08 September 2008 | London, UK
The key deliverable of the project will be a report providing an overview of both the universal ownership hypothesis – including a description of its origins and how it has been applied in the past – and an overview of the global water problem and the extent to which it affects the portfolios of universal owners. Furthermore, the report will discuss whether or not and how a universal ownership mindset can assist asset owners and -managers in identifying within their investment portfolios water-related externalities – both negative and positive ones – and in developing strategies to mitigate water-related risks and take advantage of water-related opportunities in those portfolios. It will finally include an assessment of the value of the universal ownership hypothesis as an analytical framework for both improving the financial performance of the portfolios of universal owners and making a contribution to solving the global water problem. The upcoming workshop and the subsequent report are envisaged to deliver answers to questions like the following:
- When it comes to water issues, is the Universal Owner Theory an appropriate analytical framework for asset owners / asset managers to identify and manage intra-portfolio externalities in order to enhance overall risk-adjusted portfolio performance?
- In other words: are universal owners really going to start analyzing intra-portfolio externalities and basing investment / engagement decisions on that analysis as suggested by the theory? Is this realistic?
- When it comes to investment practice, what are the strengths of the theory, what are its weaknesses?
- How do/could institutional investors (and the service providers catering to them) identify water-related externalities within large portfolios?
- How do/could they minimize the negative externalities and maximize the positive ones in order to enhance the risk-adjusted performance of entire portfolios?
The Universal Ownership rationale claims that “global” owners invested across entire economies should significantly emphasize ESG issues; the reason being that, even though ESG aspects may be negligible for many industries as they only manifest themselves via externalities (that per definition do not affect the company causing them), within a large portfolio of investments, the externalities of some investees will certainly harm the financial well-being of others and, therefore, overall portfolio performance. These thoughts apply very much to water as a resource that flows from one company to the other as well as from one sector to the other. It hence applies to the universal investor. For instance: a pension fund may be (indirectly) invested in an agribusiness operation “upstream” and in a water bottling operation further “downstream”. Therefore, if it doesn’t ensure that the agribusiness operation is not polluting the aquifer that the water bottling facility depends on, it will sooner or later be exposed to considerable financial stress. On the other hand, investors may be able to enhance, via investments, the water supply infrastructure in a given water-stressed area, enabling local water-consuming companies in their portfolios to grow faster.