Time for Fiduciary Duty to tip into Impact

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    Stockholm (NordSIP) – Shining as the guiding light from a universal lighthouse for any organisation managing other people’s money, the concept of fiduciary duty shouldn’t be hard to define. There should be no doubt as to what the top priorities are when designing an investment strategy. And yet, with global challenges looming over the planet’s future, the traditional definition of fiduciary is being questioned.

    For two days, we listened to illustrious speakers and discussed ideas with members of the impact investment community at the Impact Summit Europe, which took place at the Peace Palace (pictured) in The Hague. Throughout the conference organised by Phenix Capital in partnership with the Global Impact Investing Network (GIIN), the UN PRI, as well as Dutch pension organisations MN and PGGM, attendants tried to answer the question: has impact investing reached a tipping point yet?

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    The first keynote of the conference set the tone, with Sir Ronald Cohen, Chairman of the Global Steering Group for Impact Investment, as well as of the Portland Trust and sustainable and impact investment fund Bridges Ventures. In his address, he cites Adam Smith, who he says was prouder of his first work “The Theory of Moral Sentiments”, which deals with people acting out of altruism, than he was of “The Wealth of Nations”. In his recent book “On Impact – A guide to the Impact Revolution”, Sir Cohen writes about Adam Smith: “Had he thought of measuring impact, he might have combined the two books and cast impact as the invisible heart of markets that guides their invisible hand.”

    In his closing address, Dirk Meuleman, Co-CEO of Phenix Capital, told us that fiduciary duty is changing. The very definition of the concept implies a duty of care, loyalty and prudence. Traditionally, this definition translated into an obligation to pursue risk-return maximisation above all else. Within the past few years, most pensions, at least in Europe, have come to see the integration of ESG as a necessary element of that equation. However, many of those same institutions are still hesitating to include “impact” in the definition.

    Xander den Uyl, Board Member of the UN PRI and a trustee at Dutch pension fund ABP gave an inspiring closing keynote speech. He talked about the progress the PRI has made and gave asset owners a good starting point. Den Uyl mentions a €9 billion Dutch pension fund he chairs, that takes care of people with mental and physical disabilities. Five years ago, the fund decided to set a target to dedicate five percent of its portfolio to impact investing. They were to make no concession on returns but were willing to take on some more risk. The fund has two priorities: climate and employment for people with disabilities. A green bond portfolio fulfilled the institution’s climate focus. To encourage employment for disabled people, the organisation decided to use their investments to influence companies to join a Dutch initiative that helps individuals with low education of disabilities to find work. Today, the fund has a €100 million inclusion portfolio consisting of 50 listed companies who give people, such as the pension’s beneficiaries a chance for gainful employment.

    Mr. den Uyl is not only proud to tell this story. He also wants to share a lesson with other asset owners: “choose an approach that is close to factors that define you, act on that and take your time.” To better take care of the needs of their beneficiaries, and determine what those defining factors are, APB has launched an initiative with the help of social media. On a dedicated platform, beneficiaries can compare their individual choices with the investment choices ABP makes, on transport, sustainable clothing or waste and recycling, for example. This is the first step in aligning fiduciary duty to take care of a shared future.

    This common future, Meuleman reminds us, is in danger. Throughout the summit, attendants were told how the four-degree path we are on would lead to catastrophic consequences. This is why there is a high need for urgency, and if impact investing hasn’t reached a tipping point yet, we should work hard to get there without delay. “Act as if the house were on fire,” Meuleman says, addressing the audience which represented US$ 12 trillion of capital over the two days.

    “With the SDGs, we have a common ground on a global scale,” de Uyl says in his concluding remark. “We have money to invest, influence and knowledge and, perhaps, we have determination – so we can have this real-world impact if we dare to move forward.”

    Picture © NordSIP

    Aline Reichenberg Gustafsson, CFA
    Aline Reichenberg Gustafsson, CFA
    Aline Reichenberg Gustafsson, CFA is Editor-in-Chief for NordSIP and Managing Director for Big Green Tree Media. She has 18 years of experience in the asset management industry in Stockholm, London and Geneva, including as a long/short equity hedge fund portfolio manager, and buy-side analyst, but also as CFO and COO in several asset management firms. Aline holds an MBA from Harvard Business School and a License in Economic Sciences from the University of Geneva.
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