Recent money management industry conferences agendas and speakers reflect a new, dramatic recognition that ESG considerations, diversity, and social issues such as income inequality are being amplified by the pandemic — and that the industry needs to address them.
That does not mean that institutional investors, money management executives and corporate leaders agree on how to take action. But these topics came out from the wings to center stage at recent conferences, all held virtually due to the COVID-19 pandemic.
For instance, the upcoming NCREIF Fall Conference, Nov. 5-13, is devoting a session to the role of real estate reporting standards in ESG as the "prominence of ESG considerations for real estate investment continues to explode," the agenda says.
The Milken Institute Global Conference, held Oct. 12-21, tackled everything from stakeholder capitalism to affordable housing.
During a panel on stakeholder capitalism — the idea that companies should serve all stakeholders including their employees, customers and local communities as well as their shareholders — Christopher J. Ailman, CIO of the $257.9 billion California State Teachers' Retirement System, West Sacramento, spoke about the need for corporations to focus on the long term, considering all stakeholders including the companies' impact on the environment and the communities they touch.
Corporate boards and company top executives are incentivized for short-term results, and CEOs focus on increasing profits in the near term instead of thinking what is good for the company in the next 10 years, he said.
"We own stock for 30 years … For me, the time period is very real," Mr. Ailman said. "I don't need a return in 91 days … I need a return that is generational."
A good company treats its employees fairly, properly takes care of its waste products and does not pollute because those actions have a long-term impact, he said.
Dambisa Moyo, a global economist, author and board member of 3M Co. and Chevron Corp., who spoke on the same panel as Mr. Ailman, said she didn't think corporate short-termism was still a concern since many companies have already addressed the issue by not promoting company executives who do not take a long-term view.
"Yes, I think we want corporations to be good citizens," she said in response to a question about whether crony capitalism is real.
But at the same time, people are spending time and energy trying to fix corporations when the real ailment is ineffective government, she said. The government should provide regulations to stamp out bad behavior, she said.
Corporations should not be required to solve issues such as climate change that really should be within the purview of the government, Ms. Moyo said.
Lucian Bebchuk, the James Barr Ames Professor of Law, Economics and Finance and director of the Program on Corporate Governance at Harvard Law School who spoke on the same panel, said he agreed that the question is what is the best way to address societal issues.
One way is to use measures external to the corporations such as legal rules and regulations to force corporations to behave. The other is stakeholder capitalism to force corporate leaders to take care of those issues, he said.
Climate change risk should be taken care of on a systemwide basis with measures such as a carbon tax.
"I worry that in 10 to 15 years the icebergs will have melted while we're relying on the illusory hope of stakeholder capitalism rather than a carbon tax," Mr. Bebchuk said.
Mr. Ailman said that he agreed with Ms. Moyo's comment that government is too short-term focused as well and that companies need consistent regulations.
But the world is going to change dramatically and companies need to adapt to what CalSTRS officials think will be a dramatically different future in 10 to 15 years, he said.
"It doesn't matter if we give teachers a retirement check in a world that is scorched," Mr. Ailman said.
Institutional investors like CalSTRS need a stable, growing economy in the long term with the help of both corporations and government, he said.
Speaking on another Milken Institute Global Conference panel, Henry Cisneros, former secretary of the U.S. Department of Housing and Urban Development, said that it will take extraordinary commitment from local and federal governments to think through means to get communities back to affordability in light of the lack of housing for low-income individuals and an expected wave of evictions when current eviction moratoriums expire.
Robert Morse, executive chairman of real estate money management firm Bridge Investment Group, noted that over the past 20 years the vast majority of apartments that were built are so-called Class A, luxury apartments because they were the most attractive from a return perspective. The focus on Class A multifamily was to the detriment of the "missing middle" income people such as nurses and policemen, he said, adding that government needs to form public-private-partnerships as it did with opportunity zones that provide tax incentives to build underserved areas. Mr. Morse said that Bridge Investment Group has invested in multifamily properties in opportunity zones, setting rents at 30% of the area's average income, the upper limit of affordability.
"There can be a real partnership between government policy and private enterprise to create some momentum to at least address the dire crisis of affordability in housing today," he said.
Dana Wade, assistant secretary for the Federal Housing Administration's commissioner at the U.S. Department of Housing and Urban Development, speaking on the same panel, said that in many areas land use restrictions increase the total cost of construction. She said there are "common sense" changes that could be made such as reducing parking spaces and more zoning for multifamily.
There are new ideas being floated on focusing on function rather than size of lots, said Mr. Cisneros, who is chairman of real estate manager CityView and executive committee chairman of investment bank Siebert Brandford Shank & Co. LLC.
"New urbanism" considers size and use of space without the traditional zoning template, he said. Mr. Cisneros agreed with Ms. Wade that governments need to ease the regulatory burden on multifamily developers by reducing fees imposed on housing and parking requirements.
"One of the jobs of the new administration or the second Trump administration is to finally get a handle on housing finance issues," he said. Fannie Mae and Freddy Mac should move to a more private investment rather than government model, and housing should be an element of infrastructure and be included in any future government infrastructure spending package, Mr. Cisneros said.
At the Urban Land Institute's Fall Conference Oct. 13-15, the issue of income inequality was raised during a panel discussion on this year's ULI Emerging Trends in Real Estate report.
Onay Payne, managing director of real estate manager Clarion Partners LLC, said the pandemic has put income inequality into stark relief.
Higher-income Americans can work effectively from home but lower-income Americans, with lower levels of education, don't have the same luxury, Ms. Payne said.
She said that the 50 wealthiest Americans have as much net worth as the 165 million Americans in the bottom 50%. According to data from the U.S. Federal Reserve, in the first six months of the year, the top 1% of Americans had total wealth of $34.23 trillion, compared to the bottom 50% with a combined net worth of $2.08 trillion.
A disproportionate percentage of the poorest 50% of Americans are African American, Latinx and women, she said. Clarion executives take income inequality into consideration as part of its real estate investment strategy, she said.
The ULI Fall Conference also tackled the issue of segregation. Robert K. Nelson, director of the Digital Scholarship Lab at the University of Richmond, discussed his work on how past redlining policies have had a lasting effect on those neighborhoods as part of a panel discussion on the impact of segregated housing. He is also editor of "American Panorama: An Atlas of United States History," which includes "Mapping Inequality: Redlining in New Deal America." The work shows that redlining, a practice that denied fair access to mortgages based on the race of a neighborhood's residents, has resulted in present day differences in neighborhood resources.
During the ULI discussion, Mr. Nelson noted that homeownership, which is one of the biggest engines of wealth creation, was denied to African Americans.
He said that current studies show a correlation between redlined neighborhoods and preterm births today. He also pointed to a 2020 paper by researchers from Portland State University, the Science Museum of Virginia and Virginia Commonwealth University showing that people in urban neighborhoods that had been redlined are disproportionately exposed to extreme heat. The reason, Mr. Nelson said, is that the greenline neighborhoods have more lawns and tree cover, while the redlined neighborhoods have more asphalt and concrete that radiate heat.
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Social issues take center stage at conferences - Pensions & Investments
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