Cambridge Handbook of Institutional Investment & Fiduciary Duty

7/25/2019 Cambridge Handbook of Institutional Investment & Fiduciary Duty

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Cambridge Handbook of InstitutionalInvestment and Fiduciary Duty

The Cambridge Handbook of InstitutionalInvestment and Fiduciary Dutyis a comprehensivereference work exploring recent changes and futuretrends in the principles that govern institutionalinvestors and duciaries. A wide range of

contributors offer new perspectives on dynamics thatdrive the current emphasis on short-term investmentreturns. Moreover, they analyze the forces at workin markets around the world which are bringing intosharper focus the systemic effects that investmentpractices have on the long-term stability of theeconomy and the interests of beneciaries innancial, social and environmental sustainability.This volume provides a global and multifacetedcommentary on the evolving standards governinginstitutional investment, offering guidance for

students, researchers and policymakers interestedin nance, governance and other aspects of thecontemporary investment world. It also providesinvestment, business, nancial media and legalprofessionals with the tools they need to betterunderstand and respond to new nancial marketchallenges of the twenty-rst century.

JAMES P. HAWLEYis Professor and Senior ResearchFellow of the Elfenworks Center for ResponsibleBusiness at Saint Marys College of California. He isthe author (or co-author) of well over thirty scholarlyarticles, as well as four books, on a variety oftopics, including corporate governance, responsibleinvestment, the international monetary and nancialsystem, and environmental issues.

ANDREAS G. F. HOEPNER is an Associate Professorof Finance at the ICMA Centre of Henley BusinessSchool at the University of Reading, where he directsthe i-nance laboratory. He is also currently servingas the Senior Academic Fellow to the United Nationssupported Principles for Responsible Investment and


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as Senior Associate to the University of CambridgesProgramme for Sustainability Leadership.

KEITH L. JOHNSONrepresents pension fundsand institutional investors globally on duciary,investment, corporate governance and relatedlitigation matters. He chairs the Institutional InvestorServices Group at Reinhart Boerner Van Deuren, s.c.He is also co-chair of the Fiduciary Duty WorkingGroup for the Network for Sustainable FinancialMarkets, an international think-tank.

JOAKIM SANDBERGis Associate Professorof Practical Philosophy at the University ofGothenburg, Sweden. He is an internationallyacclaimed expert on ethical issues in nance ingeneral and also in pension management. His PhDwork (from 2008) was the rst ever comprehensive

philosophical treatment of the concept of sociallyresponsible investment.

EDWARD J. WAITZERis a Professor and theJarislowsky Dimma Mooney Chair in CorporateGovernance at Osgoode Hall and the SchulichSchool of Business at York University. He was Chairof Stikeman Elliott LLP from 1999 to 2006 andremains a senior partner whose practice focuses oncomplex business transactions. He also advises on arange of public policy and governance matters.


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When people agree to become members of boards ofpension organizations, what duties do they take on?This new book on duciary duty makes clear thereis no simple answer to this question. It examines thesubject not just from a legal perspective, but alsofrom its implications for board behavior, investmentpolicy, and the consideration of societal issuesbeyond the immediate connes of the pension plan.[It is] a valuable new tool for trustees.

Keith Ambachtsheer

Director of the International Centre for Pension

Management at the Rotman School of Management,

University of Toronto

Eight years after the Freshelds report, thishandbook is a much needed in-depth analysisof the duciary duty of institutional investors. It

is sharp, thoughtful and inspiring, and takes aninterdisciplinary approach, ranging from nance,investment and law to philosophy and psychology.It is a must read for institutional investors wishingto understand and full their duciary duties in amodern era.

James Gifford

Executive director of the United Nations-backed

Principles for Responsible Investment

A focus on duciary standards in the investment

chain is critical to the reform of the nancial servicessector to meet more effectively the needs of the non-nancial economy. This book places the issue whereit needs to be on the centre of the stage.

John Kay

Professor at London School of Economics,

journalist, and author of The Kay Review of UK

Equity Markets and Long-Term Decision Making

This book is a thrice-blessed treasure: it meets

societys needs to understand how the eclipse ofduciary precepts has impoverished our commerciallife; it meets the needs of governance professionalsin providing a single repository of scholarly analysisof the various aspects of duciary duty; and it meets

the needs of everyday citizens in describing a worldin which their expectations can reasonably be met. Itis the right book at the right time by the right people.Congratulations to the Cambridge University Pressand the Editors for timely bringing to the publicsuch an essential contribution to public discourse this book is instantly the must have for all who areinterested in corporate governance or who investmoney on behalf of others. The authors of the 36component articles are such a luminous lot thatone should not single out individual contributions.In brief, this is an instant classic no nance orgovernance library should be without it.

