Today’s conception of asset manager fiduciary duty distorts beneficiary “interests” into a narrow focus on financial returns. 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. But households are made up of people who have a stake in whether we decarbonize our economy, raise job standards, and live in a healthy and more equitable society—not just in whether individual companies are optimizing their own returns.
It is time to rewrite the rules of asset manager fiduciary duty to more accurately reflect the interests that households have in a sustainable economy and livable planet. Public policy should update the responsibilities of asset managers to meet the current structure of financial intermediation and the economic challenges of the 21st century.
In “Responsible Asset Managers: New Fiduciary Rules for the Asset Management Industry,” authors Lenore Palladino and Rick Alexander propose two specific areas for federal policy reform:
- 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
- A substantive bright line such that portfolios must be carbon neutral by 2050 at the latest, in compliance with the Paris Agreement.