Pensions, pensions everywhere. Drink up
Matt Prescott's analysis of the Thames Water crisis and the stewardship solution
Through our international networking of the Bank of Nature project, we are beginning to see some independent analysis on the potential for pension funds to pay for important infrastructure.
The Thames Water Utility crisis in London is a real-world, real-time challenge that could be solved by one change: Transitioning the existing pension fund “Ownership” of the extractive Thames private equity deal into a “Stewardship” stake that changes the terms of the deal to meet the complex requirements of financial returns and public good. We mention the crisis here:
Today, UK researcher Matt Prescott published “Aligning capitalism with society and the environment” on LinkedIn which uses the Thames case study to show a success path through the financial peril in which the utility finds itself as a direct result of private equity ownership. The solution involves pension funds and their fiduciary duties.
Some of Dr. Prescott’s findings:
All forms of capitalism are not the same. Some forms of capitalism arbitrage the money that can be made by speculative trades that occur within nanoseconds of each other, while other forms of capitalism promise to pay out money to pensioners, decades in the future, for as long as recipients remain alive. The latter’s actuarial approach to money balances costs and benefits in order to ensure that they are able to support their beneficiaries over the long-term, with a high degree of confidence.
Pension funds are different to market traders and speculators in that they have an explicit fiduciary duty to allocate their money (fiduciary money) in ways that responsibly manage risk and make it possible for pension funds to adequately and reliably fulfil their social mission.
In other words, the money set aside by those paying into pension funds on a consistent basis, is used to provide certainty against some of life’s future financial uncertainties.
This programmatic, low-risk and mission-based approach to investing may offer an opportunity for governments to reconsider how large-scale infrastructure investments are competitively financed by capital markets.
The opportunity is immense. Across societies, the money aggregated into pension funds amounts to $ trillions.
Also:
These pension funds apply prudence when deploying their money and loyalty to their future recipients. They therefore represent a form of capitalism that is designed to be socially responsible, affordable and for the long-term.
The potential exists for Governments to negotiate with pension funds, and endowment funds, to back major investments in essential water infrastructure in return for stable long-term payments, which allow them to meet their fiduciary duties and social missions.On paper, pension funds that provide a private social safety net for millions could be the ideal partners for governments looking for responsible stewards of water resources, supply chains and critical infrastructure.
Pension funds with a strong social mission could be encouraged to buy out Private Equity firms, offering an alternative capitalist solution with a greater focus on generating stable long-term returns, over the riskier short-term returns required by other business models.
Water is a great vector for innovations in fiduciary financing using equity payback/earnback from prioritized cash flows financing agreements!
Once we learn how to deploy the Stewardship Modality of Fiduciary Money to finance prudent stewardship of water service, it will be easier to take on the bigger challenge of mobilizing this Stewardship Modality for prudent stewardship of energy and habitat, soils and biodiversity, oceans and health and other vectors for wearing together the right economy for keeping a good society ongoing into a dignified future for all in the 21st Century, and beyond....