Should you make an investment that earns a great return but pollutes the water and air in your community, or should you direct capital to an investment in much-needed affordable housing?
That is a question the North American Building Trades Unions has asked itself, and with $70 billion in uncommitted capital targeting new real estate and infrastructure investments, investment consultants and managers will want to pay attention to the answer.
It has taken some time for NABTU to formulate its response to that question and decide how to move ahead, but the trade union federation of 14 unions and 3 million members is now in the process of refocusing its capital to investments that align more closely with its core values.
“We got started on this in the years after the financial crisis,” says Sean McGarvey, president of the NABTU. “There were a lot of projects looking for investment, but we didn’t have the power to direct our capital where we would like. A lot of our members were losing unemployment benefits and were out of work. These projects could help.”
The NABTU pension’s strategy is straightforward — earn strong returns; commit to job-creating investments that put members to work, who then put a portion of their salary back into the pension, creating liquidity for the system; make investments that promote clean water, air and food, and affordable/workforce housing, which creates the conditions for a strong middle class that makes up the NABTU’s membership.
But the pension trustees felt the decision-making process they were using to implement this plan needed a revamp. The investment review and management system it was using was established in the 1990s and 2000s and it was not attuned to the building trade union’s current needs. In order to carry out its new objectives, trustees would need more decision-making power when dealing with investment consultants and investment managers.
One part of the solution NABTU developed is the Investment Consultant Report Card, a survey and ranking of investment consultants and their performance that is now in its second iteration. The report card is part of the NABTU’s capital strategies initiative that also promotes putting workers in trade apprenticeship programs, focusing on women, people of color and veterans.
The survey asks the investment consultant community 29 questions on subjects ranging from fees to responsible contractor policies to return performance and environmental, social and governance issues.
Through this process, NABTU can communicate its core values to consultants and help persuade them to follow these values when making investment decisions.
“We wanted to know if our vendors are aligned with our core values,” says McGarvey. “And those values are not only strong risk-adjusted returns, but also job creation for our members, affordable housing for middle-class folks like our members, as well as clean air, water and food for our members.”
The hurdle to reaching these goals was finding consultants aligned with these values who could direct capital to investment managers that would carry out NABTU’s objectives. This is where the report card helps pension staff and trustees identify the right consultants and then manage these relationships and investment decisions over the longer term.
“The report card helps educate our trustees about how we want the relationship with consultants to work,” says McGarvey. “We want our trustees to know consultants are vendors who work for them. The report card provides good information they can use to evaluate the performance of the consultants and help them make good decisions for the pension.”
The most current report card was published in August 2018. It is the second survey of the consultant community and the response was much stronger than the first edition.
“We visit consultants and ask if they have a copy of our report card,” says McGarvey. “This was a way for us to let the consultant community know it was an important initiative to us.”
The report card reviews 28 consultants and gives letter grades.
“A lot of the consultants do well,” says McGarvey. “But Segal and NEPC are the league leaders.”
The next steps for the NABTU are in motion. The pension is working with consultants to identify investments in the current portfolio that clash with NABTU’s core values and sell these positions while also finding new investments that meet their standards.
It also has made infrastructure commitments to Ullico, Blackstone and Grosvenor, which adopted a responsible contractor policy at NABTU’s request.
