A golem and its master
The two Persons, in law, at the heart of the climate finance impasse
“You’re not the person I thought you were” is a romantic lament expressed in TikTok confessionals: One person disappoints another person through some hurtful act that breaches a trust. In this heartbreak, the jilting lovers don’t need to worry about defending their character in court.
In another situation, you might think a person is “not evil” – believing their motto “Don’t be evil” – only to learn later that maybe the person is not living by their own code of conduct. Amid claims of contract breaches, this person can be sued for their alleged changes in evilness.
The difference is that, in law, there are two types of Person —
and, yes, they are connected to the
world of fiduciary duty, climate finance and pension funds. These Persons, and their distinctions from each other, are key to understanding our argument for fiduciary duty as a climate hero.
A Natural Person in law is one who was born human. The term refers to an individual. Depending on the jurisdiction, that Natural Person has birth rights. A Natural Person doesn't have to justify their lawful actions to anyone but the mirror. A Natural Person is “of nature” and can produce the biological proof if need be.
A Legal Person in law is one created by humans. It’s an institution or illusion, like a corporation. A Legal Person does not exist in nature and does not carry a briefcase. It's a fiction given the standing of fact through its constituted legal purpose and animated by humans. I’m not sure whose feelings are being managed with a vague term like “legal” so let’s call this Person what it is: A Golem.
The two have many overlapping legal rights… like entering contracts and owning property. A Golem can sue a Natural Person in a court of law and vice-versa. While a Golem can’t vote, depending on where it is in the world, it can bankroll election outcomes and policy – like, in the US, where election spending by Golems is protected by their right to free speech.
Golems, of Yiddish lore, are lifeless creatures made of mud and other bits of nature animated by magic. For this exercise, we could call Golems “Unnatural Persons” — and we do, as a direct foil to Natural Persons — but “unnatural” evokes fears of what lays in wait under the bed. As terrifying as they look, Golems in literature are most often the hero protecting the innocents.
A Golem in the status quo, like possibly-evil Google mentioned above, is a human-made construct given legal standing in law by the Natural-Person “masters” running them. So, the trippy follow up to this line of thinking is that we are surrounded by Golems that are “of human imagination” rather than “of nature”. Other industry, religious organizations, governments, and pensions like the Pension Reserves Investment Management Board (which is in our scope), are also Golems.
Whether they are Golems gone bad or Golems as heroes is a matter of the instructions we give them and whether they live up to their purpose. Regardless, Golems are designed to serve humans and not the other way around — which is a new way to think about the trends of the status quo.
Are you being served?
As a reminder of what we’re talking about, the US Department of Justice says:
The term "person" is defined in 18 U.S.C. § 2510(6) to mean any individual person as well as natural and legal entities.
If we can agree that “individual person” and “natural entities” are redundant, can we also stipulate that there are two persons, each distinct from the other, but undistinguished as such in the law? If yes, that has implications to how fiduciaries of public pensions, otherwise known as masters of a Golem, exercise their prudence.
In their unique case, public pensions are legally constituted to deliver dignified retirements, perhaps decades away, and use their immense power to negotiate investments that deliver those dignified retirements. Both of these factors must be relevant in evaluating their prudence track record, as we argue in Massachusetts Senate Bill 1644. They aren’t.
In other words, Pension Golems like PRIM have a purpose to define the future. That, we argue, makes them tailor-made to curate a future for their own beneficiaries and finance climate remedies that allow that future to manifest for everyone.
Meanwhile, no individual Natural Person is compelled to answer to those purpose and power criteria, nor must a Natural Person be able to defend investment decisions against specific, behavior-based fiduciary standards. A fiduciary driving a Golem must — but doesn’t because fiduciary duty in law is not in sync with fiduciary duty in practice.
For instance, how are we to read the Prudent Person Rule in law?
It says that a fiduciary transacting investments on behalf of a trust, endowment, pension or similar Golem, has decision-making discretion limited to what a “reasonable” "common sense" Person with the requisite knowledge and experience would do in a similar situation.
For precision, let’s call it the
Prudent [natural and legal entities] Rule
to keep it aligned with the Department of Justice definition and argue that two Persons are crammed into a rule for one unspecified Person.
Comparing these two Persons, their financial scales are vastly different. Public pensions in the US are $5 trillion in value. Just the US Social Security Golem alone is 16 times more valuable than the world’s richest billionaire Natural Person, however much he may be artificially altered by technology.
Globally, public pensions are $24 trillion to $30 trillion, depending on the quarter, which is equal in value to 29% of the global broad money supply. Elon Musk’s fortune represents just .2% of the value of the global money supply.
The skills, experience, situations, priorities, values and time horizons that comprise “common sense” “reasonableness” are different for a Natural Person exercising prudence versus a Golem exercising prudence. A Golem like a corporation is instructed to grow to appease shareholder value, whereas a Natural Person may have different imperatives that focus less on quantitative results now and more on qualitative results over time.
So, if prudence for an entrusted pension fiduciary means choosing how money moves based on the knowledge and experience of a prudent person… which person does the fiduciary act as when the requisite knowledge and experience among the available Persons are fundamentally different?
An institutional Golem with billions and trillions should not transact those billions and trillions as an individual Natural Person might even if they have billions. However, that’s what happens in common fiduciary practice, where fiduciary boards engage asset managers to speculate on, for example, Wall Street share price changes.
Consider these variations on Prudent Person language:
“Prudent Natural Person” means a human making choices for the investment of their own money, for their own account, in pursuit of their own purposes, realizing all gains for their own benefit and suffering all losses at their own cost.
“Prudent Unnatural Person” means a non-human legal entity bestowed with plenary powers and discretionary authority to exercise powers given to it by law, and accountable in the law for the exercise of its legal powers true to its legal purpose.
Therefore, the
“Prudent Person Rule” means the rule of law that refers to the common sense of reasonable natural and legal entities acting with the relevant knowledge and experience to make distinct and different choices as 1) natural persons and 2) unnatural persons can and should make, determined as a question of fact by the trier of fact, as the evidentiary standard of fiduciary prudence and loyalty.
Another example of the difference: If you value your freedom, you might consider how differently eight billion Natural Persons need protection that Golems don’t.
Article 3 of the Universal Declaration of Human Rights says [natural persons] have “the right to life, liberty and security of person,” which essentially means you get to go about your human business without worry of being detained without a reason. We then debate the validity of the reason if you are detained, as per Article 6: “Everyone has the right to recognition everywhere as a person before the law.”
A Golem has no fear of going to jail, regardless of the reason. Unnatural Persons might be subject to other penalties, but loss of freedom is not one of them -- because they are a different kind of person. Only an imprudent person would think otherwise.
"Whether they are Golems gone bad or Golems as heroes"
This is the answer to the question, "What is stewardship?"
Stewardship is Pension Golems as heroes of The Pension Promise of a dignified future, for qualifying individuals, directly, that will also be, of necessity, a dignified future for all of us, consequently.
When Pension Golems go bad, they stop being stewards, and become the opposite of prudent.
I will leave it to each reader to fill-in-the-blank of what the opposite of prudent is...