Japan’s GPIF feels the heat of see-sawing global equity markets in its latest quarterly results while the latest annual review reveals a shakeup in global active equity allocations in search of more manager diversification.

Global equities led declines in the latest quarterly return at Japan’s ¥193 trillion ($1.4 trillion) Government Pension Investment Fund. The world’s largest pension fund has just posted its second consecutive quarter losses in two years following a drop off in global equities, in stark contrast to last year when it raked in the benefits of soaring global stocks.

GPIF lost 1.9 per cent during the quarter, equivalent to around $28 billion, with global stocks down 5.4 per cent compared to a fall of 3.7 per cent in Japanese equities. On the eve of the pandemic plunging equity markets wiped out $165 billion from the fund’s assets in another example of the see-sawing impact of its giant global equity portfolio.

CIO comments

The latest results follow on from comments made by the fund’s chief investment officer, Eiji Ueda, in his annual review of FY2021, published in Japanese in early July.

Ueda said that GPIF plans to restructure its active overseas equity manager roster, adding managers to reduce concentration risk and boost diversification.

Last year, increased market volatility negatively impacted the ability of the fund’s actively managed equity funds to deliver alpha compared to benchmarks, resulting in all seven incumbent managers underperforming. GPIF, which holds the majority of its equity investments in index tracking strategies, ended the fiscal year with ¥4.7 trillion in active global equity, down from ¥5.7 trillion the year before.

Poorly performing active managers will have been on the sharp end of  new fee structures introduced in April 2018 by previous CIO Hiromichi Mizuno. Set up to better align GPIF interests with its external managers, the agreements boost the potential revenue windfalls external managers can expect if returns exceed the benchmark, while offering only passive fees for poorer returns.

Ueda, a former co-head of Goldman Sachs’s Asia-Pacific division, took over from Mizuno in April 2020 at the same time as new President Masataka Miyazono also took the helm. In the annual review, Miyazono highlighted the various factors causing turmoil in the global economy and influencing financial markets, including Russia’s invasion of Ukraine, the continued ripple effects of the Covid-19 pandemic and the US Federal Reserve’s interest rate hikes to combat inflation.

Portfolio split

GPIF’s portfolio is split between bonds and equities, with a slight bias to bonds.

As of June 2022, 25.65 per cent of the portfolio lies in domestic bonds, 25.70 per cent in foreign bonds; 24.12 per cent is in foreign equities and 24.53 per cent is in domestic equities.

The GPIF has a general target of keeping its basic portfolio evenly allocated into these four asset classes on the back of continued rebalancing. The fund’s allocations to alternatives currently hovers between 1-2 per cent well below a permitted 5 per cent of total assets invested in alternatives.

In the latest quarterly results, foreign bonds returned. 2.7 per cent thanks to the dollar’s gain of almost 12 per cent against the yen. Given that over half of GPIF’s assets are invested overseas, the yen’s depreciation since March has helped support the portfolio.

 

Investors interested in ESG should be aware of the intensity of the commitment and develop their own deep expertise and impact-weighted accounts, according to ESG pioneer and academic, Professor George Serafeim.

“There are no shortcuts for investors,” he says, “and many of those proxies will end up being disappointing for investors. They reflect the intentions, efforts and aspirations but not the outcomes that will eventuate.”

He says investors that truly want to get to the bottom of the intersection of ESG and performance need to develop deep expertise, capabilities and knowledge about why the issues are important and develop their own impact weighted accounts that include measurement and valuation.

“In risk, return and impact, the impact is very difficult but then you have this beautiful 3D frontier,” he says.
Serafeim is an innovator and leader in the development of ESG measurement, metrics and impact in the corporate world and has been researching ESG for more than 15 years. Top1000funds.com first published stories on his early work in 2011 and 2012 when he was an assistant professor at Harvard Business School.

He’s now a named professor at Harvard, teaching respected classes, such as “Reimagining Capitalism” alongside Rebecca Henderson, and influencing hundreds of the brightest students in the world. He has become wildly influential in the business world by creating measurable ESG financial data.

measurement and impact

Serafeim sees the evolution of the ESG space for corporates in four clear stages: measurement, analysis, strategy and communication.

Measurement comes first, he says. Whether it is issues relating to climate change, DEI, or safety, corporates need to be able to measure performance. Then that data needs to be analysed, benchmarked and improvement demonstrated before a plan can be implemented based on the analytics to drive performance. And lastly that performance can be communicated.

