It’s time for investors to start reporting on both portfolio and systems-level performance
From Responsible Investor’s ESG Magazine
By Steve Lydenberg and William Burckart
On 18 September 2008, the global financial system came within a hair’s breadth of complete meltdown. This worst case was ultimately avoided, but the collapse that day of Lehman Brothers with its $600bn in assets helped trigger a worldwide economic crisis. Some 6m people lost their jobs, the Dow plunged 5,000 points, cash-strapped banks needed government bailouts, General Motors and Chrysler declared bankruptcy and the US unemployment rate skyrocketed to almost 10%. All because very smart people making rational decisions to boost portfolio returns turned a blind eye to the systemic risks they were creating.
...These same asset owners, however, are making relatively little effort to relate their investment decisions to their impacts on global environmental, societal and financial systems that they operate within. In our new report, Portfolios and Systemic Framework Integration: Towards a Theory and Practice, The Investment Integration Project (TIIP) argues that investors need to acknowledge their ability to impact these systems, and that asset owners should begin asking their money managers to report on these impacts. They should do so because, as figure 1 illustrates, the cumulative decisions of portfolio managers can disrupt these systems, making all portfolios suffer – or can strengthen and enhance them, generating gains for all. This interrelationship between portfolios and systems has all too frequently been ignored.”
Steve Lydenberg is the Founder, The Investment Integration Project and Partner, Domini Social Investments. William Burckart is the Founder of Burckart Consulting and strategic advisor to The Investment Integration Project.
Burckart Consulting is an impact investing analytics and strategy advisory firm, which helps investors and money managers to integrate their philanthropic and investment goals through the sourcing and structuring of high impact opportunities across a range of sectors.