From off-shoring good jobs to the great and growing income divide, finance-driven decision-making has long been at the core of many of our economic problems. It’s not that financial analysts and operatives are necessarily evil or uncaring – rather, they believe they have a fiduciary responsibility to generate maximum returns for their funds, even when the results have worker and society-unfriendly consequences.
Changing this mindset has proven a tough nut to crack even for union pension fund managers, who are aware of the social consequences of investment decisions. But there are glimmers of hope and interest. On June 7, for example, some of the nation’s largest institutional investors and the biggest single pension fund investor – the California Public Employees’ Retirement System (CALpers) — will hold a conference to explore ways to transform socially and environmentally sustainable investment criteria from a perceived liability to an asset. CALpers has a commitment to responsible investing – for example, it calls for neutrality in union organizing – but it has never figured out how to make such policies systemic.
Along with some colleagues, I’ve prepared a paper for that conference based on evidence from three decades of research on high performance workplace practices. “Our hope,” we write, “is to help identify what is required for firms to align human capital and financial strategies. Expanding the number of firms that are led and managed in this way is essential for building a sustainable economy, i.e., one in which firms operating in the U.S. or other countries are capable of being competitive and generating sufficient high quality jobs to close the jobs deficit and improve living standards.” (The full paper can be found at: http://www.employmentpolicy.org/topic/1027/research/working-paper-human-capital-dimensions-sustainable-investment.)
Until recently, few investment professionals had much interest in learning about ways to align firm success with worker, environmental, and other social needs. But we are now seeing more investment analysts and organizations interested in building and marketing sustainability portfolios. A greater number of indices are now aimed at channeling investments in firms that follow environmental or social sustainability practices.
The research community is helping move this process along, documenting efforts that better align investor and employee interests both in domestic and global operations. New data sources and measurement and assessment tools are becoming available that, if validated, can provide better information on goals that firms claim to want to see implemented within their organizations and suppliers. Investors need to become better educated in the types of information they should request from firms.
The need for expanded education also applies much closer to my professional home in academia. Management schools can do more to broaden the vision of our future business leaders and financial analysts. I teach a class called Managing Sustainable Businesses for People and Profits, but it is one of the very few courses at the MIT Sloan School of Management that exposes students to hard evidence that there are ways to create value for shareholders and employees alike, to both manage a business and to do good for multiple stakeholders. This material, indeed, this perspective on the role of the corporation and the responsibilities of its leaders, needs to get embedded in the core courses taught to all future business leaders at Sloan and other business schools.
The CALpers conference offers an opportunity to support such developments by examining how financial markets can be turned into a positive driving force in promoting sustainable firms and a sustainable economy. If the finance and investment community is to be transformed from a constraint to a supportive force in promoting social sustainability, even such small steps can really matter.
Thomas Kochan is the George Maverick Bunker Professor of Management; Professor of Work and Employment Research and Engineering Systems; and Co-Director, MIT Sloan Institute for Work and Employment Research