Robert A. G. Monks

Author, entrepreneur, governance expert and former

US pension and welfare benets regulator

Fiduciary principles are under enormous pressureto narrow their reach; at the same moment inhistory forces shifting the ownership of assets fromindividuals to institutions argue for greater duciaryscrutiny of investment decisions. By any measure,the importance of duciary principles has neverbeen greater [than now]. The essays set forth in theHandbook are timely and deserving of becomingthe intellectual North Star as the discussion of thiscenturies-old doctrine proceeds.

Knut A. Rostad

Founder and president, Institute for the Fiduciary

Standard

This groundbreaking handbook is an insightful lookinto the real-world challenges of an investmentindustry navigating the ever-changing waters of theglobal economy. It shines a light on the risks thatduciaries may face if they dont understand how theworld is changing around them. The handbook is amust read for any investment duciary interested in acomprehensive interdisciplinary perspective.

Anne Stausboll

Chief executive ofcer of the California Public

Employees Retirement System (CalPERS)


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CambridgeHandbook ofInstitutionalInvestment andFiduciary Duty

Edited by

JAMES P. H AWLE YANDREAS G. F. HOEPNER

KEITH L. JOHNS ON

JOAKIM SANDBERG

EDWARD J. WAIT ZER


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University Printing House, Cambridge CB2 8BS, United Kingdom

Published in the United States of America by Cambridge University Press, New York

Cambridge University Press is part of the University of Cambridge.

It furthers the Universitys mission by disseminating knowledge in the pursuit ofeducation, learning and research at the highest international levels of excellence.

www.cambridge.orgInformation on this title: www.cambridge.org/9781107035874

Cambridge University Press 2014

This publication is in copyright. Subject to statutory exceptionand to the provisions of relevant collective licensing agreements,no reproduction of any part may take place without the writtenpermission of Cambridge University Press.

First published 2014

Printed in the United Kingdom by Clays, St Ives plc

A catalogue record for this publication is available from the British Library

Library of Congress Cataloguing in Publication dataCambridge handbook of institutional investment and duciary duty / edited by James P. Hawley,Andreas G. F. Hoepner, Keith L. Johnson, Joakim Sandberg, Edward J. Waitzer.

pages cmIncludes bibliographical references and index.ISBN 978-1-107-03587-4 (hardback)1. Institutional investments. 2. Trusts and trustees. I. Hawley, James P., 1944HG4521.C257 2014658.155dc232013046225

ISBN 978-1-107-03587-4 Hardback

Cambridge University Press has no responsibility for the persistence or accuracy ofURLs for external or third-party internet websites referred to in this publication,and does not guarantee that any content on such websites is, or will remain,accurate or appropriate.


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Contents

List of gures xiList of tables xiiList of contributors xiiiForeword xvi

Al Gore

1 Introduction 1

James P. Hawley, Andreas G. F. Hoepner, Keith L.Johnson, Joakim Sandberg and Edward J. Waitzer

PART I FID UCI ARY DUT Y: A GLO BALOUTLOOK

2 The public duciary: a Canadianperspective 9

Edward J. Waitzer and Douglas Sarro

3 The basis of duciary duty in investment in the

United States 20Jay Youngdahl

4 Governance and accountability in UK pensionschemes 31

Alison Fox

5 Institutional investment and duciary duty inAustralia 46Gordon Noble

6 The regulation of institutional investment in

Sweden: a role model for the promotion ofresponsible investment? 59

Joakim Sandberg, Sebastian Siegl and

Ian Hamilton

7 The Dutch pension system 72Ren H. Maatman


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viii Contents

PART II FIDUCI ARY DUTY AND THELANDSCAPE OF INSTITUTIONALINVESTMENT

8 The philanthropic duciary: challenges fornonprots, foundations and endowments 89

Keith L. Johnson and Stephen Viederman

9 Paradigm lost: employment-based dened benetplans and the current understanding of duciaryduty 100

Larry W. Beeferman

10 Economically targeted investing: changing of theguard 112Tessa Hebb and Jayne Zanglein

11 Institutional investment in the European Union

Emissions Trading Scheme 127Ivan Diaz-Rainey, Andrea Finegan, Gbenga

Ibikunle and Daniel J. Tulloch

12 Have institutional duciaries improved securitiesclass actions? A review of the empirical literatureon the PSLRAs lead plaintiff provision 146

