The Investment Integration Project (TIIP) defines system-level investing as the intentional consideration by investors of the bigger-picture environmental, social, or financial system context of their security selection and portfolio construction decisions. The financial community relies on these systems for profitable investment opportunities and to maintain stable business operations and functioning financial markets.
First coined by Robert Monks and Nell Minow, “universal ownership” suggests that certain institutional investors have reached such size and scale that they own every industry, asset class, and geography in their portfolios, thereby owning the market, which is a reflection of the economy. As Jon Lukomnik and Jim Hawley note in their book, Moving Beyond Modern Portfolio Theory: Investing That Matters, the health of the overall market and economy affect an investor’s returns more than security selection or portfolio construction. If an individual investment results in negative externalities to the economy, and therefore the market, even if that produces a near-term return for that individual investment, it may not be in the interest of the investor’s portfolios.
Join a growing movement to advance broad-based ownership of assets across workers and communities. For more information on the Ownership Lens Investing Movement, visit the Workstream #3 section of our website.
As part of TISFD’s Working Group, PDI is working to develop recommendations and guidance for businesses and financial institutions to understand and report on impacts, dependencies, risks, and opportunities related to people.
Together with UNDP and other contributing authors, PDI published “From Fragmentation to Integration” as a call for policymakers and market practitioners to advance the integration of social risks and opportunities into financial strategies.
PDI partnered with Oxfam America and Omidyar Network on a new discussion paper that is designed to support U.S. investors and their investees in understanding how sharing more wealth and influence with workers and communities can correct market imbalances and support early identification and mitigation of emerging risks.
The Predistribution Initiative (PDI) is a nonpartisan, multistakeholder non-profit that works with investors and their stakeholders to improve financial analysis and investment decision-making processes in ways that more adequately value workers, communities and nature.
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Efforts to date to make investment more responsible have primarily focused on portfolio companies, including their operations, products and services. However, little has been developed to assess and improve investors’ own activities, particularly regarding the allocation, pricing and structuring of capital. This gap means that risks to society and nature are not addressed systematically and effectively.
Predistribution is an approach to addressing socioeconomic inequality and conservation that prevents risks to people and nature before they occur, as opposed to having to remedy problems after the fact. Predistribution offers a pathway to resilience, agency and less dependency on redistribution.
The pathway to advance a predistributive economy is through market reform, with input from workers and communities across the political spectrum. We hope you will join us!
How We Do This
We specifically focus on three overlapping and complementary workstreams, each involving research and co-creation with diverse stakeholders – including investors, workers, communities, policy makers and regulators, and academics.
“Reimagining Investment Structures” is a series of animated videos about the need to improve investment structures so that investors can align their internal investment governance and financial analysis practices with the principles of intergenerational fiduciary duty. Part one focuses on the issue of inequality and how workers have lost economic power due to the “labor squeeze.” Part two focuses on risks relating to existing investment structures, such as leveraged buyout strategies used by some private equity firms. Part three looks at the role that investors can play in building a better financial system by taking into account issues like fund manager compensation, financial engineering, and tax structures.
Part 1 — The Labor Squeeze: How Workers Are Losing Economic Power
Part 2 — The Potential for More Sustainable & Regenerative Investment Structures
Part 3 — Structuring Finance to Work for All Stakeholders
Delilah Rothenberg, Executive Director of the Predistribution Initiative (PDI), told ESG Investor that many institutional investors may “sense that inequality – like climate change and biodiversity loss – may pose system-level risks”. But there is currently “little understanding” about how such risks manifests in financial markets, what private sector activities contribute to inequality, and how and when inequality affects investors’ portfolios.
In a recent report, the UNDP remarked that the evolution of the global financial system has created “vast imbalances” that now “pose risks” to markets and economies, and that solely using sustainable finance strategies to address climate change will be “inadequate” if interrelated social issues are not addressed simultaneously.
“Investor contribution” – a concept some also refer to as “additionality” – is under the spotlight, as part of the Investor Contribution 2.0 project.
Behind this “consensus-building” initiative are Impact Frontiers and the Predistribution Initiative, a nonprofit that supports institutional investors. Together, they hope to get more specific on what investor contribution means and on how to manage it. They’re not trying to create standardised metrics for investor contribution – which by its nature is context-specific – but rather to standardise an expectation that investors carefully consider certain elements of investor contribution; even if they aren’t always able to answer these questions, they can then communicate what they do and do not know.
The Predistribution Initiative is devoted to reducing inequality by changing the basic business practices of Wall Street. What will it take for it to succeed? Delilah Rothenberg has obsessed over inequality since her college years at NYU, where she studied neo-colonialism and neo-imperialism as a triple major in history, politics and African Studies [...] Rothenberg quit her private equity job in 2018 to co-found The Predistribution Initiative, devoted to reducing inequality by changing the basic business practices of Wall Street. “It’s complex and it’s not something you can show a picture of in real life like a hungry child or a vulnerable woman,” Rothenberg says.
“The private equity industry is growing in importance. In recent years, companies have remained private longer. Furthermore, limited partner (LP) allocations to private markets continue to increase as underfunded pensions and endowments search for yield in a low interest rate environment, and in pursuit of diversification as the universe of public companies shrinks. From our past work with general partners (GPs), we recognise the industry is making progress on ESG integration. This is an excellent reason to celebrate, but increasingly, the private equity industry is suffering from a deteriorating public image. The issues driving this are multifaceted, ranging from founders evading tax, to the impact on inequalities from compensation structures. There is also increasing debate and some emerging evidence that certain private equity strategies may not outperform public markets net of fees.
The paper – ”From Fragmentation to Integration: Embedding Social Issues in Sustainable Finance” — aims to generate momentum within the financial system to tackle inequality and improve a common understanding of the social impacts of a market-based economy. Drawing insights from the climate agenda, it sheds light on how to catalyze action at the policy and regulatory levels through existing sustainable finance initiatives. Based on the collective expertise of several institutions and a global consultation, the paper provides key recommendations for governments, regulators, and financial institutions to: support research on the systemic risk of socio-economic inequality for financial stability; adopt and improve social disclosure standards and risk management tools; and rethink the macroeconomic determinants of sustainable finance.
The Predistribution Initiative (PDI) partnered with Oxfam America and Omidyar Network on a new discussion paper, “Getting Ahead of the Curve on Dynamic Materiality: How U.S. investors can foster more inclusive capitalism.” This paper is designed to support U.S. investors in understanding how sharing more wealth and influence with workers and communities can correct imbalances and support early identification and mitigation of emerging risks. Specific tools and opportunities are highlighted that can foster more sustainable and responsible value creation, and ultimately a more inclusive and thriving economy. Examples include: grievance mechanisms, freedom of association and collective bargaining, human rights due diligence and FPIC, shared ownership models, and workers on boards.
