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Future of capital markets

BlackRock’s Larry Fink Redefines the Rules of the Game for Business

For the last 47 years, since September 1970, financial markets have been guided by the maxim articulated by Milton Friedman on the “rules of the game” for business. “There is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” On January 18th this maxim was overturned by the CEO of BlackRock, the world’s largest institutional investor. In his letter to CEOs, Larry Fink said, “Society…

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ESG Integration in Investment Management: Myths and Realities

Until very recently, there has been considerable doubt, especially among mainstream investors, that companies with high ESG “scores” could succeed in producing competitive returns for their shareholders. Studies of the last three decades of the 20th century have reported that what was then known as Socially Responsible Investing (or SRI)—an investment approach that worked mainly by screening out the companies with the lowest ESG scores or entire industries such as tobacco and alcohol—produced shareholder returns that were often below market averages. And this finding has in turn contributed to the widespread perception that corporate efforts to address environmental and social…

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Mainstreaming ESG in Capital Markets: Time for Industry Leadership

To date, the sustainability and social responsibility agenda for the corporate and financial sectors has been driven largely by external stakeholders. Previously this was characterized primarily by boycotts and campaigns against business organized by activists. Today, there is a much greater focus on engaging with business, seen through multi-stakeholder initiatives such as the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB), which are focused on creating frameworks, standards and metrics for companies and investment managers to demonstrate that they are managing responsibly. While these initiatives have played a critical role in getting environmental, social and governance (ESG) issues…

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Will 2016 be a tipping point for ESG integration in capital markets?

What a difference a year can make. When HMI finished a survey on the current state of play of ESG integration in global capital markets last spring, it seemed clear that the incentive systems needed to drive true environmental, social and governance (ESG) integration in mainstream capital markets, particularly in the US, were a long way off. While the efforts of UNPRI, SASB and the many other SRI programs are to be noted, our research showed that in reality these initiatives alone are insufficient to drive significant change for most mainstream asset owners and managers. As we start 2016, there…

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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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