ABSTRACT
Summarizing 350 years of corporate governance history, the authors show how corporate governance has evolved from only considering individual company governance, to a wider environmental, social, and governance focus, to a concern with systems-level issues. Today, many investors act according to “universal owner” theory; they understand that the overall return of the market matters more than any possible skill that they might have in security selection and portfolio construction. The authors show that investors act differently from traditional Modern Portfolio Theory investors, who focus on trading and portfolio risk issues. Using The Investment Integration Projects’ “tools of intentionality” taxonomy, this chapter examines six cases involving eight investors (BlackRock, the Church of England Pensions Board, Domini, Federated Hermes, Goldman Sachs Asset Management, Legal & General Investment Management, Nordea, State Street Global Advisors, and Swedish AP Funds) that mitigate various systemic risks through real-world interventions. The issues spotlighted include: Artificial intelligence bias, anti-microbial resistance, climate change, deforestation, lack of gender diversity, and mining safety. The authors conclude that third-stage corporate governance beta activism has created some $2 trillion–5 trillion in global wealth. Most importantly, systems-level investing and beta activism have the promise of helping to maintain environmental, social, and financial systems in the future.