Michael Perino

13 The future of duciary obligation for institutionalinvestors 159

Claire Molinari

PART III CHALLE NGING CONVEN TIONALWISDOM ON FIDUCIARY DUTY

14 Is the search for excessive alpha a breach ofduciary duty? 171

Aaron Bernstein and James P. Hawley

15 Fiduciary duty and sin stocks: is vice reallynice? 181

Andreas G. F. Hoepner and Stefan Zeume

16 Whose risk counts? 207Raj Thamotheram and Aidan Ward

17 Sustainability, nancial markets and systemicrisk 222

Dieter Gramlich


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Contents ix

18 Uncertain times, plural rationalities and thepension duciary 239

Liaw Huang, David Ingram, Thomas Terry and

Michael Thompson

19 Emotional nance and the duciary responsibilityof asset managers 254

Arman Eshraghi and Richard Tafer

PART IV TOWARD S A BROADERINTER PRETATION OF FIDUCI ARYDUTY

20 Fiduciary duty and the search for a sharedconception of sustainable investment 265Gordon L. Clark

21 Pension fund duciary duty and its impacts onsustainable investing 277

Roger Urwin

22 Reason, rationality and duciary duty 287Steve Lydenberg

23 Socially responsible investment and theconceptual limits of duciary duty 300

Joakim Sandberg

24 Fiduciary duty at the intersection of business andsociety 311

Rebecca K. Darr

25 Challenging conventional wisdom: the role ofinvestment tools, investment beliefs and industryconventions in changing our interpretation ofduciary duty 322

Danyelle Guyatt

PART V BENEFI CIARIE S ROLES AND

VIEWPOINTS26 The voice of the beneciary 337

Christine Berry and Charles Scanlan

27 Understanding the attitudes of beneciaries:should duciary duty include social, ethical andenvironmental concerns? 353

Joakim Sandberg, Magnus Jansson, Anders Biel

and Tommy Grling


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Figures

4.1 The nature of pension schemes in theUK. 33

4.2 Governance relationships in UK pensionschemes. 34

11.1 Daily close price for carbon dioxideemissions rights futures, and carbondioxide emission rights spot, in

EURs. 13011.2 Allowance allocations and emissions bysector for 2006. 130

11.3 Logarithmic daily close price of CarbonDioxide Emissions Rights ECX CFIPhase II futures and Global Brent Crudefutures. 132

11.4 Logarithmic daily close price of CarbonDioxide Emissions Rights ECX CFIPhase II futures and Global Natural Gasfutures. 133

17.1 Systemic nancial and overallsystemic stability integration andinteraction. 223

17.2 Framework for sustainability and systemicstability/systemic risk institutionalperspective. 225

18.1 The theory of plural rationality: thefour forms of social solidarity and

their associated premises (or myths ofnature). 243

18.2 A handy tool for moving towardsclumsiness. 246

18.3 A typology of surprises. 24925.1 Efcient frontier with uncorrelated security

returns. 324

25.2 Promoting CG and CR is compatible withduciary obligations. 32925.3 Percent of responses ranked as being

most importantwhen reviewing a pensionfunds performance on a quarterly andannual basis. 329

27.1 The economic model. 35727.2 The values-based model. 35927.3 The integrated model. 36028.1 Most urgent sustainability challenges

(unprompted). 37028.2 Urgency of eighteen sustainability

challenges (rated on a six-point Likertscale). 371

30.1 Engagement with Global Compactlaggards. 397

35.1 Theoretical model for evaluatinginstitutional governance quality. 456


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Tables

4.1 A summary of the PLRC (1993)recommendations. 36

4.2 A summary of the Myners Report (2001)principles for investmentdecision-making. 37

4.3 A summary of the PRs governancepronouncements. 40

4.4 Potential UK pension scheme accountability

relationships. 4111.1 Total greenhouse gas emissions (MtCO2e)for base year and 2002; reduction targetsfor the period 200812 according to theEU Burden Sharing Agreement (BSA)for EU-15; and distance to BSA target in2002. 131

