Toward a Pro-Climate Economy: Regulating Asset Management

Today, money managers are making investment decisions for millions of American households based on fiduciary standards that prioritize corporate profits and shareholders over the actual needs of the American people. Choices made by asset managers 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. At a time of widening economic insecurity and disastrous climate change, we must find new ways to ensure asset managers are required to consider the impact of their portfolio decisions on beneficiaries’ broader interests. 

A new Roosevelt Institute issue brief, “Responsible Asset Managers: New Fiduciary Rules for the Asset Management Industry,” argues that now is the moment for policymakers to rewrite the rules of asset manager fiduciary duty to ensure that portfolio decisions are made with the actual long-term interests of US households in mind. Co-authored by Roosevelt Fellow, Lenore Palladino  and Founder of The Shareholder Common, Rick Alexander  the paper begins by laying out the current framework for how the duties of asset managers are currently interpreted and then explains the harm that this set of standards causes to both the economy and the daily lives of the American people.  

The brief concludes by evaluating current proposals for reform through disclosure and proposes two specific areas for federal policy reform:

1. A substantive redefinition of asset manager fiduciary duty that calls for managers to consider the impacts of their portfolio on their beneficiaries’ common interests, including on the welfare of communities and the environment; and
2. A substantive bright line such that portfolios must be carbon-neutral by 2050 at the latest, in compliance with the Paris Agreement.

Insight from the Authors:

• “Asset managers are supposed to act in the interest of the households who have entrusted them with their financial assets. In 2021, it is clear that it is in the interest of US households to reduce the catastrophic harms of climate change and economic inequality. Public policy should be reformed to reflect the true duties that asset managers should have to those whose wealth they steward— ensuring that the financial system increases their well-being and the health of the social and ecological systems on which we depend,” said Palladino.
• “Fiduciary duty as it is currently understood leads institutional investors to focus on optimizing the financial returns of individual companies rather than on protecting the critical social and environmental systems that support their beneficiaries and the broad economy. We need an updated conception of fiduciary duty that addresses the impacts that companies have on these systems, which beneficiaries rely on for their livelihoods and well-being and on which their diversified portfolios depend,” said Alexander.

About the Roosevelt Institute

The Roosevelt Institute is a think tank, a student network, and the nonprofit partner to the Franklin D. Roosevelt Presidential Library and Museum that, together, are learning from the past and working to redefine the future of the American economy. Focusing on corporate and public power, labor and wages, and the economics of race and gender inequality, the Roosevelt Institute unifies experts, invests in young leaders, and advances progressive policies that bring the legacy of Franklin and Eleanor into the 21st century.

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