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The Responsible Investor Handbook

Mobilizing Workers' Capital for a Sustainable World

For decades, workers’ capital stewards have invested wisely to provide a secure retirement for millions of people around the world. This money – our money – represents an enormous share of economic and capital market wealth. It has seeded and grown innumerable innovative industries that have had far-reaching impacts. However, the 2008 financial crisis has seriously threatened these trusted assets and drained away prosperity.

In response, a growing number of investors are moving towards responsible investment policies and strategies, addressing the rising expectations of consumers and benefiting from the financial advantages such strategies bring. Everyday citizens now want to see their investments not only do well, but do good.

But, what constitutes responsible investment, and how can it be undertaken in practice? What is the impact of responsible investment strategies on investment performance? How can trustees, managers and advisors implement these strategies in line with their fiduciary responsibilities? How can plan trustees and staff members convince all stakeholders of the need to invest in resilient growth?

The Responsible Investor Handbook, commissioned by the AFL-CIO and global progressive investors, is a lay-friendly “how-to” manual, sharing the best in responsible investment practice with capital stewards and other policy leaders who want to do the right thing with our common wealth.

This invaluable toolkit enables readers to:

  • Understand the pioneering role of workers’ capital in building infrastructure and vital services
  • Devise a responsible investment strategy
  • Select and monitor service providers
  • Bring on board stakeholders with conflicting interests
  • Avoid short-termism

The Responsible Investor Handbook is the first book devoted to aligning the long-term investment priorities of working people with capital stewards and the financial complex that manages their assets. It is an essential read for trustees and capital stewards seeking the positive outcomes of a responsible investment strategy; pension and institutional investors looking to realign their strategies with the interests of workers and citizens; and any professional seeking a better understanding of the importance of responsible investment and its impact on capital markets.

"The Responsible Investor Handbook is a wake-up call to those workers who have not yet developed their voice and sit passively among sophisticated bankers who focus on the short-term earnings and speak a language they don’t understand. There are thousands of these worker reps with untapped power to make a difference and many have already realized: 'This is our money, our future!'"

G. Benjamin Bingham, CEO and Founder of Scarab Funds and 3Sisters Sustainable Management, writing for The Huffington Post

Managers of pension funds must focus on the long term. Our responsibility is to protect the financial security of Rhode Islanders across multiple generations. We must understand the environmental, social, and corporate governance risks to our portfolios over time, and work to manage them.

Seth Magaziner, Rhode Island General Treasurer

Taking account of environmental, social and governance issues in investment processes is self-evidently an integral part of how investors deliver on their fiduciary duties. It is also essential if we are to deliver a stable, resilient and sustainable financial system that delivers for all in society. The Responsible Investor Handbook is not only a call to action but it provides pension fund trustees with the knowledge and skills they need to deliver on their fiduciary duties in the 21st century.

Will Martindale, Head of Policy, Principles for Responsible Investment

Pension fund trustees are increasingly recognizing the need to address the long-term value and risk posed by environmental, social, and governance factors and move toward a framework that prioritizes long-term value creation. The Responsible Investor Handbook provides pension fund trustees with tools and examples on how to shift their governance practices and investment strategies to enhance long-term returns.

Fiona Reynolds, Managing Director, Principles for Responsible Investment (PRI)

As Roger Urwin (Global Head of Investment Content, Towers Watson & Co.) says, buckle up, trustees. ‘There will be a revolution over the next five years as every investor has to begin to simultaneously manage the financial consequences of their investment decisions, as well as the societal, environmental and stakeholder consequences.’ (Urwin, P&I, 15 June 2015).

What’s at stake? The Committee on Workers’ Capital estimates global workers’ assets to be equivalent to approximately $38 trillion. The PRI (Principles of Responsible Investment) Signatory base now exceeds $59 trillion! The power of these rapidly growing assets can rebuild retirement trust and investment integrity in the U.S., and globally. Responsible Investment increasingly helps to implement longer investment horizons, greater transparency and ethics in financial markets, reduction of ‘extra-financial’ investment risk, co-alignment of interests of retirement plan investors and investment managers, increased job creation, and sustainable investment returns.

This Responsible Investor Handbook is a must-read for both trustees and all investors as financial markets increasingly reward responsible investors.

Ron Auer, Executive Director, CORPaTH; Director, Analytic Investors, LLC

There is a vast amount of information here that should be useful to pension fund trustees and others interested in trying to manage pension funds in ways that promote the economic development. All too often pension funds have been preyed upon by the financial industry. This book is a great guide to a better path.

Dean Baker, Co-Director, Center for Economic and Policy Research

This is a clear and comprehensive guide for trustees on a topic which is of ever-increasing importance in the realm of investments. Asset owners are increasingly moving towards active ownership and engagement on ESG issues and this guide provides a broad overview of the ways in which trustees can engage and the material impact which they can have.

Ana Lei Ortiz, Relationship Manager, Europe, Hamilton Lane

Trustees need all the help they can get and a book like this sponsored by the AFL-CIO is one of the tools they can use.

Ed Smith, President and CEO, ULLICO

As a fiduciary of a $90 billion portfolio, I believe Oregon can leverage our investments to accelerate the transition toward cleaner sources of energy. In combination with other investors, we can help build the foundations of what is still an emerging clean energy sector by actively encouraging the development of sound investment opportunities in transitional and renewable energy companies. I am more optimistic than ever that there are opportunities to invest in renewables that meet the high standards we have for all of our investments.

Ted Wheeler, Oregon State Treasurer

Introduction

Section A: The momentum toward responsible investments

I. Responsible investments in the US

II. The global responsible investment movement and the launch of the UN PRI

Section B: Pension fund management, governance and fiduciary considerations

III. Pension fund management

IV. Pension fund structures and governance

V. Reclaiming fiduciary duty

Section C: Responsible investment approaches and asset allocation

VI. Responsible corporate governance and active ownership

VII. Investing responsibly across traditional asset classes

VIII. Responsible alternative investments

Section D: Implementation and measurement

IX. Selection and implementation of desired responsible approaches

X. Criteria for evaluating responsible investment performance

Conclusion: Renewing the real economy, restoring retirement trust

Appendix A: Glossary

Appendix B: Important links

Appendix C: Responsible investment support organizations

About the authors

Acknowledgments

THOMAS CROFT is Executive Director of the Steel Valley Authority (SVA). He is also Managing Director and co-founder of Heartland Capital Strategies. ANNIE MALHOTRA, CFA, is Strategic Advisor to Heartland Capital Strategies.

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