The growing income inequality—the gap in income and wealth between the very affluent and the rest of society—has become one of the most noteworthy socioeconomic issues of our time and whilst institutional investors cannot solve the issue on their own, they are increasingly aware of the problem and wanting to understand the role they can play in closing the gap.
Between 1988 and 2008, when looking at rises in global income, 44% went to the top 5% of the world population. These widening disparities require the adoption of sound policies to protect low-income earners, and promote the economic inclusion of all members of society, regardless of sex, race or ethnicity.
Massive gaps in income can destabilise the financial and social systems within which investors operate. This can translate into risks that could affect long-term investment performance.
A new report published today, Why and how investors can respond to income inequality, in collaboration with The Investment Integration Project (TIIP), serves as a practical guide to help institutional investors integrate income inequality considerations into their investment policies and practices. Research and thought leadership for the guide was provided and funded by the Principles for Responsible Investment (PRI).
The guide addresses three themes material to long-term investors:
- Employee relations and the structure of labour markets
- Corporate tax policies and practices
- Levels of CEO compensation
For each of these themes, this report explores the key aspects of the current structures that are exacerbating income inequality, and looks at how investors might encourage the emergence of new frameworks that are appropriate for the 21st century. The report also suggests paths that investors can take to adopt a more balanced view of how to create value, manage system-level risks and maximise rewards while still operating profitably and enjoying competitive returns.
Across the themes of labour relations, CEO compensation and tax, the approaches explored here emphasise how investors can positively and effectively influence key current system-level frameworks; and address concerns material to their long-term financial interests and performance.
“The PRI has been making economic inequality more of a focus with our Blueprint for responsible investment, recognising the need for investors to contribute to a more prosperous world for all, “said PRI CEO Fiona Reynolds.
“We have been tackling issues from an investor perspective on overly aggressive tax practices which can fuel inequality, along with issues such as human rights, labour rights, executive pay and fair wages and conditions for all workers.”
”As we look across many parts of the globe today it is clear that the economy is not working for the many, but for the few, with Oxfam figures showing us that 1 percent of the world’s population holds over 35 of the wealth and that the eight wealthiest men in the world have the same wealth as 3.6 billion of the world’s poorest people. It is a stark reminder that trickledown economics has failed and more needs to be done by government, business and the investment community to address and bring about economic change.”
It is a stark reminder that trickledown economics has failed and more needs to be done by government, business and the investment community to address and bring about economic change
Fiona Reynolds, CEO, PRI