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An Interview with Randi Weingarten, President of the American Federation of Teachers

Interview date:  November 17, 2014

"Trustees have the power to shape the market, but they have little influence in the pension value chain.  We need to train people to become the checks and balances in the pension community.  Unions at the turn of the last century built housing, built health clinics--built the middle class.  We can do it again."

Tom Croft recently interviewed Randi Weingarten for the upcoming Responsible Investor Guidebook.  Following is the Q&A from the interview:

TC:     You’ve made some tremendous news recently for your corporate governance activities and your efforts in the Clinton Global Initiative to foster national infrastructure investment through the prudent investment of pension funds, including Teachers’ funds.  Please tell us about your funds, and how you began moving these agendas.

RW:    What drives all of this is how do we have an economy that works for all, not just 1%.  We’re looking at what instruments to have influence in or access to the way that our economy is run.  We want to share in that responsibility.  Dan Pedrotty is helping us to take this to pension investment and corporate governance 2.0.  He is fantastic in terms of being a real teacher.  We need to be able to explain things to the American people—if you want to move an agenda –need to explain it.

This is true for governance issues and especially for investment in infrastructure and the issues around what drives our economy.  This is a win win win.  We need patient capital for our infrastructure and muscle to engage with the engines driving the economy. That’s what Wall Street should be doing, not guarding their deal and fee structures.

On the report AFT did on the Wall Street managers and vendors taking our money and then working against us, —the firms tried to grossly mischaracterize what the report said.   We simply said to those who had decision making authority in investments:  If you are trying to solicit business from teachers pension funds, we should know if in your other activities you are trying to diminish or eliminate defined benefits.

People like Dan Loeb then mischaracterized all this.  Instead of answering the question, he attacked us. Many who were on the manager list of firms backing the anti-Teacher efforts have gotten off the list, and reformed their behavior.  They are now supportive or dropped off boards in question.

People have a right to know about who’s making a buck off of them.

TC:     How did you personally become interested in the pension fund world and progressive corporate governance and responsible investment?

RW:    All my adult life I have been interested in capital strategies.  The teaching profession is predominantly female, and women are not interested in money and capital.  In my early stages as a lawyer, I began to think about how to use workers capital for benefit of workers and economy.  I became interested in pensions and what pensions can do, a very important part of economic security.  Every pension dollar supports 2 dollars nationally. 

I was Counsel to the Teachers union in NYC—worked with the Teacher on how to frame fiduciary duty as one that aligned with the needs of working people and beneficiaries.

Our country is facing a retirement crisis.  The medium account balance for retirement is $3,000 for all working class households, and $12,000 for all retirement age households.  It will be a crisis that will outstrip wages and the health economy.

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ANNOUNCING OUR NEW BLOG SERIES!!

We will be publishing a new series of Blogs in upcoming issues of the Heartland E-Journal Thursday Morning Espresso as well as on the website that focus on and include excerpts from the upcoming Responsible Investor Guidebook.  

 

#1 - Blog Series - Responsible Investor Guidebook

Investing Responsibly Yields Higher Performance

“Values” can be Linked to “Value”1

By Annie Malhotra and Tom Croft

July 16, 2015 – As AFL-CIO President Richard Trumka explains, in his forward to the Heartland Responsible Investor Guidebook, “Providing workers with a secure retirement – the goal of pension plans – requires a long-term focus consistent with achieving sustainable returns. Today there is a growing recognition that the environmental, social and governance performance of companies is tied to their sustained success, affecting not only investment returns but workers, jobs and communities as well. We have seen what happens when we allow Wall Street to dictate financial best practices: pensions destroyed, jobs lost and deep economic recession. We cannot continue this way, and we need not.”

The new Responsible Investor Guidebook, coming this Fall, and commissioned by the AFL-CIO and other sponsors, encourages pension trustees to re-align their governance and investment strategies with the long-term interests of plan participants and beneficiaries by incorporating responsible investment practices into the investment decision-making process for plan assets.

The momentum and growth of the United Nations-backed Principles of Responsible Investment (UN PRI), an investor-led coalition that includes the world’s largest institutional investors, the global investment industry, intergovernmental organizations, civil society and academia, has been unprecedented.  Signatories have now amassed $59 trillion in assets under the PRI flag. The evolution of the PRI framework signals a decision to differentiate investors who have a clear mandate to achieve a competitive financial return – responsibly – from investors who are more inclined to focus solely on social returns (usually for religious or ethical reasons). 

Financial market skeptics will try to claim that all responsible investment practices are one and the same and do not maximize value.  But in a clear sense, they have become responsible investment deniers, similar to the skeptics who don’t believe in climate change.  These are some of the same investors who ignored ESG risks and plowed trillions of dollars—including workers’ retirement assets and savings—into sub-prime mortgages and other toxic assets leading up to the financial markets crash of 2008.

The Responsible Investor Guidebook documents an increasing number of financial and academic studies that have found a clear correlation between high ESG ratings and financial outperformance.2 The Guidebook presents the impacts of responsible strategies on investments’ financial performance through research studies that found overwhelming evidence of the positive impact of such strategies on a company’s operational performance and share price value.

In so doing, we aim to refute a pattern of oft-heard claims that responsible investments, by their very nature, result in concessionary returns. Or, that investors concerned about E, S and G wrongly trade off financial performance for their social values. As recent research proves, the reality is quite the contrary.3

We discuss some of these studies in detail, and below we highlight aggregate findings from two meta-studies:4

• Companies with high ratings in Corporate Social Responsibility (CSR) and ESG factors benefit from a lower cost of capital (debt and equity). Such companies are also a lower-risk investment opportunity.

• Companies with high ratings in CSR and ESG factors exhibit positive correlation with market and accounting-based outperformance.

Good corporate governance principles such as transparency, board independence, management oversight, auditor independence, and management practices such as positive employee relations, promotion of job satisfaction, improve environmental management, lower the cost of capital and are positively correlated with improved operational and stock market performance.

• Active responsible investment approaches such as proxy voting and shareholder engagement, along with the integration of material ESG factors in the valuation of securities, positively impact corporate behavior and performance when compared with passive approaches (such as negative screenings).

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A World of Underinvestment

Retrieved from www.project-syndicate.org

By Michael Spence

May 20, 2015 – MILAN – When World War II ended 70 years ago, much of the world – including industrialized Europe, Japan, and other countries that had been occupied – was left geopolitically riven and burdened by heavy sovereign debt, with many major economies in ruins. One might have expected a long period of limited international cooperation, slow growth, high unemployment, and extreme privation, owing to countries’ limited capacity to finance their huge investment needs. But that is not what happened.

Instead, world leaders adopted a long-term perspective. They recognized that their countries’ debt-reduction prospects depended on nominal economic growth, and that their economic-growth prospects – not to mention continued peace – depended on a worldwide recovery. So they used – and even stretched – their balance sheets for investment, while opening themselves up to international trade, thereby helping to restore demand. The United States – which faced considerable public debt, but had lost little in the way of physical assets – naturally assumed a leadership role in this process.

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