11.2 Carbon investment funds. 13815.1 Summary statistics. 19015.2 Fund performance according to

the Jensen, FamaFrench andCarhart models. 19115.3 Legal risk-adjusted fund performance

measurement. 19515.4 Vice Fund managers asset management

skills. 19715.5 Robustness of asset management

skills. 20017.1 Causes of unsustainability (systemic risk)

in nancial markets. 22817.2 Directions towards sustainability (stability)

in nancial markets. 23218.1 Plural rationality states. 24221.1 Potential investment beliefs supporting

sustainable investing. 28221.2 Comparison of conventional and

sustainable (SI) pension fund investmentstrategies. 282

21.3 The sustainable investing matrix. 28327.1 Beneciaries best interests. 355

27.2 Beneciaries attitudes towards duciaryduty and SEE concerns. 356

28.1 ESG criteria of pension funds. 36628.2 ESG criteria of pension funds (selected

country subsamples). 36728.3 Survey of SRI practitioners: urgency

of sustainability challenges (ranking ofissues; selected countries). 371

28.4 Comparison of survey results withbroadsheet newspaper coverage in thethree countries. 373

28.5 Investor/product matrix. 37429.1 ESG issues perceived as important by SR

investors. 38230.1 Avoiding investments. 39330.2 Ownership, stewardship and

collaboration. 39430.3 Risk management and alpha

generation. 394A30.1 International conventions, norms andcodes of conduct. 401

32.1 Obstacles to integrated reporting. 42132.2 Frameworks and guidance for nonnancial

information. 42333.1 Summary of key stakeholders in the

corporate governance system. 43133.2 Summary of select policy changes

affecting corporate governance. 43635.1 Hierarchical framework for the assessment

of governance quality. 45735.2 Description of survey cohort by

type. 45835.3 List of survey questions following the

indicators of Table 35.1. 45935.4 Survey of stakeholder perceptions

of the governance quality ofresponsible investment bysubsectors. 460


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Contributors

Editors

James P. HawleyProfessor and Director,Elfenworks Center for the Study of FiduciaryCapitalism, School of Economics and Business,Saint Marys College of California.

Andreas G. F. HoepnerAssociate Professor of

Finance, ICMA Centre, Henley Business School,University of Reading; Senior Academic Fellow,Principles for Responsible Investment, UnitedNations.

Keith L. JohnsonHead of Institutional InvestorLegal Services, Reinhart Boerner Van Deurens.c.; Program Director, Wisconsin InternationalCorporate Governance Initiative, University ofWisconsin Law School.

Joakim SandbergAssociate Professor ofPractical Philosophy, University of Gothenburg.

Edward J. WaitzerProfessor, JarislowskyDimma Mooney Chair in Corporate Governance,Director of the Hennick Centre for Business andLaw, Osgoode Hall Law School and SchulichSchool of Business; Partner, Stikeman Elliott LLP.

Contributors

Jane AmbachtsheerPartner and Global Head ofResponsible Investment, Mercer, Toronto; AdjunctProfessor, Centre for Environment, University ofToronto.

Ralf BarkemeyerLecturer in Corporate SocialResponsibility, Sustainability Research Institute,University of Leeds.

Larry W. BeefermanDirector, Pensions andCapital Stewardship Project, Labor and WorklifeProgram, Harvard Law School.

Aaron BernsteinSenior Research Fellow, Laborand Worklife Program, Harvard Law School.

Christine BerryFormer Head of Policy andResearch, ShareAction.

Anders BielProfessor of Psychology, Universityof Gothenburg.

Tim CadmanUniversity Research Fellow,Institute for Ethics Governance and Law, GrifthUniversity; Research Fellow, Earth SystemsGovernance Project.

Gordon L. ClarkProfessor and Director, SmithSchool of Enterprise and the Environment,

University of Oxford; Sir Louis MathesonDistinguished Visiting Professor, Faculty ofBusiness and Economics, Monash University,Melbourne.

Rebecca K. DarrSenior Fellow, Aspen InstituteBusiness & Society Program, New York City;Cofounder of Atayne LLC, Brunswick, Maine.

Stephen M. DavisAssociate Director andSenior Fellow, Harvard Law School Programs on

Corporate Governance and Institutional Investors;Nonresident Senior Fellow in GovernanceStudies, the Brookings Institution.

Ivan Diaz-RaineySenior Lecturer in Finance,Department of Accountancy and Finance,University of Otago.

Robert G. EcclesProfessor of ManagementPractice, Harvard Business School.


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xiv List of contributors

Arman EshraghiPostdoctoral Fellow in Finance,University of Edinburgh Business School.

Frank FiggeProfessor of SustainableDevelopment and Corporate Social Responsibility,Kedge Business School, Marseille.

Andrea FineganLecturer in Corporate Finance,Norwich Business School and Tyndall Centrefor Climate Change Research, University of EastAnglia.

