Progress against original project aims
The London Principles project had three broad aims within
the overarching objective of promoting the financial sector’s
contribution to sustainable development. Reviewing progress three
years on presents a mixed picture, whilst the project has been good
at dissemination, particularly to international audiences, it has
been less effective in generating continued innovation. Whilst any
partnership-based initiative of this kind must be realistic about
the complex drivers and multiple actors operating in the financial
services sector, there are several lessons for the future emerging
from this review.
- The London Principles is not designed as a code of conduct and
cannot drive change in isolation. Any initiative must retain the
flexibility afforded by promoting high-level principles but has to
supplement them with hands-on operational guidance for
practitioners. The next phase of the project will focus on
identifying and disseminating practical, viable, scaleable and
replicable solutions in specific sustainable finance areas.
- A wide range of other potential actions will also be examined
including indicators to measure progress, a working archive of best
practice and other opportunities to deepen dialogue and learning
networks between experts from the financial, policy and civil
society sectors.
General trends shaping the landscape
This review examines a broad range of trends that are affecting
the wider operating environment of the financial services sector.
This is a very brief overview of a diverse set of different factors
that are all contributing to creating an enabling framework to
advance sustainable finance.
These include issues like carbon trading in the EU, legislative
changes and a whole raft of voluntary multi-stakeholder initiatives
like the Equator Principles, which have the potential to
significantly alter global practice in project finance or the
Enhanced Analytics Initiative, which provides a clear market signal
to sell side research providers to integrate extra-financial issues
into company research.
Signatory case studies
Some leading institutions have formally signed up to the London
Principles, agreeing to promote them where relevant to the product
or geographical scope of their business. 11 short case studies
drawn from these signatories, which demonstrate progress against
one or more of the Principles in the last three years, are
presented to offer concrete examples of sustainable finance
innovation in action.
Structural impediments to progress
Although this review finds good progress in many aspects of
sustainable finance since 2002, it is clear that there is still a
long way to go before the financial system as a whole promotes
sustainable development. The report identifies some powerful
obstacles, using previous research that draws out some of the
structural impediments embedded in the global financial system.
These include a wide range of issues like lack of capacity within
institutions to more fundamental concerns like short-term
investment horizons or policy inconsistency from government.
Recommendations for progress
The report provides some top-level guidance for key stakeholders
in sustainable finance. It emphasises the role of
solutions-oriented approaches that are consistent with protecting
shareholder value and utilise knowledge partnerships that have
effective industry buy-in.
- Recommendations for financial institutions
include addressing the critical need to build the capacity of
financial professionals to address sustainability issues. This will
cover training, enhancing data sets and valuation tools as well as
embedding work cultures that allow analysts and others to look
beyond existing processes. Other recommendations include greater
innovation in product development, more use of partnerships and
increased transparency.
- Recommendations for government cover a wide
range of issues from the specific – assessing the effectiveness of
institutional investor decision-making and incorporation of
sustainability issues into investment principles – to the more
general such as the need to ensure policy consistency, promote
pro-poor enterprise solutions and support voluntary
initiatives.
London Principles Phase II
Building upon the findings of this review, the next phase of the
project will focus on catalysing action on two of the seven London
Principles.
Principle 5: Provide access to finance for the
development of environmentally beneficial technologies
Principle 7: Provide access to market finance and risk
management products to businesses in disadvantaged communities and
developing economies.
In contrast to many of the other principles, there seems to be
less action on these two financial flows that directly affect
crucial sustainable development issues reflecting the role of
private finance in poverty eradication and the development of clean
technologies - issues that are firmly on the policy radar due to
the UK Government’s international agenda being pursued under the UK
Presidency of the G8 and the EU during 2005. Despite the recent G8
debt deals, many argue that a real revolution will only happen when
untapped entrepreneurship is allowed to flourish in the developing
world. One of the most powerful barriers to this is the lack of
access to commercial finance. Similarly, innovative technologies
need financial support if they are to develop and come into the
mainstream.
With the support of the Corporation of London and Gresham
College as core partners for Phase II, Forum For The Future will
undertake a programme of work aimed at stimulating activity in
these key areas through targeted interventions. The financial
sector has the potential to make a powerful contribution to
urgently needed solutions, not as philanthropic activity, but in a
way that meets commercial objectives. The next stage of the London
Principles Project will aim to play a role in helping the sector
realise this potential.