UK must grasp the nettle on sustainable finance and investment

UKSIF, the sustainable investment and finance association for the UK, holds its 20th anniversary reception at the UK Parliament today, and although sustainable finance and investment has made huge advances in the last two decades, we must move further and faster to overcome the tough challenges of the next 20 years. Since 1991, responsible investment and sustainable finance has moved from the margins to the mainstream. Today, over £6.5 trillion in responsibly managed assets is tracked by sustainable investment and finance associations around the world, with around 14 per cent of that total managed in the UK. The UK also has more signatories to the UN-backed Principles for Responsible Investment than any country except the US and can rightly claim its place as a global hub for sustainable finance expertise. Only last week we had a powerful illustration of the mainstream nature of responsible investment in the UK. In a parliamentary debate on phone hacking allegations at the News of the World newspaper, politicians from both of the two biggest parties called on shareholders to use their influence to change behaviour at the parent company News Corporation. Regardless of the allegations themselves, these calls show how the idea that investors must act as responsible stewards of the companies they own has become embedded into the national psyche.The UK has also been a leader in establishing mechanisms to drive sustainable finance forward in the last 20 years. For example in 2000, the introduction of regulation to require occupational pensions funds to disclose their policies on ESG issues was a world first and has now been adopted in ten countries worldwide including Canada, Germany, Australia and Norway. Similarly, the proposed Green Investment Bank looks set to be a catalyst for similar undertakings around the world. UKSIF’s own achievements include encouragement for high quality sell-side research through the Extel SRI and Sustainability Awards, now in their ninth year, and creating National Ethical Investment Week – the world’s first annual promotional week for sustainable investment and finance. But the truth is that despite this considerable progress, global investment and finance is at a crossroads, and both policy-makers and financial institutions must more explicitly embrace ESG factors if the UK is to retain its position as a leading financial centre. By 2031, we will all be facing what Chief Scientific Adviser to the UK government Sir John Beddington has called the “perfect storm”. The world must address rising demand for food, energy and water, while mitigating and adapting to climate change. This will have major economic as well as social and environmental consequences. It poses an even greater
risk to investment portfolios than the market turmoil which the collapse of Lehman Brothers triggered in 2008. The UK must grasp the nettle and show global leadership on sustainable investment and finance if it is to help calm the storm and stay ahead of the competition. For that reason, UKSIF is using its anniversary to issue a call to action to the UK finance sector and its stakeholders. All actors in the investment chain need to play their part. Asset owners must demand responsible ownership and investment, and be transparent to beneficiaries and society. Asset managers must respond with positive innovations. Regulators and government, including those bodies set to succeed the FSA, must have the expertise to understand, assess and manage sustainability risks. Also, service providers, trade bodies and civil society have important roles to play. This is a huge opportunity for the UK’s banking and investment institutions to take first mover advantage and build on the world-leading cluster of sustainable investment and finance expertise that has developed here over the last twenty years. In the face of growing global interest in sustainable investment and finance, there is a stark choice between investing in leadership and being left behind.Last month’s announcement of the Kay Review is an encouraging first step and we hope it will stimulate practical evidence and wide debate on how capital markets can become more effective in enabling the long-term thinking and capital allocation needed to meet tomorrow’s challenges. As it has done over the last two decades, UKSIF will play an active role in driving change by facilitating a strong network to help our members develop their capacity and compete more effectively, by convening them to understand, educate and influence their stakeholders and by providing a collective voice on public policy measures and sustainable finance initiatives with global impact.
We are grateful to Aviva Investors, Citi Microfinance and Investment Research, The Co-operative Financial Services, FTSE Group, Henderson Global Investors, Jupiter Asset Management, MSCI, Newton Investment Management, Pictet Asset Management, RCM, Sarasin & Partners and Standard Life Investments for supporting our anniversary. Working with them and our other 250 plus members, UKSIF looks forward to the opportunities and challenges ahead. The new report “Taking Responsibility: Achieving Resilience”, marking the 20th anniversary of UKSIF is available online at: Link

Penny Shepherd, MBE, is Chief Executive at UKSIF