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?

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.

Robustness and Revival

Key points in the article “Revival requires a broad spread of demand” in last Monday’s Financial Times might have come from a member of the Network for Sustainable Financial Markets, the Marathon Club or indeed UKSIF. Instead, the piece was by Kemal Derviş, until recently head of UNDP and a former Turkish government minister.

The points were:

“A central problem in many markets has been short-termism and herd behaviour.”

“Part of the fundamental rebalancing will have to involve a regulatory framework and corporate governance that ties rewards to longer-term performance.”

“The crisis should teach us … not to underestimate the potential damage from events deemed unlikely or hard to predict. The costs of the financial crisis may pale in comparison to some of the long-term risks attached to irreversible global climate change, pandemic diseases and nuclear weapons proliferation.”

“A crisis can also be an opportunity for fundamental improvement. If this one teaches us that robustness is as important as efficiency in human affairs, it will have been such an opportunity.”

Yes, Yes, Yes and Yes!