Why TIFD?
Decades of eroding job quality and financial engineering that have brought harm to millions of people have finally caught up with investors. As consumers struggle to pay their bills, keep a roof over their heads, food on their tables, and access healthcare, their real-life pain cascades across the economy – impacting all stakeholders – investors and society alike.
These economy-wide impacts are known as “systemic risks.” In normal times, investors can diversify their portfolios to avoid overexposure to any particular risk. However, systemic risks occur across a wide swath of assets, such as stocks, bonds, currencies, and commodities, as well as industries and geographies simultaneously. When the effects are widespread, diversification offers little help.
Some investors have turned to “responsible investing” and the integration of environmental, social, and governance (ESG) into investment decisions to manage risks related to economic inequality. Mainstream investors tend to be interested solely in ESG risks that, in the words of the Sustainability Accounting Standards Board (SASB), ”are reasonably likely to impact the financial condition or operating performance of a company and therefore are most important to investors” - a concept known as “financial materiality.”
However, there are many issues which, when aggregated across the economy and investors’ portfolios, are material to investors even if they aren’t considered material to a particular company. Examples include paying workers a living wage, respecting a freedom of association and the right to collective bargaining, security of employment, paid parental leave, and free and prior informed consent in land acquisition. ESG also typically does not factor in investment structure issues, such as financial engineering, which has both squeezed workers and communities and destabilized financial markets.
We outline further rationale for TIFD in this article and explain the concept further in this TIFD FAQ.