Morningstar Magazine - April/May 2018 - 55

industry leaders delved into the challenges
and opportunities ahead. The experts included
Steven Lydenberg, founder and CEO of
TIIP and partner at Domini Impact Investments;
Robert Eccles, founding chairman of the
Sustainability Accounting Standards Board and
visiting professor of management practice
at Saïd Business School, University of Oxford;
and Anna Snider, head of due diligence,
global wealth and investment management
CIO office at Bank of America. After the event,
Lydenberg, Eccles, and Snider joined me
in Morningstar's recording studio to share their
insights. Our conversation has been edited
for length and clarity.
Jon Hale: Steve, you've said your project acronym,

TIIP, is a play on words to suggest a tipping

point. It seems to me that we are nearing a tipping
point for sustainability, perhaps ushering in a
new era of sustainable capitalism, which I would
characterize as an attempt to make the global
economy more resilient and work for more people over
the long run. What's your take?

Robert Eccles, visiting professor of management
practice at Saïd Business School, University
of Oxford.

Steven Lydenberg: When we set up The
Investment Integration Project three years ago,
we deliberately chose the acronym TIIP
because we saw a tremendous uptake of the
idea of ESG integration and various impact
investing products in the investment community.
It wasn't clear to us whether this signaled
a tipping point, a change in the fundamentals
of how investment is conceived in terms
of its role in society, or whether this was a niche
market that was being created. But over
the past three years, we've seen a number of
indications of fundamental change. There's been
an increase in the number and the size of
the investors, asset owners, and asset managers
who are implementing a variety of strategies and
tactics that indicate to me that investors
are playing a larger, more systematic role in
benefiting society.
Bob, I assume you would agree that investors are
starting to look at what they do with a different
lens. Why is that? Can they expect better performance
out of their investments if they do?

Steven Lydenberg, founder and CEO of TIIP and
partner at Domini Impact Investments.

Robert Eccles: I do think investors are looking
at things through a different lens. They've been
late to the table compared to the corporate
community. The corporate community was talking
about sustainability for some 20 years.
There was a fair amount of greenwashing, and
there still is, but I think there's less of it.
The Sustainable Development Goals certainly have
contributed to that. And the investment
community is now pretty serious about sustainability. There used to be a prevailing belief
that if you integrate ESG issues, you're going to
hurt returns. We've found that most people don't
believe that anymore.

Part of the issue is getting clarity about what
we mean by ESG. The work of the Sustainability
Accounting Standards Board, which was a
brainchild of Steve and Jean Rogers, was to show
that there is a subset of issues that are "material"
for a company. If we could shift the language
from sustainability to materiality, that's a language
that more CFOs will understand. There are some
sustainability issues that either will hurt your
financial performance if you manage them poorly,
or will help if you manage them well. There's
a growing body of empirical evidence that shows
a positive relationship between ESG performance-
at least at the stock and the portfolio level-and
financial performance.
Then there's the system level, where Steve
is working. Anne Simpson1 at CalPERS will tell you
that they have a 100-year tail liability when
they consider system-level issues and the impact
on the beneficiaries whose needs they have
to meet. She uses the example of the financial
crisis. Climate change would be another one.
Inequality would be one. If we don't address these
system-level issues, they won't be able to
earn the 7.5% per year that is needed to meet
the needs of the beneficiaries. That's not going to
happen if the whole system is screwed up,
because we can't diversify away from it. The
returns of pension funds with very long-term views
and these gigantic asset managers are going
to be subject to how things are going on the
planet-the only one we have.

1 Simpson is investment director, sustainability at CalPERS.

global.morningstar.com/Morningstarmagazine

http://global.morningstar.com/Morningstarmagazine

Table of Contents for the Digital Edition of Morningstar Magazine - April/May 2018