A Universal Ownership Perspective of Institutional Impact Investing

  • Dan Daugaard (Speaker)

Activity: Talk or presentationInvited talk

Description

The Universal Ownership Perspective of Institutional Impact Investing
Universal Ownership is a framework that emphasizes the interconnectedness between large diversified investment portfolios, market risk, and underlying environmental and social systems. This perspective, as described by Monks and Minow in their book "Corporate Governance" recognizes that institutional investors, such as pension funds and asset managers, own significant portions of the global economy and, therefore, have a responsibility to consider the impact of their investments on broader societal and environmental issues. Further, Hawley and Williams, in their works "The Emergence of Universal Owners" and "Universal Owners: Challenges and Opportunities," emphasise the significance of market risk when considering the potential long-term consequences of environmental and social factors. Universal owners, who hold diverse portfolios, are exposed to risks associated with climate change, resource depletion, social inequality, and other systemic issues. Recognizing this, institutional investors cannot simply divest from individual stocks that contribute to negative externalities but must engage with companies to promote positive change and mitigate risks. Examples of implementation, usually in the form of “Systemic stewardship” include the University Pension Plan in Canada, Aviva, Franklin Templeton, Legal & General Investment Management, Domini, Amundi. The major Australian example is HESTA - making a $7 million investment in Horizon Housing, a community housing provider in Queensland, managing affordable properties and developing additional social and affordable homes. HESTA believes in achieving strong investment returns while contributing to a healthier planet and society. Furthermore, HESTA has invested $20 million to help launch Mutual Capital Instruments 2020, which focuses on social impact, particularly in the health and community services sector, such as Australian Unity's initiatives.
Ellen Quigley, in her 2019 working SSRN paper 3457205, provides a comprehensive coverage of issues facing the implementation of a Universal Ownership. I profile just two of the issues here: the arguments around sole purpose, and moral relativism. The concept of sole purpose and best interest is an important issue relevant to the Universal Ownership Perspective. Institutional investors have a fiduciary duty to act in the best interest of their beneficiaries or clients. The definition of best interest is potentially expanding beyond short-term financial gains to include long-term sustainability, ethical considerations, and societal well-being. This shift implies that pursuing impact investments aligns with fulfilling the fiduciary duty, as long-term risks and opportunities are acknowledged.
Moral relativism, as discussed by Soederberg in her work "The 'New Conditionality' of Socially Responsible Investing Strategies," also raises concerns about the subjective nature of socially responsible investing (SRI) and impact measurement. The case study of CalPRS (California Public Employees' Retirement System) highlights how the definition and implementation of responsible investment strategies can vary, leading to potential conflicts and inconsistencies. Addressing moral relativism requires establishing clear standards, guidelines, and accountability mechanisms for impact investing to ensure transparency, comparability, and genuine positive change.
Overall, the Universal Ownership Perspective of Institutional Impact Investing recognizes the significant ownership and influence institutional investors have in the global economy. It emphasizes the need for engagement, considering market risks, and understanding the connections between investment portfolios and underlying environmental and social systems. By actively managing investments to achieve positive impact alongside financial returns, institutional investors can contribute to a more sustainable and equitable future.

Reference list

Hawley, J., & Williams, A. (2000). The emergence of universal owners: Some implications of institutional equity ownership. Challenge, 43(4), 43-61.

Hawley, J., & Williams, A. (2007). Universal owners: Challenges and opportunities. Corporate Governance: An International Review, 15(3), 415-420.

Lukomnik, J., & Hawley, J. P. (2021). Moving beyond modern portfolio theory: Investing that matters. Routledge.

Monks, R. A., & Minow, N. (2011). Corporate governance. John Wiley & Sons.

Soederberg, S. (2007). The ‘new conditionality’of socially responsible investing strategies: The politics of equity financing in emerging markets. New political economy, 12(4), 477-497.

Quigley, E. (2019). Universal Ownership in the Anthropocene. Available at SSRN 3457205.

Period12 Apr 2023
Event titleFinancial Market and Corporate Governance Conference: FMCG2023
Event typeConference
Degree of RecognitionNational