Investment organizations today face expectations that go well beyond traditional notions of return targets or liability matching. Such expectations can create responsibilities that are broader than fiduciary duty or asset stewardship. This report provides tools for understanding and fulfilling these responsibilities. FCLTGlobal Member organizations piloted this research in six key areas of responsibility: economic impact at home and abroad, equity lending and stewardship, impasses in corporate engagement, racial and gender diversity of portfolio companies, climate and environmental impact, and reputation management.

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The way that investment organizations navigate existing responsibilities and new expectations that arise has a considerable impact on their long-term success. When an investment organization fails to fulfill true responsibilities, staff can become distracted from their long-term focus, interrupting the organization’s long-term investment strategy. Consequences also can include turnover in leadership or responses by legal or regulatory authorities that narrow the discretion of leadership. Yet positive cases of investment organizations meeting evolving expectations abound: two examples are Future Fund’s efforts to ensure that external managers steward its reputation appropriately and the New Zealand Super Fund’s participation in the national response to social media firms live streaming the Christchurch atrocity.

Fundamentally, evolving expectations extend beyond what returns investment organizations earn to how they earn those returns.

Determining which expectations to accept as responsibilities is based on the long-term purpose of the organization, its constituents, and the tradeoffs that accepting a particular responsibility would entail. Some—but not all—of these evolving expectations become true responsibilities, and investment organizations must make such determinations on a case-by-case basis. Making these judgments and managing responsibilities is a complex challenge.

Investor responsibility can be compared to a rippling pond. Expectations come from constituents standing on the shoreline tossing stones into the pond. The way that investors navigate these “ripples” of responsibility has a tremendous effect on their long-term success:

Ripples of Investor Responsibilities

The process for making these decisions can be more standard. Keeping an inventory of existing responsibilities and anticipating potential new ones is part of the job for long-term investment organizations. Long-term funds also must fulfill their responsibilities reliably throughout their often large and complex organizations and communicate those responsibilities to a wide range of audiences, including the general public. Ripples of Responsibility provides a crisp way for investment organizations to understand the sometimes abstract concepts of responsibility and offers a practical toolkit to help identify existing responsibilities, anticipate new ones, fulfill them, and communicate accordingly.

Governance, Investor-Corporate Engagement | Article

ICPM and FCLTGlobal Consider Emerging Investor Responsibilities

4 December 2020 - Around the world, investors are facing an array of potential responsibilities. These potential responsibilities extend beyond an investor’s fiduciary duty or stewardship requirements and are evolving rapidly. They may include considering the comprehensive well-being of constituents, the entity’s license to operate, or the health of markets, society, or the planet.

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Model Stewardship Code

Policy | Toolkit

Model Stewardship Code for Long-Term Behavior

10 June 2019 -   A good stewardship code helps clarify the responsibilities of institutional investors, laying out core principles to foster a shared understanding among stakeholders including regulators, investors, and investees. To ensure that stewardship codes put primary emphasis on...

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Strategy | Article

State Street Aligns Responsible Investing with Securities Lending

27 May 2021 - Expectations placed on investors are ever-changing, can emerge from any of the institution’s many constituents, and extend beyond matters of law, regulation, or contracts.

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