Nearly 50 years ago, Robert F. Kennedy went to New York’s Bedford-Stuyvesant neighborhood and saw potential where others saw nothing but burned-out buildings, junkies, teen-age dropouts, rampant crime and racial unrest. By actively engaging financial institutions and business leaders, in partnership with local communities and government agencies, he helped create hope amid despair.
Today, the RFK Compass Program works with institutional investors to advance a discussion of the connections among investment performance, fiduciary duty, and public interest issues to optimize risk-adjusted rates of returns and address current and future global challenges.
The conventional view, that fiduciaries can make investment decisions based solely on narrow economic criteria, omits critical risk variables. The political upheavals in the Middle East and Africa, the Gulf Coast oil disaster, debt imbalances in both Europe and the United States, and the subprime calamity illustrate how issues of sustainability – including human rights, economic, environmental, social, and governance factors – can materially affect sustainable investment returns. The perception that considerations of public policy inevitably create a trade-off with financial performance is incorrect. Public interest considerations can be crucial elements of investment risk management.
Furthermore, fiduciaries responsible for long-term investments have a legal duty of intergenerational impartiality. This requires them to consider anything that impacts long-term outcomes. Sustainable investing, by definition, is consistent with long-term investing. The premise is simple:
Investments can generate collateral benefits – or costs – in addition to financial returns;
Social, environmental and governance factors can positively (or negatively) affect the performance of the financial asset;
Investment decisions are better when based on financial returns and extra-financial impacts.
In the summer of 2010, the Robert F. Kennedy Center for Justice & Human Rights (RFKC) raised these issues with major fiduciaries – including public and corporate pension funds, sovereign wealth funds (SWFs), endowments and foundations – at its conference, “Exploring New Directions in Fiduciary Duty.” In response to the active encouragement of those fiduciaries, the RFK Compass Program was institutionalized.
The program challenges traditional notions and considers revised approaches. Senior-level decision-makers from the investment, policy and academic communities convene at its intimate, interactive conferences and programs held around the world. While the exact subject matter depends on the location of each event and specific interests of the participating fiduciaries, the questions addressed cover broad issues of fiduciary duty, macroeconomic and financial market trends, particular sustainability issues, investment opportunities, and risk-management solutions, with general themes such as:
How can fiduciaries address the uncertainty required to shift their investment horizons to the long term? What are the practical ramifications of such a move? What incentives would facilitate this action?
How can fiduciaries incorporate non-traditional economic indicators into their decision making? Should investors have considered Egypt’s high levels of poverty, corruption and human rights abuses as indicators of an unstable economy with potentially negative financial consequences?
How should fiduciaries evaluate rising debt levels and the implications for constraints on economic growth? When intelligence agencies in the United States label long-term fiscal deficits the leading national security threat, are there ramifications?
What is the significance of commodity price surges for food security and political stability, particularly in low-income countries?
With climate risk increasingly accepted as a fiduciary concern, what are risk-management strategies? Where are the related investment opportunities?
How should fiduciaries operate in countries of high conflict and clear human rights abuses?
How can consideration of sustainability factors inform investors’ evaluation of opportunities in private equity, real estate and infrastructure?
The RFKC works with key partners, including:
Principles for Responsible Investment (PRI),an international network of nearly 900 asset owners, asset managers and professional service partners, representing over $22 trillion in assets, nearly 10 percent of global capital markets);
Initiative for Responsible Investment (IRI) at Harvard University’s John F. Kennedy School of Government, which works across asset classes to advance the theory and practice of responsible investment, with the aim of sustainable, long-term wealth creation;
Leading universities, with whom RFKC is exploring fiduciary training. Such programs would help trustees expand their understanding of fiduciary duty to accommodate the increasingly complex demands of long time horizons, and incorporate sustainability considerations into their risk/return assessments.
Government agencies exploring the role of impact investing in advancing policy agendas.
For more than four decades, the RFK Center for Justice and Human Rights has worked to realize Robert Kennedy’s dream of a more just and peaceful world. We care about human rights, the environment and governance. With globalization, corporate behavior in these areas is increasingly relevant. Responsible practices are indicators of thoughtful management, and can mitigate risk and enhance the sustainability of corporate earnings, and, in turn, investment outcomes. As asset owners and shareholders, fiduciaries are in a unique position to influence social, environmental, and human rights practices. The RFK Compass Program helps fiduciaries exercise this influence.