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.
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Helping Investors Align Their Internal Investment Practices With Long-term Sustainability
PDI’s flagship working paper looks at how investors can measure and manage risks beyond the enterprise-level, with a focus on investment and market structure.
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 designed to co-create improved investment structures and practices that share more wealth and influence with workers and communities. We believe this is the best way to address systemic risks like inequality, biodiversity loss, and climate change, which manifest as systematic risks in markets and investors’ portfolios.
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Institutional investors are increasingly concerned about systemic risks—including climate change, inequality, and biodiversity loss—which manifest as systematic risks in financial markets and in investors’ portfolios. Investors need to address these risks head-on to protect their returns and to ensure a sustainable and equitable future for all. PDI supports investors in co-creating new approaches that align their internal investment governance and financial analysis practices with the principles intergenerational fiduciary duty.
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.
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.
How We Do This
We specifically focus on four overlapping and complementary workstreams.
Click on a puzzle piece to learn more about each workstream
We work with investors and their stakeholders to develop a shared understanding of how investors —often unintentionally — contribute to negative impacts and how to improve their practices.
As part of TISFD Founding 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.
Investor Influence Project (formerly Investor Contribution 2.0): Together with Impact Frontiers, PDI is developing guidance that would enable investors to improve their internal governance, financial analysis, investment structuring, and asset allocation practices.
Given that making shifts at large institutions requires a tone from the top and structural policy adjustments, investment governance is a key starting point for tangible change. Adjustments to the investment belief statement, investment policy statement, and other policies and procedures which flow from these standards can support an institution in fully aligning with the principles of intergenerational fiduciary duty.
We are actively working with industry leaders — The Investment Integration Project (TIIP), Jon Lukomnik of Sinclair Capital, and Keith Johnson of Global Investor Collaboration Services — to develop investment governance guidance that enables institutional investors to adjust their practices.
We work with investors and their stakeholders to develop a shared understanding of how investors —often unintentionally — contribute to negative impacts and how to improve their practices.
In partnership with the Responsible Asset Allocator Initiative (RAAI) and Paul O’Brien (a Trustee of Wyoming’s retirement system and former Deputy Chief Investment Officer of the Abu Dhabi Investment Authority), PDI is collaborating with institutional asset owners and allocators to integrate consideration of externalities into financial analysis and asset allocation.
Highlight regenerative investment structures and the risks of consolidated capital flows
A key finding of PDI’s flagship ESG 2.0 working paper is that institutional investors are consolidating their investments with the largest fund managers and companies, which squeezes out opportunities for emerging fund managers and small and medium-sized enterprises (SMEs) while also contributing to procyclical market behavior that can lead to asset bubbles and credit crises. Investors have responded well to our proposals that more regenerative investment structures are needed and that they need to deconsolidate capital flows, but seek more examples of “what good looks like” and how to access these opportunities. Our efforts aim to not only document what models currently exist, but how they can scale with integrity to meet the allocation needs of institutional investors, as well as what practical opportunities exist for institutional investors to adjust their allocation practices.
Highlight regenerative investment structures and the risks of consolidated capital flows
“Reimagining Investment Structures”
“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.
