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.

UKSIF-Oxfam Meeting with Financial Secretary: Common Priorities for Financial Reform

A joint delegation of responsible investors and leading NGOs met recently with Financial Secretary Stephen Timms MP. It was led by Paul Abberley, Chief Executive of Aviva Investors London and convened by Oxfam GB and UKSIF.

The delegation demonstrated how a common agenda is emerging between responsible investment leaders and major NGOs on priorities for financial reform to achieve a sustainable recovery. We discussed priorities for both UK and International/G20 action.

Our list of priorities is now available, as “Financial Reform for a Sustainable Recovery: NGO and Responsible Investor Priorities”, on the UKSIF web site.

Inspiration not just Regulation: FT Sustainable Banking Award winners

Congratulations to Triodos Bank, crowned as “Sustainable Bank of the Year 2009” at last night’s FT Sustainable Banking Awards, and to runner up Standard Chartered.

As the deadline for comments on the Turner Review approaches, it is good to have both as inspirations for the future of banking and – to declare an interest - as UKSIF members.

Some of us remember the early days of Mercury Provident (founded 1974), the tiny UK industrial and provident society that merged in 1995 with its Dutch sibling (founded 1980) to bring the Triodos Bank name to the UK. Its early supporters will feel vindicated by this proof that new entrants can indeed establish a different vision of banking.

Equally, Standard Chartered, founded 1853 and 1863 to meet British Empire banking needs, shows that incumbents can adapt to today’s new challenges; while the candidates and winners for “Emerging Markets Sustainable Bank of the Year 2009” and the other awards together give a powerful glimpse into a positive future for banking across the globe.

But my fear is that well-intentioned financial reform may inadvertently prevent the emergence of the 21st Century’s equivalents to Mercury Provident. Today’s challenge for financial regulators is to support innovation and inspiration as well as controlling the dysfunctional.

Photographs from the event (available here) include former UKSIF Vice Chair Charles Middleton accepting the award on behalf of Triodos Bank and the table I shared with fellow guests from emerging market winners Itaú Unibanco (Brazil) and Industrial Bank (China) and others.