“None of those four elements were feasible in the beginning,” he says. “There was little attention on measurement, analysis or managerial ability going into this space when I started working. In the last decade or so many business leaders have realised those societal important issues have become business relevant so that cycle of four factors has been unleashed in many organisations. Companies setting targets and trying to improve, reflects the evolution in the space.”

There are no shortcuts for investors

Serafeim has just written a book, Purpose and Profit: How business can lift up the world, where he describes the “magic” atmosphere that eventuates when purpose and profit combine.

“One of the things I describe is that the world we were living in 20 years ago is fundamentally different to now,” he says in an interview with Top1000funds.com

“A couple of important variables have changed as a context of business and as a result investing.”

Critically, technology created an environment where anything can be measured and social media has created transparency unimaginable before now.

“Take for example a large apparel company with tier 3-4 suppliers, 30 years ago we would have no idea about what was going on, now we have twitter.”

He also points out that, in 2022 the employee and customer base have much more choice, and voice.

“When I was growing up in Athens I would go to the convenience store and buy milk and there was only one to choose from, now there is so much choice. It’s the same thing from an employment perspective, you could sit in Melbourne and look for jobs anywhere in the world for zero cost and that choice has blended with a lot more choice in product and labour markets,” he says.

“That has had an impact on expectations and on society. Transparency has enabled choice and choice enabled voice.”

He says this means now corporate value depends on human capital, social capital, and intellectual capital alongside other forms of capital. The cycle of transparency, choice, voice, and value connection have created a very different operating context for businesses than even 20 years ago.

The book describes that evolution and Serafeim believes that all corporate and investment managers need to understand that context.

Development of purpose

Serafeim’s latest book comes from a long line of work looking at the idea of purpose.

In 2016 he wrote a paper with Claudine Gartenberg of Wharton and Andrea Prat of Columbia, Corporate purpose and financial performance, trying to understand purpose in a corporate context and how that impacts performance.

“There were several pieces of work where used the collective set of beliefs idea about the meaning and impact of employees’ work as a proxy for purpose driven organisation,” he says. “We found that in general, private market organisations tend to be more purpose-driven than public. And when they have long-term ownership, or more commitment in their investor base, they tend to be more purpose driven.”

You need to measure the outcomes because at the end of the day that is what matters

Another important piece of the puzzle was the publication in July 2020 of the Impact-Weighted Accounts Initiative at HBS that focuses on outcomes. This looked at the cost of the environmental impact of 1800 companies, bringing together accounting and environmental costs in the assessment of corporate performance. In its first year the project found that of the 1694 companies that had positive EBITDA in 2018, 252 firms, or 15 per cent, would see their entire profit wiped out by the environmental damage they had caused.

“The idea behind impact-weighted accounts is you need to measure the impact, the outcomes, because at the end of the day that is what matters,” he says.

“We took a step back to measure outcomes and to value outcomes in monetary terms, to understand how valuable those outcomes are, and then try to see how we can reflect those impacts through accounting statements so we have an integrated view of performance.

“If we want to have an eco-system that holds managers accountable for all sorts of capital then you need to measure the outcomes.”

Advice for investors

Serafeim says that ESG means different things to different people but the important thing is investors know what it means for them, whether that be divestment, risk, opportunity, a type of investing, or a strategy. But the problem is, because it means different things to different people, people are talking past each other.

“To me, ESG is a collection of issues that over time have become business relevant while at the same time being societal relevant. And over time because they are business relevant they reflect the underlying types of capital that organisations need to be competitive on and at the same time affect impact that organisations have on society. I see it as a framework that is the interdependence of impact and the competitiveness of the organisation. It reflects the risk and the fundamental ways the economy has been transformed and so where the opportunities exist.”

George Serafeim, the Charles M Williams Professor of Business Administration at Harvard Business School is a speaker at Top1000funds.com’s Sustainability in Practice event from September 13-15. Asset owners can find out more here.

The third edition of FCLTGlobal’s report, Institutional Investment Mandates: Anchors for Long-Term Performance provides a toolkit for mandate processes and behaviours to reorient towards the long term, including a rethink of KPIs that asset owners can use to evaluate their managers. The report demonstrates these concepts in reality by giving examples of asset owners and managers using them to good effect in practice.

The re-framed KPIs include portfolio issues like style factors, drawdowns and turnover; business issues like personnel turnover, DEI and client concentration; operational issues such as trading effectiveness and proxy voting assurance; investment risk such as results of simulated stress-testing scenarios; engagement and impact.

