Charles Anderson, the recently appointed head of the UN Environment Programme Finance Initiative (UNEP FI), the membership organisation of over 230 banks, insurers and fund managers, has been on a sustainable finance mission for much of his professional life, despite what looks like a more traditional path. Over a 37-year career in financial services, Anderson spent 21 of those in banking, mainly in the UK and US, before setting up life insurance businesses and joint ventures in Asia, and finally taking up the CEO post at Sovereign, New Zealand’s largest life and health insurance business. He describes himself as ‘implementation’ driven. About 25 years ago, Anderson says he first took the idea of setting up a green bank to his then employer: “At that time it got a polite, but somewhat ‘tree-hugger’ response. I believed the consumer trends were quite clear, so why wouldn’t you promote a set of green financial products?” A quarter century after his first green finance push, he notes that trust in financial institutions is at an all time low after the crisis, and believes sustainability is part of the answer: “Financial services has become more complex and opaque and the public don’t understand it because of a lack of transparency. As a result, they have become cynical and sceptical. I think that a sustainable, transparent thought process for financial services companies – including what they don’t do – is a healthy one for the world we are in today. Where companies are already doing that it’s healthy for brand and reputation.Equally, greenwashing has the opposite effect because I think it gets quickly exposed these days. It’s hard for companies to regain credentials when they’ve been damaged. In addition, NGOs now increasingly recognize that finance is an area they need to influence. In Australia in the last couple of years a global bank was hit by an NGO/consumer campaign over coal financing. Another global bank recently said it wasn’t going to finance carbon intensive fossil fuels. So there is a lot happening.”
Anderson had the opportunity to put his sustainable finance ideas into practice when he was headhunted to take up the post of CEO of Sovereign: “I was determined to make Sovereign the most sustainable life business in the world…or something very grand like that. Everyone looked at me like I was a bit mad! Firstly, they had no idea what that actually meant, which was a fair call actually.” The move to New Zealand was where Anderson’s passion for outdoor activities – notably fly fishing and triathlons – moulded with his desire to build a successful, sustainable business: “I’d always been interested in the intersection between finance and sustainability. I think it comes from observation. The world is running up against its constraints in a much more recognizable way than it was 30 or 40 years ago. The pressure on populations and natural resources is evident. And if you travel around the world you see things that were once very beautiful now looking very tired and polluted, which in turn causes a series of knock
on effects socially and economically. Having been in the financial sector, and with an outdoors social life, I have a very simple view: all commercial activity has an impact. It seems to me that if you understand that there are planetary boundaries and that there has been a deterioration on the ecosystems that support us, then you have to ask: who’s having that impact? If it’s commercial activity, then you have to look at the way that is financed, through debt, equity, loan financing, etc.” Anderson believes the opposite perspective has a serious ethical question mark against it: “It basically says: I’m prepared to take part in a commercial activity where I am wilfully unconcerned about the impact on the world in which it takes place, but it’s OK because I’m making money for my shareholders. That’s not a sustainable business model, and with hindsight it tends not be in one way or another.”
Joining UNEP FI, he says, brings the challenge of developing the thinking in the financial services industry that can support positive impacts, manage negative impacts and promote a sustainable and inclusive economy: “Being a credible financial voice in talking about the environmental science or the social impact of the growing wealth/poverty gap, and to keep prompting the economics discussions around these issues with government and business is vital.”
It’s a process not dissimilar to his arrival at Sovereign, and where the UNEP FI link was first made. Anderson says that when he asked senior staff at the insurer aboutexisting sustainability initiatives, the finance director dug deep into a filing cabinet and pulled out its original UNEP FI membership form from 20-years earlier, which had long since lapsed: “I set about reviving our membership and using that as a tool with staff on sustainability. I recall asking if staff knew where Sovereign’s assets were invested, and the answer was broadly ‘no’ outside of the people who actually ran the money.”
Sovereign then went through the process of examining how its long-term life assets could be run sustainably. Anderson points out that the longest paid policy on its books had been paying its premium for 92 years: “Just think about what the world was like when that policy was taken out and what it might like in 92 years time. If you don’t have a long term perspective as a life insurer then you won’t be around to meet your engagements.” He says the boundary lines on ethical issues are not easy to draw, but are essential in showing that a company has thought deeply and can be transparent on its position to policyholders, shareholders and stakeholders. The other key question, he says, was whether sustainability could be compatible with good returns: “We went through a series of discussions with the chief actuary and chief risk officer. Their view was that we should do nothing that wasn’t in the interest of the policy holder. Finally, we arrived at a position where the tracking error, volatility and risk/reward profile of our portfolios was OK by
moving into a passive strategy with carbon-lite investments and a strong ESG overlay.” Officialising its ESG work, Sovereign joined the PRI and became a signatory to the Natural Capital Declaration. Anderson was also involved in the early drafting the Principles for Sustainable Insurance (PSI), a UNEP FI initiative, which recently celebrated its second anniversary.
In line with his implementation streak, Anderson says that when he arrived at UNEP FI, he asked staff and members what were the top issues the organisation could move the sustainability dial on, especially given resources. The organisation has a small staff of 20, mostly in Geneva, but with a broad remit covering the financial services industry globally. Broadly, Anderson says the decision was taken to focus on a couple of macro issues: the green economy and fair development. “On the latter, the developing world is increasingly embracing sustainability as a way to grow their economies, not ‘instead of’, and UNEP FI can support those dialogues with the finance sector in those countries. On the former, each IPCC report underlines the pace of climate change, so we need to look at where we can focus on particular topics that can make a real difference to lowering C02 emissions.” To this end, it has already kicked off major work on energy efficiency in property assets and the potential for investors. Another very specific issue, Anderson says, is methane capture at the well-head in oil and gas production: “There are a finite number of players in the industry that can have a huge impact, and those companies have a well-known investor base. It’s about dialogue, persuasion and encouragement. On specific issues like this we can really get an action coalition and put these motions tocompanies.” Such targeted engagement is part of a broader lobbying strategy by UNEP FI members on sustainability, which has fed into discussions with the European Commission over the last year to unlock green financing and review the policy agenda on tax, regulation and subsidy for the brown economy.
It’s about dialogue, persuasion and encouragement.
On green financing, UNEP FI is supporting the UNEP-backed Inquiry into the Design of a Sustainable Financial System, which runs for 18 months to mid-2015 and aims to guide policy makers and financial market actors on systemic problems that are causing green financing blockages in the economy. For example, he says UNEP FI members convened a meeting with a number of regulators to suggest where rules could evolve to become more green: “We suggested that because regulators ask companies to stress test their balance sheets all the time, there could also be circumstances where stress testing companies them against a set of environmental criteria, for example, would be useful.” But, says Anderson, it’s important the Inquiry is free to come out with a challenging response to the important question of what a sustainable regulatory, monetary and economic system should look like: “We don’t want any suggestion that it has been influenced by the financial services industry, even if we are advocating our members to inform and input their thoughts where possible.”