Fiduciary Finance

Fiduciary Finance

Investment Funds and the Crisis in Financial Markets

Martin Gold

This multi-faceted analysis of institutional investment defines ‘fiduciary finance’ institutions as the third pillar of the financial system, alongside banks and insurers. It documents the role played by investment funds and the money management industry during the recent financial crisis, and provides an unashamedly critical review of the business disciplines which can dominate investment practices. It clarifies the economic significance of the investment industry (circa $60 trillion in assets) and the features which differentiate fiduciary finance from traditional financial institutions such as banks and insurers.

Chapter 8: Sustainable Investment Strategies and Fiduciary Activism

Martin Gold

Subjects: economics and finance, money and banking


INTRODUCTION Because financial fiduciaries are substantial shareholders in companies, stakeholders expect them to act effectively as change agents, especially in relation to corporate governance, social and environmental issues. Unlike the industry’s ‘in-house’ debate about active versus passive investment approaches, which remains unresolved, some pension funds and investment managers have taken a high-profile stance in advocating corporate governance reforms and embracing environmental and social responsibility. By highlighting environmental concerns (especially greenhouse gas emissions) and seeking engagement with the corporate sector on sustainability concerns, the fiduciary finance industry has been situated at the forefront of passionate political debate and heightened stakeholder aspirations. The United Nations Environment Programme Finance Initiative (UNEP FI), a high-profile collaboration between the UNEP and over 190 market participants (investment managers, financial institutions and pension funds), exemplifies stakeholders’ expectations that fiduciary finance is an effective agent for changing corporate practices. Although more recent emphasis has been placed upon corporate engagement and climate change, it is important to acknowledge that the fiduciary finance industry has traversed considerable ground in developing and marketing ‘ethical,’ ‘socially responsible’ and ‘sustainable’ investment strategies. Investment managers have responded to market demands and incorporated non-financial aspects into their investment processes. The fiduciary finance industry is subject to regulatory and principles-based initiatives to make sustainable investment strategies – which emphasize themes of corporate engagement and non-financial factors – a mainstream aspiration, despite limited empirical evidence of their economic benefits. The labeling of these non-standardized strategies has raised consumer protection concerns in the Australian retail market. Industry professionals have...

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