A full suite of tools for asset owners to use in assessing and monitoring managers, and aligning their mandates and actions with the long term is in the report including tools such as an onboarding checklist and a manager scorecard.

Examples of long-term mandate practices include those from the Future Fund, GIC, New Zealand Super and OTPP; and on the manager side it names Kempen Capital Management, MFS and Wellington as making progress on long-term behaviours.

Ontario Teachers, the report says, has integrated many specifically long-term provisions into its standard long-only equity IMA including:
• Compensate using longer-term fee arrangements, such as longevity discounts or longer-term performance measurement.
• Report long-term performance before short-term performance in all tables, per a visual exhibit that OTPP created.
• Focus prose commentary on year-to-date performance instead of monthly or quarterly.
• Disclose managers’ active-ownership strategies; and
• Treat succession planning, succession events and investment capacity planning as leading indicators of performance and disclose accordingly.

The report also singles out MFS as a leading manager on long-term mandates when it comes to reporting long-term performance before short-term performance. Instead of beginning with year-to-date, one-, three-, five- and 10-year figures, MFS now begins with the 10-year figure and has dropped the year-to-date altogether. It also has stopped highlighting the three-year figure, which makes a significant visual impact.

As an asset manager Kempen’s practices also include emphasising longer-term performance first in reporting to clients, but also offering loyalty-related fee reductions so client costs decline the longer a client remains invested, and communicating very clearly with clients about how the firm has voted its shareholdings in individual companies through a custom proxy voting portal.

In some less-liquid funds, the performance fees that Kempen pays are backdated with the manager realising those fees in line with the liquidity cycle of the fund.

Kempen is also a multi-manager so it also looks for evidence of a long-term focus in its relationship with external managers, for example as a long-term steward of capital it also looks closely at turnover in its manager selection process.

FCLT has a long history of published research and tools to support long-term alignment between asset owners and managers, dating back to 2015.

In this latest report it outlines some questions for investors to ask as they build a mandates:
• Do the incentives built into the mandate support a long-term relationship?
• Do the ongoing communications concentrate undue attention on short-term results?
• Is the focus on leading or lagging indicators of performance
• Do the mandate terms reward long-term investing and mitigate the common “buy-high, sell-low” pattern of chasing performance?

In addition to a typical due diligence questions FCLTGlobal recommends 10 considerations that can help focus discussions with prospective managers and determine whether the manager is long term or not.

These include everything from the manager’s ability to add value repeatably and sustainably over the long term, whether it is supported by a strong organisational culture of long-term investing, and the compensation of investment decision makers.

Looking out on the current investment climate, Anastasia Titarchuk, chief investment officer of the $279 billion New York State Common Retirement Fund, one of the largest public pension funds in the US, finds much that is concerning.

For an investor in search of risk premium, few diversified assets perform well in an environment of weak growth and high inflation that central banks remain unable to tame. And in a Catch-22, with US inflation last up at 9.1 per cent, the fund must also stay invested.

“Basically, you are costing yourself 9 per cent if you go into cash,” she says in a conversation with Top1000Funds.com.

Meanwhile, she is increasingly mindful of challenges in the fixed income allocation given it neither acts as a source of diversification from equity-like assets anymore nor performs well in a rising rate environment.

“A lot of our funding comes from fixed income when equities don’t perform well,” she explains. It makes allocations to real assets and real estate more appealing, but only on the margins. “The rise in mortgage rates makes mortgage assets more attractive now than in years prior,” she says.

As of the end of last year, the fund had 51.38 per cent of its assets invested in publicly traded equities and 22.37 per cent in cash, bonds and mortgages.

Still, the fact that concerns about uncontrolled inflation are so widespread also, paradoxically, give her reason to pause.

“I always question things when everyone thinks alike,” she explains, perhaps in a nod to her Russian roots which she credits with opening her mind to what can happen in the world and the importance of preparing for the unexpected.

Those early life experiences where she witnessed first-hand the impact of accelerating inflation, a wide possibility of outcomes and less stable societies still inform her cautious approach to investing, especially in emerging markets. As for Russia today, she says it’s un-investable, with no laws or ability for investors to control outcomes.

“The war in Ukraine is especially terrible for Ukrainians, but it is also terrible for the Russians.”

Private equity

Scanning other asset classes, she says red flags in private equity are also growing. Although opportunities for investors exist from the spike in the number of public companies going private, where anecdotally she hears transactions are very attractive, it is one of the few bright spots. The rising cost of leverage is a primary concern.

