Asset managers should have stricter fiduciary duty rules to make sure their decisions are best for their beneficiaries and society, according to a report issued Wednesday by The Roosevelt Institute.
"The vast holdings of asset managers give them unparalleled power over the allocation of resources in our economy. The rules that govern their responsibilities lead these asset managers to make allocation and stewardship decisions that prioritize profits at individual companies over the preservation of critical social and environmental systems. As a result, asset manager choices often exacerbate inequality, environmental degradation, and the decline of social institutions — leading to a system that is antithetical to the needs of the very households whose savings are being managed," said the progressive economic policy think tank's report, "Responsible Asset Managers: New Fiduciary Rules for the Asset Management Industry."
Policymakers should address that misalignment with legislation creating two new fiduciary duties for asset managers, the report said. One would make them responsible for considering the total impacts of their investment decisions on beneficiaries, communities and the environment. The second would mandate substantive adherence to portfolio carbon neutrality, with climate risk one of the most pressing issues that asset managers should help to address, the authors said.
"U.S. households' financial assets — currently over $60 trillion in value — are held and managed as shares in corporations in ways that worsen the climate crisis, income inequality, and other societal ills" not because holders of retirement and financial accounts want that but because asset managers and asset owners interpret their fiduciary duty as maximizing financial returns, said co-authors Lenore Palladino, a Roosevelt fellow, and Rick Alexander, founder of The Shareholder Commons, a non-profit organization working toward systemic change in capital markets through shareholder engagement.