There is a lot to be said about emerging trends in responsible investing, and fortunately for the socially responsible investing community, Dr. Tessa Hebb and her team at Carleton’s Community Centre for Innovation (3ci) are doing much of the talking these days. Dr. Hebb is a leading advocate of SRI and social finance projects, and is responsible for developing the most cutting-edge research on the innovations in and implications of the responsible investing sector. A forthcoming journal article in the academic period Regional Studies, co-authored by Dr. Hebb and recent Oxford University graduate Dr. Rajiv Sharma, discusses the role of new sources of financing that are driving major infrastructural overhauls and urban revitalization in the United States. Aptly entitled “New Finance for America’s Cities,” this scholarly publication investigates the impact of new investment sources in US urban centres, as it sets out a best practice framework with the goal of ensuring that these investments have as deep of a social impact for American municipalities as possible. In the course of their research, Hebb and Sharma found that public pension funds are one of the major conduits of new finance, and they have progressively burdened the lion’s share of responsibility for funding urban revitalization projects in the United States, as a result of high government deficits following the downtown of the global financial crisis. Hebb and Sharma posited that an “effective governance system is a key factor among successful impact investing funds.” The two researchers also observed that there exist four common denominators among the most successful pension funds: 1) a goal directed investment strategy, 2) they tap experts and intermediaries in order to create investments that result in financial and social gains, 3) they let expert vendors handle their specialized investments, and 4) they maintain a dialogue between senior management and board members on investment strategy. In something of a happy coincidence, global management consulting giant McKinsey and Company interviewed Mark Wiseman, president and CEO of the Canada Pension Plan Investment Board, in November 2012 to learn about his organization’s approach to making smart investments in infrastructure and urban projects. During this segment, the CPPIB boss noted that governments would be more competitive in financial investing if they only learn to “compete more successfully for investment capital by reducing risk for investors.” Wiseman also suggested that a major sticking point in convincing lenders and government borrowers about providing cash up front for infrastructural renewal projects is that these investments will pay off in the long term, and not in the immediate short term. On the whole, Dr. Hebb and Dr. Sharma, through their research, concur with Wiseman on the point that “urban growth is key to development”, while Wiseman notes that for the CPPIB, the best investments are the ones that will prove to be the safest, providing returns over 25, 50, and even 75 years, or until the time that the concession ends. In their report, Hebb and Sharma expressed their hopes that long-term changes in urban demographics and innovation will provide “an opportunity for savings to be put to work in advancing long-term sustainable growth”, and that investing in urban infrastructure is attractive to pension funds because of its “ancillary positive impacts on communities.” In the meantime, Wiseman noted in the CPPIB’s 2012 Report on Responsible Investingthat he believes “organizations which take the opportunities to manage ESG factors effectively are more likely to endure, and create more value over the long term, than those which do not.” Governance is another element that is at the pinnacle of corporate stewardship, responsible investing, and in this case, urban revitalization. At the 2012 Global Agenda Council on Long-term Investing, Wiseman raised the subject of governance, observing that “having a long horizon accentuates the importance of governance models, and long-term investors can play a critical role in fostering leading governance practices.” His remarks correspond with research on responsible investing that has been produced by 3ci, particularly Dr. Hebb’s working paper on retail SRI investing, which gives key evidence on how individual and institutional investors have the power to influence corporations and encourage them to adhere to responsible investing practices. Heather Hachigian’s report on the governance of responsible investment also calls for a heterogeneous approach that envisages institutional investors as part of a tripartite group, along with the state and markets, which concurrently provide checks-and-balances to promote good governance of financial markets. All in all, the research concocted by the 3Ci team – particularly the scholarly journal entry “New Finance for America’s Cities”, demonstrates that long-term impact investing is key to ensuring sustainable pattern of growth and development in urban municipalities of the United States (and abroad). McKinsey and Company’s interview with Mark Wiseman underscores the findings of the 3Ci team, and it should be no surprise that Wiseman will be a keynote speaker at the 3rd Annual Institute of Corporate Directors’ National Conference in May 2013, which will appropriately focus on shareholder activism, short-termism and long-termism in the financial industry.
Read a summary of this research on CBERN’s Research Snapshot repository
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