“For highly leveraged private equity transactions, the cost of financing has gone up quite a bit. It’s a challenge for existing portfolio companies to refinance and buying companies could be difficult if you require a lot of leverage.”

Another worry in the sector is a lack of exits as GPs hold off selling because of uncertain valuations in the stock market and secondaries market.

“Nobody wants to take a loss,” she says. Still, although she predicts “there will be some losses” she maintains that private equity is mostly in good shape and investors learnt the dangers of too much leverage in 2008.

“GPs have been financing with less covenants and they are much more aware of matching maturities on their debt and the requirements of the underlying companies.” She adds that private equity also benefits from a long runway in terms of when it needs to sell or refinance. Still, the fund has no plans to increase its allocation. “We are over-allocated because of appreciation in the portfolio so we have actually had to cut private equity because of technical reasons.”

Diversity

Titarchuk, who oversees one of the most diverse, large funds in the world, is also mindful of the enduring lack of diversity in the private equity industry where she says senior, diverse leaders are essential to inspire young women and racially diverse staff that they can also lead. The industry is recruiting more women in junior ranks, but diversity in senior positions has stalled on a limited talent pool, she says.

“In senior ranks, we still hear there is a lack of available talent. A lot of funds are struggling to hire senior female staff although, for the most part, the intent is there. One of the challenges is focusing on retention and providing an environment for women to succeed at all steps in their career.”

New York State Common, where senior female and racially diverse leaders are spread throughout the organisation, proves it’s possible. Key building blocks include her inclusive leadership style. For example, investment meetings (about half of total assets are managed internally) are open to the entire 50-person team and rather than micro-manage she seeks to empower staff to make their own decisions in a process that is also highly collaborative so that by the time a decision reaches her, it has been thoroughly vetted by different asset class and committee-level expertise. “What I learnt in Wall Street is that everyone makes mistakes,” she says.

“You should just try not to make obvious mistakes, or mistakes made in the past.” Does she enjoy leadership? “That’s a tough question,” she laughs. “I certainly love my job and what I do; it’s one of the best jobs out there.”

ESG leadership

In a challenging environment, sustainable investment remains a key area of opportunity, value creation and diversification. The fund’s Sustainable Investments and Climate Solutions Program (SICS) a thematic, multi-asset class program identifies and assesses sustainable investment opportunities with the same fiduciary, risk and return requirements of all other investments in the portfolio.

The SICS allocation has grown from an initial $10 billion to now target $20 billion over the next decade. This includes a $4 billion investment in a low-carbon index that has a 75 per cent lower carbon emissions intensity than its benchmark achieved by underweighting investments in high emitters.

As of March 31, 2021, the fund had committed over $11 billion to investments to green bonds, clean and green infrastructure, green buildings, renewable energy, and climate indices.

“The sustainable space is a hedge to some of the climate transition risks,” she says.

The fund has also developed a highly selective approach to the many ESG funds that knock on its door. The main cause of greenwashing is the lack of metrics by which to measure sustainability, she says.

“The industry needs more rigour, especially in terms of what passes for ESG,” she says.  “You can see regulators looking into this space; there is going to be some scrutiny. ESG labels get over-used; a company may have good ESG scores, yet investors can’t agree on what ESG scores to use and nor can the rating companies,” she says.

Against the backdrop of today’s challenges, one key metric keeps her buoyed and confident for the future, sure in the knowledge that the investment team is on the right track.

“We are a well-funded plan; almost fully-funded. This tells us we’ve done well over the years in our investment process,” she concludes.

 

 

 

APG’s chief economist Thijs Knaap and senior strategist Charles Kalshoven lay out the case for not investing in crypto. Interrogating the investment case for cryptos they find that only an expected return of 25 per cent per year would make it worthwhile to add bitcoins to the portfolio, and even then there’s no cashflows. They argue that pension funds can afford to neglect this asset class.

Despite the recent heavy losses crypto investors have suffered and the crash of stablecoin, whose primary claim was that it could never crash, the returns are still impressive.

Take bitcoin for example, the oldest of around 18,000 cryptocurrencies that exist today. Trading at a little over €2,000 ($2,041) five years ago, today a bitcoin is worth around €20,000 (down from a high of almost €60,000 at the end of 2021). Among those million-plus crypto investors, there are undoubtedly some whose pension is being managed by APG. And if they are willing to invest their own money, shouldn’t their pension fund jump in too?

