This Blog is now Closed

In 2010, UKSIF is championing sustainable capital markets by influencing and supporting public policy and investor behaviour on:

• Responsible Ownership through effective implementation of the Stewardship Code and related measures

• Financing a Low Carbon and Sustainable Economy through green bonds and other socially useful financial innovation

• Further Innovation and Cultural Change in financial services to better meet the long term needs of providers and users of capital and advance sustainable development at the same time

For more on our support for sustainable capital markets, please visit the regulation, standards and public policy section of the UKSIF web site.

Thank you to all who participated in the debate in 2009.

Progress towards Sustainable Capital Markets

This blog was launched nine months ago to track progress in building more sustainable capital markets. Now seems a good time to reflect on this year’s developments. From a UK perspective, which are the most significant signals of future change?

Here is my list of the key trends from 2009:

• Civil society starts to demand a more accountable finance sector

Eg. Anger at remuneration levels, Deepening of NGO research and campaigns

• Politicians, regulators and industry leaders increase support for good governance of asset owners and more responsible ownership of assets

Eg. Lord Myners’ emphasis on “ownerless corporations”, The Pensions Regulator’s governance campaign, the Walker Report’s Stewardship Code recommendations, Personal Accounts Delivery Authority Investment Consultation responses

• Modern green and ethical retail investors and their advisers seek positive ways to make money and make a difference with some of their investments

Eg. YouGov research for National Ethical Investment Week 2009, Conservatives commit to “Green ISAs”

• Stock exchanges deepen their focus on support for sustainability

Eg. World Federation of Stock Exchanges publishes interactive “Exchanges and Sustainable Investment” report, UN hosts sustainable stock exchanges event

• Bonds and other financial instruments for sustainable infrastructure move up the agenda

Eg. HSBC’s Vaccine Bond, second and third issues of World Bank green bonds, the Climate Bonds Initiative

In twelve months time, will these still seem like the key developments in 2009?

A great Lord Mayor's speech

In his banquet speech last night, the new Lord Mayor called for a re-established social contract between financial institutions and the society they serve.

He suggested that the contract recognise “on the one hand that the UK benefits from financial services, and on the other that we need to do whatever it takes to serve the interests of the individual as well as those of the wider economy”.

The Lord Mayor’s speech also identified that climate change “may be an even greater threat” than the economic crisis. He called for the City to consider, post Copenhagen, how it can build on its leadership in sustainable finance to “do yet more to bring our expertise to bear on building sustainable solutions.”

If this is an early indication, we can expect much from the new Lord Mayor's year in office.

We’ll be back after National Ethical Investment Week!

The UKSIF team are rather busy this week, co-ordinating the second National Ethical Investment Week to spread the word about green and ethical investing to consumers, financial advisers and charities.

Our research has found that half of Britons with savings and investments would like to make money and make a difference. We are flagging up that today’s green and ethical investments are a great way to do this – particularly in the run-up to the Copenhagen summit.

For example, we are offering financial advisers “Summit to think about” at Money Marketing Online.

But, as a result, we won’t be posting any more to this blog until the week is over.

Have a happy National Ethical Investment Week 2009.

Global Centre Report: A Missed Opportunity for Green Leadership?

Yesterday saw the launch of “Asset management: the UK as a global centre”, a report produced under the joint chairmanship of the Chancellor of the Exchequer and the Chair of the UK’s Investment Management Association.

There is a major missed opportunity in the report. This can be summed up in three words - “carbon”, “climate” and “green”. I searched the PDF for all of them. Each returned “No matches were found”.

So, within a month of the Copenhagen Summit, this significant report on future UK leadership in asset management doesn’t even mention the challenge of redirecting capital towards low carbon industrial and social transformation.

Welcoming the report, Financial Services Secretary Paul Myners said he looked forward to “… the prospect of on-going engagement with the industry on .. the role of markets in society and ethical and moral dimensions to investment”. Lets hope he addresses this!

Capital and Control

The flow of reports and comments in the run-up to both Copenhagen and the final recommendations of the Walker Review continues this week.

“Catalysing low-carbon growth in developing economies: Public Finance Mechanisms to scale up private sector investments in climate solutions” is the latest on “capital” for the low carbon economy. It was launched today by UNEP in partnership with an impressive range of pension, investment and insurance organisations.

Meanwhile, on effective shareholder ownership and “control”, I was struck by this piece “not more regulation, more Responsibility” from Colin Melvin of Hermes in Sunday’s Independent.

