Socially Responsible Investment
The use of investment policy as a tool for the expression of
personal or political ideas dates back a long time. There is some
evidence that the campaign to abolish slavery, spearheaded by
William Wilberforce in the early 19th Century, used financial
leverage as one of the means to achieve their ends. In some ways
this pattern was repeated in the late 1960’s when in the US
shareholders questioned the morality of Dow Chemicals involvement
in the manufacture of agent orange and napalm in the Vietnam
War.
In more recent years individual investors have been able to
invest in funds which reflect a variety of personal ideologies,
from the protection of the environment, to animal rights and child
labour.
The growth of activity in the field of sustainable finance has
been spurred by three factors
- Companies are increasingly becoming interested in the field of
Corporate Social Responsibility as a way of gaining competitive
advantage
- There is increased awareness of the threat that Climate Change
pose to the environment. This is of particular concern to the
insurance industry who stand to lose a great deal of money from
increased claims due to extreme weather events and flooding.
- The adoption of the of the Statement of Investment Priniciples
regulations as part of the 2000 pensions act, and the Operating and
Financial Review regulations have made fund managers more aware of
the sustainability implications of investment decision.
Many large institutional investors are now incorporating SRI
into their investment strategies. This is especially true in the
area of Climate Change where organisations such as the
Institutional Investors Group on Climate Change promote better
understanding of the implications of climate change amongst our
members and other institutional investors.
Click here to
visit to the IIGCC website
For further information on socially responsible investment visit
the UK Social
Invesment Forum’s website.
What is the London Principles
Project?
The London Principles Project, commissioned by the City of
London from Forum for the Future’s “Centre for Sustainable
Investment” examines the role of the UK financial services sector
in promoting sustainable development. The report contains a
compendium of best practice, draws out lessons for future
innovation and proposes mechanisms to ensure continual progress.
With respect to the last point, one of the mechanisms explored is a
set of seven “London Principles”, which propose conditions
under which financial market mechanisms can best promote the
financing of sustainable development.
The Seven Principles
Principle 1: Provide access to finance and risk management
products for investment, innovation and the most efficient use of
existing assets
Principle 2: Promote transparency and high standards of
corporate governance in themselves and in the activities being
financed
Principle 3: Reflect the cost of environmental and social risks
in the pricing of financial and risk management products
Principle 4: Exercise equity ownership to promote efficient and
sustainable asset use and risk management
Principle 5: Provide access to finance for the development of
environmentally beneficial technologies
Principle 6: Exercise equity ownership to promote high standards
of corporate social responsibility by the activities being
financed
Principle 7: Provide access to market finance and risk
management products to businesses in disadvantaged communities and
developing economies.
Who is supporting this initiative?
A broad range of organisations have pledged their support,
including
- ABF Capital Management
- Henderson Global Investors
- Allianz Dresdner Asset Management
- Jupiter Asset Management
- Association of British Insurers
- Morley Fund Management
- Apax Partners
- Quadris Environmental Investments Ltd
- CDC Capital
- SG Asset Management
- Co-operative Bank
- Storebrand
- Co-operative Insurance Society
- UK Social Investment Forum
- Friends Ivory & Sime
- Universities Superannuation Scheme
- Friends Provident
- Impax Group plc
Work in Progress
In May of 2003, the City of London led an extensive consultation
programme, with mainstream financial institutions, campaigning NGO
groups and public institutions such as the FSA and HM Treasury.
This process which culminated in a major event at the Treasury
explored the opportunities and barriers to applying the London
Principles to financial systems.
The City of London has also been supporting the London
Principles through a series of events designed to raise awareness
of finance and insurance for sustainable development amongst
practitioners from the financial services industry in the UK and
beyond.
The next stage
It is important to remember that the London Principles are a
work in progress. To this end the City of London signed a
memorandum of understanding with UNEP to promote the Principles on
the international stage, and we are currently exploring the options
for the establishment of a secretariat, which can build on this
work, look at methods of reporting against the Principles, explore
new markets and most importantly promote UK expertise in this
market overseas.
The City in partnership with Forum for the Future and Gresham
College conducted a review of progress in implementing the
Principles, which was published in October 2005. This review
- examined the progress which has been made on implementing the
principles since Johannesburg
- developed further case-studies from signatory institutions
- explored the current landscape in sustainable finance
- and mapped a way forward for the next phase
The review is available to download from the link
below
Ongoing work
The review identified two key areas where further work was
required- the provision of finance for eco-innovation, and access
to finance for disadvantaged communities.
The final research report on the financing of eco-innovation is
available to download below
Work on the provision of access to finance for disadvantaged
communities is on-going, and further information will be available
for download shortly.
For further information please contact
Simon
Mills
The Sustainable Development Unit, City of London
Vedant
Walia
Forum for the Future