It’s not just about risk

By February 28, 2017News

By: Kevin Thomas, Director of Shareholder Engagement

“Stop treating us like a risk to be managed.” That’s how Kathryn Teneese described the relationship of Indigenous peoples to pension investors at our annual BC Pension Forum.

Teneese is Ktunaxa Nation Council Chair as well as Chief Negotiator for the ongoing treaty negotiations with Canada and British Columbia.

She was speaking on a special panel on “Pensions and Reconciliation” where she explored the task of reconciliation in the context of investments, alongside Joseph Bastien, Director, Business Development and Strategic Initiatives of the Canadian Council for Aboriginal Business and SHARE’s Delaney Greig, who leads SHARE’s shareholder engagement work on Business & Reconciliation.

If you think about it, Teneese’s comments were not just applicable to Indigenous peoples. Are workers facing imprisonment and/or beatings for organizing unions in Bangladesh any more willing to be labeled as “risks” to investors? Should the health of an ecosystem or watershed be viewed purely through the lens of risk? Risk to whom? And “managed” in whose interests?

As investors and as fiduciaries, pension trustees need to consider that poor labour or environmental practices may pose a material risk to the financial returns of a particular asset. And our interventions with companies, as investors, may speak to how a company identifies, manages and mitigates those risks, which is appropriate in our role as shareholders.

But the language of risk and materiality is clearly insufficient to capture the reality of the issues we are dealing with.

And it is even too narrow a concept to capture the true impacts on investor portfolios.

The night before, Damon Silvers, Director of Policy and Special Counsel at the AFL-CIO spoke very clearly and forcefully about the necessity of thinking beyond individual company material risks. He was speaking on a panel SHARE co-hosted with the SFU Beedie School of Business and the UNPRI on Shared Prosperity: the Role of Investors in Addressing Inequality.

Silvers said that asset owners like pension funds have to think about issues that may affect a portfolio as a whole – such as whether the economy as a whole is productive and inclusive – and not just what is “material” at the company level. That’s because economic returns for a portfolio are dependent on macro factors such as economic and political stability, which are threatened in ways that are rarely reflected on individual company balance sheets. The vast economic inequality between the very rich and just about everyone else, for example, may not be reflected in traditional investment analysis, but it will have an enormous impact on long-term investments.

In a way, both Teneese and Silvers were speaking to the same point: that the idea of “risk” is far too narrow a concept to capture why we so diligently engage, vote, write, educate, build and agitate.

It also reminded me of a recent column by veteran RI leader Rob Lake. He wrote that, “At bottom [responsible investment is] about mindsets – about values, heart, soul, spirit. Right brain, not just left brain. Personal authenticity, courage and purpose. Leadership and culture.”

Amen.

SHARE, and the institutional investors that work with us, are motivated not just by the idea of risk, but by the more fundamental and seemingly obvious concept that investments do not happen in a vacuum. Our investments have impacts on the world and the world has impacts on our investments. Being a responsible investor is really about engaging with that world, and about trying to ensure that both are better off for the experience.