In July 2021, Germany’s financial regulator BaFin allowed just that when it enacted new regulations that say institutional investors can allocate up to 20 per cent of their assets to cryptocurrencies. As the FT wrote at the time, this was an attempt by BaFin ‘to balance its concerns about what is has described as the ‘highly risky and speculative’ nature of cryptocurrencies with its desire to encourage the development of new technologies that could have a significant effect on financial services.’

More recently, BlackRock, the world’s biggest asset manager, launched its iShares Blockchain and Tech ETF that ‘seeks to track the investment results of an index composed of US and non-US companies that are involved in the development, innovation, and utilisation of blockchain and crypto technologies.’

In an accompanying report, BlackRock is bullish: ‘While most of the market attention has focused on the price and volatility of cryptocurrencies themselves, we believe the broader opportunity – leveraging blockchain technology for payments, contracts and consumption broadly – has not yet been priced in.’

Is crypto investing appropriate for APG?

With retail and institutional investors alike flocking to cryptocurrencies, and regulators holding open the doors, should APG not follow suit? That’s a legitimate question.

“We’re regularly being asked why we’re not investing in cryptos, by media and by people on Twitter who point out that our coverage ratio would look a lot better if only we had been smart enough to invest in cryptos early. Look past the recent losses and crashes, and surely cryptos will increase in value again some day and new and improved currencies will be launched?”

But APG is not going to invest anytime soon.

The view outlined by Knaap and Kalshoven is that pension funds, even more so than other long-term investors, need to invest in assets that generate cash flows: stocks that pay dividends, bonds that pay interest, real estate for which rent payments are received. The basic idea is that every month about as much cash needs to flow in as APG pays out to pensioners.

“A fundamental objection against pension funds investing in cryptocurrencies is that they do not generate any cash. The only way to make a return on cryptos is to sell them to the next investor who is willing to pay more than you did. In the meantime nothing happens, to us that makes investing in cryptos unattractive as well as unpractical,” the authors say.

A fundamental objection against pension funds investing in cryptocurrencies is that they do not generate any cash

Pension funds do invest in other assets without cash flows, like commodities and gold. But apart from their inherent value, these assets have other appealing characteristics.

“We know, based on data that sometimes goes back hundreds of years, how they correlate with other asset classes or economic parameters. Gold for example moves along with the general price level and thus provides a good hedge against inflation. Bitcoin doesn’t have a 200-year history, and neither does it have a strong correlation with other assets. Well, lately maybe with stocks, but that provides no diversification to our portfolio and no hedge against anything. So in short: crypto currencies provide no cash flows and no hedges. From a technical investment perspective we therefore don’t see a reason to invest in them.”

Applying portfolio theory

The authors say that arguments from portfolio theory can also be applied.

“You can take a well-diversified portfolio with a certain risk and return ratio and study what happens when you add bitcoins to such a portfolio. Assumptions about correlations and volatility aside, the outcome was very clear: only with an expected return of 25 per cent per year would it be worthwhile to add bitcoins to the portfolio. With a horizon of 15 years, you have to ask if there is anything that justifies a growth of 25 per cent year on year for such a period. The answer is no, there is simply no way we can justify that. So along that line of thought you come to the same conclusion: the investment case for cryptocurrencies just isn’t there.”

If the board did decide to invest in crypto, investment staff would then be asked to develop a formal investment case and extensively document aspects such as expected returns, risk, liquidity, correlations and so on. ESG would also be taken into account.

To this end they say that the bona fides of counterparties would be a concern, as well as the fact that the mining of cryptocurrencies requires an inordinate amount of energy.

“A pension fund that has banned investments in fossil energy would have a hard time letting that pass. Then there are regulators that don’t have a favorable view of cryptocurrencies, and finally it would operationally be very challenging for us and different from how we manage our other assets. So apart from the lack of an investment rationale, there is also a host of practical reasons why APG won’t be investing directly in cryptocurrencies in the foreseeable future.”

Comparisons with other disruptors

The essential difference between early internet pioneers like Google and other search engines and bitcoins, the authors say, is that for search engines you could, even early on, imagine a viable business model that monetized advertising and services.

“For bitcoins really the only thing that allows you to make money is the greater fool approach to investing: find someone who is willing to pay more for them than you did. There’s just nothing else that would make them worth more.”

But while APG doesn’t see the investment case for cryptos now, they said they will continue to look carefully at any reasons that will drive their future value up. Acknowledging the basic premise of cryptos – that they cut players loose from the traditional financial sector that is slow, expensive and over-regulated – makes them attractive. Cryptocurrencies enable you to make transactions completely autonomously and with anyone anywhere, as long as they have a computer or a smart phone.

