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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.

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.

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.

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.

Values are back...

...and don’t just take my word for it.

Stephen Haddrill of the ABI highlighted this to investors.

An appeal to values is heard in the wider debates about the crisis and the way forward. Prime Ministers Brown and Rudd debated, in the words of the former, ‘a world of shared global rules founded on shared global values’ on the eve of the London Summit.

The disjuncture caused by the current crisis has forced many to reflect critically on the values which underpin the system and form the basis of trust.

Values clearly matter – our judgements and decisions on how to act and live are based on them. Our economic and social systems require them as a foundation stone for building trust and confidence.

These themes are discussed in an excellent piece by Amartya Sen, ‘Capitalism Beyond the Crisis’ in which he challenges the proponents of a ‘New Capitalism’ such as Sarkozy and demands a new understanding of older ideas. He invokes the work of Adam Smith to explain how the crisis is partly generated by an overestimation of the wisdom of market processes and exacerbated by anxiety and lack of trust (see also ‘Adam Smith’s market never stood alone’).

I am hopeful that we can, in Sen’s words, ‘go beyond short-term solutions and contribute to producing a more decent economic world’ with greater regard given to the long term social and environmental impacts of our action.

Did the London Summit do enough to deliver a sustainable recovery?

NGO responses vary. Oxfam's Duncan Green is “unusually optimistic” but Friends of the Earth are not. The ‘Put People First’ coalition reflects that mix of views.

Personally, I homed in on paragraphs 21 and 27 of the G20 communiqué.

First, Paragraph 27. It reads “We agreed to make the best possible use of investment funded by fiscal stimulus programmes towards the goal of building a resilient, sustainable, and green recovery. We will make the transition towards clean, innovative, resource efficient, low carbon technologies and infrastructure. We encourage the MDBs to contribute fully to the achievement of this objective. We will identify and work together on further measures to build sustainable economies.”.

While short on specifics, this sets a collective goal against which the G20 can be judged when it meets again later in the year. It gives a good basis for investors to engage further with governments and development banks in the coming weeks.

Paragraph 21 is more intriguing. It says “..we agreed on the desirability of a new global consensus on the key values and principles that will promote sustainable economic activity. We support discussion on such a charter for sustainable economic activity with a view to further discussion at our next meeting. We take note of the work started in other fora in this regard and look forward to further discussion of this charter for sustainable economic activity.”

Could this be the start of a genuine debate?

Is it the first step of a global transition from GDP towards new measures of prosperity? And towards the new approach to incentives, rules and policies that would follow this shift?

So, overall, I would say – “the jury’s still out”. The direction of travel is positive, but there is still much to do. Policy makers need to deliver not just an effective global banking system but also a major economic transition, including sustainable capital markets for long-term responsible investment. The G20 has only started the process of delivering a sustainable recovery and, by their next summit later in the year, further major milestones need to have been reached.

Investors call for 'green' focus in economic recovery measures

A group of major investors, representing over £400bn in funds under management, has today written to Gordon Brown, as Chair of the London Summit, supporting a strong ‘green’ element in programmes of fiscal stimulus undertaken by government.

The initiative was convened by UKSIF and Tomorrow’s Company.

UKSIF joins with global partners to demand green action from G20

UKSIF has joined with our sister organisations across the globe to send a message to world leaders meeting in London tomorrow to address the global financial and economic crisis.

Our statement outlines measures that world leaders can take to drive the transition to a low-carbon, resource efficient and socially sustainable economy.

This is the first time since the Earth Summit in 1992 that the global network of sustainable and responsible finance organisations has issued a collective statement.

Can we transform our economy from a forward-moving aeroplane to a hovering helicopter without crashing?

This question is from a series of articles about the troubles that lie ahead for the global economy published in the New Scientist last October. The graphic image it conjures up seems to capture the challenge humanity faces this century. Avoiding a crash will be tricky!

The New Scientist elegantly shows that despite technological advances we’re rapidly overshooting our planet’s carrying capacity: the average person is still consuming more of the planet’s resources every decade and we are currently increasing our global population by over 200,000 people a day. Ecologists know that if this continues our population will collapse.

However, the New Scientist offers its readers an optimistic scenario for 2020 based on a "steady-state" economy that is thriving within ecological and political limits set by science and society. There are clues in the scenario about how we’ll get from here to there, but not about how the social and political will to change developed so quickly.

Will the leaders of the G20 nations focus on patching up and redesigning the aeroplane? Or will they take the opportunity the current crisis provides and create genuinely sustainable recovery? As Prince Charles said recently "any difficulties which the world faces today will be as nothing compared to the full effects which global warming will have on the world-wide economy".

Building a Resilient Financial Services Sector – Think Small Too?

“Think Small First” is the rallying cry for the European Small Business Act agreed by member states in December 2008.

But could this be the message for every sector except financial services? If so, an opportunity to build a resilient financial services sector will be lost.

In the same way that SMEs are central to innovation in other sectors, we need small and innovative financial services providers as part of the mix to deliver resilient and effective allocation of capital for sustainable development. So financial services regulation must be appropriate for SMEs delivering sustainable financial services as well as for large and systemically important players.

Ethical banks have been one of the success stories of the current recession. In the last few years, new financial intermediaries that channel venture capital to social businesses have started to grow in number.

And Zopa, Kiva and similar innovators are harnessing the power of the internet to enable people to bypass the banking sector altogether.

Of course, large financial institutions need to be well regulated and how this is done is key to the efficient allocation of capital for tomorrow’s economy. And large businesses in other sectors are likely to move into financial services over the coming years and regulation must enable this too. After all, mobile phone companies already provide payment services in parts of Africa.

But some of the innovation and creativity in financial services for sustainable development will come from new and small providers. Civil society organisations are already debating the opportunities for new financial services mutuals – identified as a “burning issue” by the Carnegie UK Trust’s Inquiry into the future of civil society or see Rosamund McCarthy’s article in Third Sector magazine this week. We may see a new wave of innovation replacing the consolidation of recent years if regulation permits this.

At first glance, the Turner report seems to recognise this – distinguishing between measures for systemically important firms and for others. But the devil may be in the detail.

“Think Small First” may be too much of a challenge for the emerging debate on the regulation of financial services. But “Think Small Too” is not – it is essential.