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No Small Change

No Small Change: Pension Funds and Corporate Engagement

Tessa Hebb
Copyright Date: 2008
Edition: 1
Published by: Cornell University Press,
Pages: 168
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  • Book Info
    No Small Change
    Book Description:

    In No Small Change, Tessa Hebb examines the ability of pension funds, now the largest single driver of financial markets around the world, to use their ownership position to change corporate practices for the sake of the bottom line and, perhaps, change the world for the better in the process.

    Pension funds are not the new moral conscience of the twenty-first century, but they are significant owners of today's corporations. Because pension funds have to pay out benefits over many decades, they are increasingly concerned about the long-term value of the stocks they hold in their portfolios. Risks posed by climate change can have a huge impact on future returns. To lower the risks associated with an uncertain future, pension funds are engaging corporations and using their influence to raise the environmental, social, and governance (ESG) standards of companies.

    At its best, Hebb finds, corporate engagement offers a long-term view of value that both promotes higher ESG standards and adds share value, thus providing long-term benefits to future pension beneficiaries. At its worst it may divert the attention of pension fund officials from their primary responsibility of ensuring the retirement benefits of their members. This book weighs the influence of corporate engagement on firms in an effort to see how the potential from this newly emerging force is being realized.

    eISBN: 978-0-8014-6020-3
    Subjects: Business

Table of Contents

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  1. (pp. 1-20)

    Pension funds are not the new moral conscience of the twenty-first century, but they are significant owners of today’s corporations. They are also institutions that pay out retirement benefits over long periods of time. Think of the twenty-five-year-old worker who retires at age sixty-five and draws his pension for the next twenty years. Given the length of such commitment, pension funds have to carefully consider companies they invest in over a long period of time and be increasingly aware of the long-term risks from the environmental, social and governance (ESG) factors in their investment portfolio.

    Few risks are greater than...

  2. (pp. 21-36)

    Corporate engagement and socially responsible investment (SRI) share similar approaches and techniques in their engagement with corporations. But what is interesting in the convergence between traditional SRI and newfound pension fund corporate engagement is that the same concept embraces two quite distinct and somewhat hostile approaches to corporate control. Each approach has different origins, rationale, and objectives, yet both use ownership rights to wrest control from corporate managers and put it into the hands of shareholders.

    In theory, conventional investment decisions are made based on the expected risk-adjusted rates of return with the stream of future earnings embedded in its...

  3. (pp. 37-56)

    No name is more closely associated with corporate governance campaigns than the California Public Employees Retirement System (CalPERS).With approximately $100 billion invested in public equity, CalPERS’ interest in the governance and standards of the firms in which they invest is not surprising. CalPERS has long been an advocate of corporate governance and with a twenty-year track record, it has the evidence to back up its claim that well-governed companies outperform poorly governed ones over time (Anson et al. 2003). CalPERS has been so closely associated with this investment strategy that it has been dubbed the “CalPERS Effect” (Junkin and Toth...

  4. (pp. 57-68)

    Pension funds and other investors are increasingly sensitive to the impact of corporate reputations, which can add or destroy shareholder value over time, both at home and abroad. The result is that investors are demanding increased corporate social responsibility from the companies in which they invest. Because pension funds have liabilities that come from providing retirement benefits over long stretches of time, they face portfolio risks when substandard firm-level behavior leaves corporations open to reputational attack. Such investor vulnerability is no longer restricted to just the financial aspects of firms’ behavior; it also includes social and environmental standards of behavior....

  5. (pp. 69-92)

    According to Joseph Stiglitz, globalization is the “closer integration of the countries and peoples of the world which has been brought about by the enormous reduction of costs of transportation and communication, and the breaking down of artificial barriers to the flows of goods, services, capital, knowledge, and (to a lesser extent) people across borders” (2002, 9). While product and capital markets are increasingly globally organized, the legal and regulatory environments in which these markets transact are not. “[U]nfortunately, we have no world government, accountable to the people of every country, to oversee the globalization process in a fashion comparable...

  6. (pp. 93-102)

    There is little doubt that corporate engagement has become germane both for pension funds and for the larger financial community. Hardly a day goes by without some mention in the financial press of initiatives undertaken by pension fund boards and administrators designed to influence the standards of firms they hold in their investment portfolios. This book offers insight into why pension funds undertake such action and what results are achieved both for the pension funds themselves and more broadly for the corporations with which they engage.

    Pension fund corporate engagement represents a rise of institutional investors’ influence generally, and pension...