Impact Investor Summit: Manulife flags inequality risk

Global wealth inequality is an underappreciated risk across markets, according to Manulife Investment Management’s chief sustainability officer and senior managing director for environment and policy.

In an address at the Impact Investor Summit: North America in New York, Brian Kernohan recalled the catalyzing effect former Vice-President Al Gore’s 2006 documentary, An Inconvenient Truth, had on climate change dialogue and said a similar intensification is needed around global wealth inequality.

“Inequality is a great source of risk and missed opportunity,” he said. “It limits productivity and innovation. It constrains consumer spending and growth and creates political instability. Inequality also acts as a threat multiplier, making other problems worse.”

Kernohan highlighted declining social cohesion and trust in institutions demonstrated by recent social movements including protests following the death of George Floyd, resistance among Canadian truckers to covid restrictions, and the global #MeToo movement. He said current conditions – in which the poorest half of global population controls 2 percent of wealth while the wealthiest 10 percent control 76 percent – make inequality a risk to efforts to provide investors returns and meet broader societal aims like the United Nations Sustainable Development Goals.

“We have to acknowledge that a global focus on economic growth as the singular metric of success is largely to blame for rising inequality,” said Kernohan, who joined Manulife predecessor Hancock Timber Resource Group as an environmental affairs manager in 2012, according to his LinkedIn profile. “I’m not here to atone for the sins of the financial sector, or more generally market economies. Rather, I’m here to talk about how we drive more affordability into the system.”

Kernohan said he is encouraged by the fact market focus on climate change has evolved into support for steps to reduce broader biodiversity loss, and he suggested a similar effort related to inequality would give investors a helpful starting point. Investors can begin, he said, with an effort to define, diagnose and disclose investment risks related to inequality.

“Breaking it down into these three simple steps can open the necessary doors to action,” he said. “I can tell you that in my world, these three steps are not followed and I can say that these three steps are not being followed with enough ambition, from my view, relative to rising inequality. If we start to address rising inequality through this approach, the power of the financial sector can play a much bigger role in fostering equitable prosperity and growth.”

Manulife’s participation in a deep dive on human rights issues related to forestry sponsored by the World Business Council for Sustainable Development introduced the firm to helpful benchmarks for accessing its own disclosures of specific risks, according to Kernohan. He added that just as the Taskforces for Climate and Nature-related Financial Disclosure frameworks have motivated change in investors’ approach to biodiversity, a similar effort devoted to inequality would be helpful.

“When it comes to social equity, we are also anxious for a TIFD, whether it’s the one that’s out there today or something similar, we encourage its development and advancement,” he added. “We can’t manage what we don’t measure, so we have to track these relevant human rights metrics and generate communications that are transparent.”

Kernohan encouraged attendees to consider a broader context that included homeless people they likely saw on their way to the Times Square-area conference and a recent report of rising hate crimes in New York City.

“Sadly, there isn’t an Oscar-winning documentary on the perils of what lies ahead if we don’t arrest rising global inequality,” he said. “Hopefully, we don’t have to wait for a documentary. I don’t want to look back after 10 years again in my career and regret. I don’t want to regret the inaction on human rights and I don’t want to regret that we didn’t make the world a more socially equitable place.”