Is more focus on “having fun” part of the way forward for the finance sector?

As the recent Tomorrow’s Company report “Tomorrow’s Innovation, Risk and Governance” highlights, creating an effective organisational culture is an essential part of building successful and sustainable organisations in the finance sector and elsewhere.

So following my post on the Archbishop of Canterbury’s speech, I was fascinated by this contribution from Cognitive Policy Works on the role of fun (aka motivational psychology) in “saving the world”.

OK, so maybe fun isn’t quite the right term – but what we do need today is more focus on values and culture in the finance sector – and fun isn’t a bad place to start!

Archbishop highlights a shared cultural crisis

Creating a more responsible finance sector requires rebuilding its connection to the wider world and rediscovering a sense of both responsibility for the future of the natural world and joy in making a positive contribution. Or at least that was my conclusion after reading a powerful speech by the Archbishop of Canterbury on climate change delivered last week.

The Archbishop talks about a shared cultural crisis that “could be summed up rather dramatically by saying that it’s a loss of a sense of what life is … a web of interactions, mutual givings and receivings”. He talks about “our calling to nourish” life and secure “a future for all living things”.

He says “a good deal of the talk and activity around the financial collapse has the marks of .. ‘displacement activity’ – precisely because it fails to see where the roots of the problem lie; in our amnesia about the human calling” and “whatever we do to combat the nightmare possibilities of wholesale environmental catastrophe has to be grounded not primarily in the scramble for survival but in the hope of human happiness”.

Even if – like me - you don’t share his religious lens, the speech contains valuable and inspiring insights. Many thanks to UKSIF Vice Chair Helen Wildsmith for pointing me to it.

Green Bonds and a UK Green Investment Bank: New public policy resource

Green Alliance has just launched a useful new section of its website called Green Finance UK. This aims to cover the developing public policy debates on Green Bonds and a UK Green Investment Bank. Worth checking out!

Reforming Ownership and Capital Markets

UKSIF has recently submitted responses to the Walker Review of Corporate Governance of UK banks and other financial institutions and to HM Treasury's 'Reforming Financial Markets' consultation. We have also responded to the second consultation in the 2009 Review of the Combined Code. All three responses can be found here.

Learning from corporate responses to environmental regulation

How can financial institutions best respond to today's regulatory debate?

The article 'Why sustainability is now the key driver of innovation' from September's Harvard Business Review has already been blogged about elsewhere (e.g. here).

But I think it is still worth highlighting that banks and financial institutions could find its model useful in rebuilding trust and profitability. C.K. Prahalad and colleagues propose this five stage model:

Stage 1: Viewing Compliance as Opportunity

Stage 2: Making Value Chains Sustainable

Stage 3: Designing Sustainable Products and Services

Stage 4: Developing New Business Models

Stage 5: Creating Next-Practive Platforms

What should a CSR manager do?

My piece in Ethical Corporation calls on CSR managers to play their part by building relationships with their pensions managers and helping them to work with their peers to shift the investment paradigm.

CSR managers looking for an example of good practice by a pension fund today could learn a lot from the Environment Agency Pension Fund's 2009 "Responsible Investment Review" or more generally from its web page on "How we manage our pension funds".

No more business as usual

I have just contributed an opinion piece "Responsible investment: No more business as usual" to the Ethical Corporation website.

It is based on my article in Green Alliance's pamphlet "From crisis to recovery: New economic policies for a low carbon future".

Ethical Corporation is doing a series of opinion pieces from members of their editorial advisory board - of which this is just one. FTSE's Will Oulton, for example, has contributed "Green investment grows up".

Call for ESG Disclosure from "Across the Pond"

Earlier this week, a coalition of over 50 investment firms and professionals led by the US SIF called on the Securities and Exchange Commission (SEC) to require listed companies to report on ESG issues.

They asked the SEC to mandate annual reporting on sustainability indicators in accordance with the GRI framework and on other material ESG matters.

This follows Eurosif’s call on European institutions in April to require disclosure of ESG data by listed companies.

These initiatives give additional support to the view that improved reporting will help strengthen financial markets and foster sustainable business practices.

Where is PADA's "Investment Impact Committee"?

This question is promped by the Annual Report of the Personal Accounts Delivery Authority (PADA).