Alison FoxLecturer in Financial Accounting,School of Business, University of Dundee.

Tommy Grling Emeritus Professor ofPsychology, Department of Psychology andCenter for Finance, School of Business,

Economics and Law, University of Gothenburg.Dieter GramlichProfessor of Banking, Baden-Wuerttemberg Cooperative State University;Graduate School of Business, Cleveland StateUniversity.

Danyelle GuyattInvestment Manager, CatholicSuper; Visiting Fellow, University of Bath.

Tobias HahnAssociate Professor for CorporateSustainability, Kedge Business School, Marseille.

Ian HamiltonPhD Candidate, Ume School ofBusiness and Economics, Ume University.

Tessa HebbDirector, Carleton Centre forCommunity Innovation, Carleton University.

Jock HerronSenior Research Associate andCo-Head of the Digital Cities and SocietiesResearch Initiative, Harvard Graduate School ofDesign.

Liaw Huang Consulting Actuary, TTerryConsulting LLC, Chicago.

Gbenga IbikunleLecturer in Finance andClimate Change, University of EdinburghBusiness School.

David IngramExecutive Vice President, WillisRe, New York.

Magnus JanssonResearch Fellow, GothenburgResearch Institute, School of Business,Economics and Law, University of Gothenburg.

Michael P. KrzusFounder of Mike KrzusConsulting and co-author, with Robert G. Eccles,of One Report: Integrated Reporting for aSustainable Strategy.

Andrea LiesenLecturer in Finance, UmeSchool of Business and Economics, UmeUniversity.

Steve LydenbergFounding Director, Initiative forResponsible Investment; Partner, Strategic Vision,Domini Social Investments.

Ren H. MaatmanProfessor of AssetManagement, Institute for Financial Law,Radboud University Nijmegen; Partner, De BrauwBlackstone Westbroek, Amsterdam.

Tek MaraseniDeputy Director Operations,Australian Centre for Sustainable Catchments,University of Southern Queensland.

Claire MolinariVisiting Research Associate,University of Oxford.

Agnes L. NeherPhD student in Financial Ethics,Department of Catholic Theology and BusinessEthics, University of Hohenheim; VisitingScholar, School of Management, University of St

Andrews.Jonas NilssonAssistant Professor of BusinessAdministration, School of Business, Economicsand Law, University of Gothenburg.

Gordon NobleDirector of Investments andEconomy, Association of Superannuation Fundsof Australia Ltd.

Michael PerinoDean George W. MathesonProfessor of Law, St Johns University School

of Law, New York.

Ryan PolliceAssociate Responsible Investment,Mercer, Toronto.

Douglas SarroLaw Clerk, Court of Appeal forOntario.

Charles ScanlanFormer Head of Pensions,Simmons & Simmons.

George SerafeimAssistant Professor of Business

Administration, Harvard Business School.


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List of contributors xv

Sebastian SieglResearcher, School of Businessand Economics, bo Akademi.

Richard TaferProfessor of Finance andAccounting, Warwick Business School, Universityof Warwick.

Thomas TerryConsulting Actuary, TTerryConsulting LLC, Chicago.

Raj ThamotheramPresident, Network forSustainable Financial Markets; Cofounder,Preventable Surprises and the PositiveDeviants Club.

Michael ThompsonResearch Scholar,International Institute for Applied SystemsAnalysis, Laxenburg, Austria.

Daniel J. Tulloch Doctoral Researcher,Department of Accountancy and Finance,University of Otago.

Roger UrwinGlobal Head of InvestmentContent, Towers Watson, London.

Stephen ViedermanGrandparent; retiredPresident of the Jessie Smith Noyes Foundation,New York City.

Christopher W. WaddellSenior Attorney, OlsonHagel & Fishburn LLP.

Aidan WardOrganizational Systems Consultant,author of Trust and Mistrust: Radical Strategies in

Business Relationships.

Christian E. WellerProfessor, Department ofPublic Policy and Public Affairs, University ofMassachusetts, Boston; Senior Fellow, Center forAmerican Progress, Washington, DC.

Jay YoungdahlSenior Fellow, Initiative forResponsible Investment, Hauser Center, HarvardUniversity.

Jayne ZangleinProfessor of Business Law,Western Carolina University; ERISA attorney,

formerly with Vladeck, Waldman, Elias andEngelhard, New York.

Stefan ZeumePhD student in Finance, INSEAD.


