conclude we are well on the way to integrating sustainability or ESG into mainstream capital markets. A deeper look suggests a different story. Over the past year, the High Meadows Institute has been conducting research to understand the reality of how the mainstream institutions that shape capital markets approach sustainability. We have published a report on our findings available here. Our research shows that while many of the leading…

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Building a Framework for 21st Century Capital Markets

This spring, HMI is partnering with the Journal of Applied Corporate Finance to launch a major research project on the future of capital markets and the role for business leadership in capital market reform. Our goal is to identify the changes are now required if we are to build a sustainable governance and management model for capital markets that can ensure the vitality and independence of the asset management industry while serving the long-term interests of both investors and society. We have chosen to focus on the role of business leadership in capital market reform for three reasons: 1. Importance of the…

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Defining Sustainability

How often have we heard the words “what do you mean by sustainability?” Perhaps it avoids definition because sustainability applies to so many facets of our lives, to so many business or organizational strategies, to so many approaches we might take to moving to desirable outcomes. Does the notion of sustainability have a time period attached to it? One that says if you can keep something up for a certain amount of time you have crossed the threshold of sustainability?  In the world of environmental policy, sustainability has come to mean that if an organization is not meeting certain environmental…

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Quaker Capitalism

I was recently invited to offer observations on the evolving role of “values” and incentives in businesses, particularly from the perspective of a so-called “financial buyer.”  The convening was organized in London by the Center for Enterprise, Markets and Ethics and was titled “Quaker Capitalism.” I graduated from university a bit over 50 years ago, and after a brief tour in the armed forces, several years at a commercial bank and business school, I ended up on Wall Street.  I came to advise corporations on merger and acquisition transactions, working for one of what were then a number of small,…

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Miles to go Before We Sleep

The UNPRI conference in Montreal last week demonstrated that while progress is being made, there is still a long way to go before sustainability will be fully embraced by mainstream investors. Among the key challenges identified during the conference were: Incentives— PRI’s Managing Director Fiona Reynolds said that only 6% of asset owners committed to the UNPRI report that their performance management and compensation systems for senior executives include metrics that recognize and reward sustainability. As she noted, “What gets measured gets managed. If responsible investment is to become truly mainstream, it must start at the very top of every…

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Can Sustainability Help Companies Outperform?

In recent years, the perception that companies that integrate sustainability in their corporate strategy and operations will do so at the cost of financial performance has finally been put to rest.  As a recent study by mainstream investment advisory firm RBC Asset Managers concludes, investors “can pursue a program of socially responsible investing with the expectation that investment returns will be similar to traditional investment options.” The real challenge in attracting mainstream investor interest in sustainability, however, is not to simply prove that sustainability is not a drag on financial performance, but rather that it enables companies to financially outperform…

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Is it Time for Guaranteed Annual Income?

As we move further into the 21st century, a technologically-driven transformation is starting to take hold that will challenge our current economic model for distributing income in society. The key driver for this transformation is the rapid growth of machine intelligence, which is now poised to radically reduce capital’s dependence on human labor. According to David Autor, an economist at the Massachusetts Institute of Technology who has studied the loss of middle-class jobs to technology, “It will be harder and harder to find things that people have a comparative advantage in versus machines.” The impact of replacing workers with machines, coupled…

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Is Income Inequality Really the Problem?

Income inequality is a top policy issue for the Obama administration and a focus of global private and public sector leaders at national and international forums.  But what is driving income inequality, and what does it tell us about the future prospects for economic growth and social development? Most experts agree that the central determinant of income inequality is when the share of national income going to capital (interest, dividends, and other realized investment returns) increases relative to income going to labor (wages, salaries, pension benefits, and other work-related compensation such as insurance benefits and incentive-based compensation). A majority of…

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