In Appendix A, you will find details of PADA’s Advisory Committees – the "Consumer Representative Committee" (from Age Concern to Which?), the "Scheme Management and Trustee Advisory Committee" (the pensions professional bodies) and the "Employer Representative Committee" (CBI, etc.).

But where is the "Public Interest Committee" or the "Other Stakeholders Committee"? Or even just the "Investment Impact Committee"? For example, although Personal Accounts will become an investor with global impact, there is no representation for the Climate Group, the Ethical Trading Initiative or indeed for the investor relations functions of the businesses whose shares Personal Accounts will hold to pay our future pensions. Some mistake surely?

From Crisis to Recovery: Reshaping Capital Markets

I have contributed a chapter on sustainable capital markets to a new Green Alliance pamphlet “From crisis to recovery: New economic policies for a low carbon future".

In it, I describe our policy recommendations to tackle the underlying issues that drive today’s dysfunctional investment approaches. We think this needs not just better regulation but also improvements to leadership, cultural norms and external scrutiny.

Specific proposals include:

• Pension funds and other major investment owners should be required to report on how they implement their sustainable investment policies
• Publicly owned investment holders should be required to be responsible owners and report annually on their progress
• Greater transparency should be demanded of both companies and institutional investors
• The objectives of financial regulators should enable them to take greater account of the wider public interest, including sustainable development.

It would be great to have your comments on these suggestions and the rest of the chapter.

Walker Review consultation document published

Recommendations from the Walker Review have been published in a consultation document today.

UKSIF will be responding over the summer to this and to last week’s HM Treasury report “Reforming financial markets”.

Do please respond to these too. Deadlines are 30 September (HMT) and 1 October (Walker).

"Investing in a Sustainable Recovery" Initiative

Details about the “Investing in a Sustainable Recovery” initiative are now available on the UKSIF web site.

There is a short description and notes from its first two roundtables. The third roundtable in May focused on “green bonds” and discussed a paper on “climate bonds” by Sean Kidney and colleagues.

The Initiative is convened by Tomorrow’s Company, UKSIF and the HSBC Climate Change Centre of Excellence, and supported by The London Accord and Network for Sustainable Financial Markets. Participation is by invitation only to institutional investors in fixed income and other asset classes, and relevant policy influencers.

Game-changing Lessons from Microfinance

The Microfinance Club UK event I attended last night suggested to me a number of lessons and parallels for financing a sustainable recovery in the UK that we can draw from microfinance.

The event was the launch of a new book by Elizabeth Rhyne of Accion, 'Microfinance for Bankers and Investors'. Her key message is that where banks are sluggish and fail to innovate, others move in. She provides a number of case studies of retailers and technology providers who have been such game-changers. For example Vodaphone in Kenya and the Mexican electronic retailer, Grupo Elektra which in five years has attracted 8 million credit clients to its in-store banking business.

The event also discussed the impact of the financial crisis and the new report by CSFI which identifies that the greatest risks to microfinance stem from the current crisis; bad loans, shortage of liquidity etc.

Elizabeth Rhyne argued that microfinance was also suffering because stability preservation had taken precedence over the access agenda in public policy responses, with consumer protection not being taken seriously.

This concern has driven innovation, with a number of microfinance institutions coming together to launch The Campaign for Client Protection, to ensure that financial providers take concrete steps to protect low income customers from harmful products and to ensure they are treated fairly.

Practical Regulation for "Desirable Social Objectives"

Over the last few weeks, UKSIF has been responding to consultations on financial reform and on information disclosure by pension funds.

I notice that, speaking in China recently, FSA Chairman Adair Turner said “We need above all to see markets not as ends in themselves, but as tools to achieve desirable social objectives. Financial markets have major and important roles to play in ensuring the allocation of capital to most efficient uses. But they will not operate perfectly and smoothly without effective regulation and oversight.”

The UKSIF web site now contains our response to the Turner Review, our recommendations to the 2009 Review of the Combined Code, and our comments on the Office of Fair Trading’s Financial Services Strategy.

We also responded to the DWP “Review of Disclosure of Information Requirements applying to Occupational, Personal and Stakeholder Pension Schemes” to call for government action to require greater transparency by pension schemes about responsible investment policies and their implementation. This built on the low level of transparency identified in our “Responsible Business: Sustainable Pension" 2009 report published earlier this month.

Our consultation responses have all focused on practical regulation and oversight measures to achieve desirable objectives for the real economy, society and the environment.