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xvi

The world currently faces increasingly complexgovernance challenges. While there is a growingrecognition that we urgently need to take a longer-term view in order to deal with them successfully,many of the incentives that shape the thoughts andactions of leaders encourage myopia in the privateand public sectors alike. Strategies with a high

probability of success are available but not pursuedbecause powerful short-term incentives are increas-ingly misaligned with the timeframes required forthe solution of growing problems with profoundlydestructive inter-generational impacts.

Thus far, legislators have not adequatelyaddressed these inter-generational issues. In pre-vious eras, when obvious and invidious injusticesgrew to intolerable scale due to the protractedparalysis of leaders, the necessity for action hasoften found its venue, by default, in the judiciary.Now, once again, courts responding to specicfact situations may well play a critical role inbreaking this logjam. One likely legal strategy isbased on the concept of duciary duty the legalobligation to act in the best interests of others.

With the growth of specialization and interde-pendence, our increasing reliance on the servicesand expertise of others has given rise to the conceptof a duciary society a classic non-zero-sumgame in which all can benet. But if duciary obli-

gations are betrayed and trust is eroded, it becomesa game in which all can lose. As a result, the valuesof loyaltyand trust shaped by reasonable expec-tations have come to form the basis for broadduciary standards.

These developments have occurred in the contextof a historically dramatic change in the ownershipof almost all asset classes: public equity and debt,real estate, private equity, infrastructure assets andothers. In the past, these types of investments were

generally held by individuals. In the last thirty to

forty years they have come to be held mostly byinstitutional investors (e.g., pension funds, mutualand other retirement vehicles) which, in turn, areduciaries for the majority of the adult popula-tion. As duciaries, they have duties of care and ofloyalty which, many are coming to believe, shouldbe extended to encompass attention to inter-gen-

erational fairness. In other words, the outcomesof duciaries decisions should reect due regardfor the best interests of future (as well as current)beneciaries.

Meeting this challenge of fair treatment assumesa level of prociency with respect to long-termvalue creation and risk mitigation. Arguably, theseduciary standards impose obligations:

To demonstrate respect for social norms;to give beneciaries (or in the case of future

beneciaries, perhaps their proxies) a voice indecisions that affect their interests; andto think and act strategically and collectively.

To date, such standards have not been tested in thecourts, but there is good reason to believe that theysoon will be.

Investing is a means to ensure our future well-being. This requires a broader consideration byduciaries of systemic effects for example, con-sideration of how investments can create better

markets tomorrow, rather than simply focusing onbeating the market today. Incentives that encour-age duciaries to take advantage of asymmetrieshave frequently seduced duciaries to succumb toa self-destructive cycle of short-termism and haveclearly generated unhealthy outcomes for the sys-tem as a whole.

It is only a matter of time before our courts (orregulators) will nd opportunities to better deneand protect the public interest. This is likely to

lead to the imposition of public stewardship

Foreword


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Foreword xvii

responsibilities throughout the nancial servicessupply chain. We see elements of this today in theUK, and in the recent set of investment beliefsthat CalPERS (the largest public pension fund inthe US) recently adopted. Another example is theadoption of Regulation 28 in South Africa that

requires that prudent investing should give consid-eration to any factor which may materially affectthe sustainable long-term performance of a fundsassets, including factors of an environmental, socialand governance character.

Core to the stewardship idea is that humanbeings are the beneciaries of their retirementfunds. While this sounds obvious to many, fartoo often the funds themselves (and their relative,benchmarked performance) have been the primary

or sole focus of short-term investment strategies.In order to better realize the goals of stewardship,the core concepts of duciary obligation will haveto be rebalanced. For example, a rebalancing mightshift at least some of the weight presently given toprudence (often dened as short-term perform-ance relative to peers) to put greater weight on

loyalty, including a duty of impartiality to cur-rent and future beneciaries.

Those who want to shape the process of du-ciary reform, rather than simply be subject to it,should read this volume of essays. This Handbookhighlights the role that duciary duty plays in

determining how managers of the worlds nan-cial capital impact the sustainability of the econ-omy, environment and society, as well as our futurenancial success.

Those large global nancial institutions thatare subject to duciary duties can and must playa crucial role in solving todays most serious sus-tainability challenges. This volume brings togethersome of the leading practitioners, academics andpolicy makers confronting these issues. We hope

and expect many of these ideas and lessons willhave signicant impact.

Al GoreFormer Vice President of the United States

and Co-founder and Chairman of Generation

Investment Management

Cambridge Handbook of Institutional Investment & Fiduciary Duty

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