It’s like this nightclub that’s so great because only cool people go there. The moment we enter that club is the moment it stops being great and cool

“The main application for bitcoin so far seems to be the payment of ransom money to some Russian who has encrypted your hard disc. That shows you the basic idea works fine. You don’t have to bother with Know Your Customer or money laundering controls,” they say. “Pension funds however simply can’t be buying bitcoins from someone who may have earned them in some illegal manner, so they bring their whole regulatory apparatus with them. That will cause a strange dynamic to come into play once cryptos become so big and successful that traditional financial institutions have no choice but to get involved.

“When that happens, it will be the kiss of death. Cryptos will become wrapped in the traditional world of finance, which means the very aspect that made them attractive will disappear. It’s like this night club that’s so great because only cool people go there. The moment we enter that club is the moment it stops being great and cool. So there is trade-off: cryptos can either remain entirely separate from traditional finance and find little adoption, or they can embrace elements of traditional finance and lose some of their appeal.”

 

 

Sharan Burrow general secretary of the ITUC and Paddy Crumlin, president of the International Transport Workers’ Federation outline the recently released baseline expectations for asset managers on fundamental labour rights and why pension funds should be holding their managers to account.

Despite the enormous growth in responsible investment and interest in ESG, there is a looming sense that the global financial system is not serving the wider interests of society and is undermining efforts to build sustainable and inclusive economies. This failure has been acutely felt by workers around the world who are facing attacks on their fundamental labour rights, deteriorating working conditions, and a declining share of the income pie.

According to the International Labour Organization (ILO), between 2004 and 2017, the share of global income earned by workers declined from 53.7 per cent to 51.4 per cent. On fundamental labour rights, the 2022 Global Rights Index, highlights a series of worrisome trends: this past year, 113 countries excluded workers from their right to establish or join a trade union; the right to strike was violated in 87 per cent of countries surveyed; and trade unionists were killed in 13 countries. These are the worst results reported since the Global Rights Index was first published nine years ago and they are occurring against a backdrop of declining trade union density and collective bargaining coverage in recent decades.

The global attack on fundamental labour rights alongside pervasive economic inequality underscores the urgency for greater investor attention and action to address the “S” in “ESG”.

investor Guidance on labour rights

But, while there are roadmaps for investors to track progress on climate change, there is very little investor guidance in the area of labour rights.

Asset owners struggle to meaningfully evaluate their asset managers’ policies and practices in this area and yet those same asset managers often have significant ownership stakes in publicly listed companies and private assets where workers’ rights abuses are occurring.

Imagine if the world’s largest global asset managers used their sizeable influence to address workers’ rights abuses in publicly listed companies like Amazon.com and Teleperformance, or similar labour issues in private market assets like Cadent Gas in the UK or DIAM Group’s operations in Turkey?

This is what the Global Unions’ Committee on Workers’ Capital (CWC) has set out to achieve, mobilising its global network of trade unions and pension fund trustees to hold global asset managers accountable on workers’ rights.

Through the CWC’s Asset Manager Accountability Initiative, pension fund trustees and staff from over 40 pension funds in countries such as Australia, Finland, the Netherlands, Spain, the UK, Switzerland, Canada and the USA, are engaging with the likes of BlackRock, State Street Global Advisors, UBS Asset Management and Macquarie.

These engagements provide an opportunity for asset owner clients to express their expectations that the asset managers that aggregate workers’ capital use their influence to drive better outcomes for workers whose rights are being violated.

These engagements are guided by a set of baseline expectations for asset managers on fundamental labour rights, that draw from the ILO Fundamental Principles and Rights at Work, the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles for Business and Human Rights.

The Baseline Expectations provide the roadmap on labour rights that has been missing for investors, outlining expectations in four areas: overall stewardship framework; public equities (including proxy voting and engagement); private markets (including stewardship of infrastructure and real estate assets); and policy advocacy.

The CWC is using the Baseline Expectations to steer ESG discussions with global asset managers towards real-world impacts for workers – beyond mere box-ticking and ESG marketing.

Let us now see if, five years down the road, we can pen another op-ed and report that the asset management industry is responding decisively to worker rights violations in their investments.

In the meantime, the CWC will continue to mobilise asset owners to hold their asset managers to account on fundamental labour rights in ESG stewardship policies and practices.

Click here to view the CWC Baseline Expectations

Sharan Burrow is the general secretary of the ITUC and Paddy Crumlin is president of the International Transport Workers’ Federation.