Society simply could not exist without financial services. From
buying a house to insuring your car or saving for a pension,
financial services touch every aspect of our lives.
To this end the importance of the City as a national asset can
not be overestimated, as it contributes an estimated £31bn to
Europe’s GDP, directly employs almost 320,000 people, and
indirectly employs hundreds of thousands more.
However, as recent events have demonstrated markets are a
product of society and must reflect society’s concerns. To this end
there is a growing realisation that alongside profit, financial
services should consider how to maximise benefits to society over
the long term.
The City of London has long understood that financial services
have an important role to play in securing sustainable development.
Over the last decade the City has gradually become the worlds
leading centre for finance and insurance for sustainable
development. Click on these links to find out more about
carbon trading, the London Accord
and socially responsible
investment.
In 2002, the City of London launched the “London Principles of
Sustainable Finance” at the Johannesburg Earth Summit. Personally
supported by the Prime Minister, this piece of research formed the
UK financial services sector's response to the summit on behalf of
the Government.
Further information on the London
Principles Project.
In 2005 comprehensive
review of the programme was conducted, resulting in two
workstreams. These focussed on the low carbon economy, and on
access to finance for disadvantaged communities.
Research on the low carbon economy
(777kb)
Research on pro-poor finance: the New Horizons
Report (712 kb)
The London
Accord
In 2007 the City of London Corporation was approached by Gresham
College with a proposal to re-focus the London Principles. The
concept was a simple one; to use the considerable research and
analytical capability of the financial services sector to finding
solutions to sustainability problems. The London Accord was
born.
The London Accord is a co-operative research project intended to
share the thinking and analytical approaches that will direct
investment to the best opportunities for investment in
sustainability solutions.
This shared consensus will provide greater clarity, better
measurement and management, so that ultimately sustainability
challenges can be met efficiently through economics.
The outcomes include:
- better insight into the approaches and methodologies used by
leading research teams,
- better measurement of the link between investment, financial
and 'carbon' returns,
- better understanding of the role of public policy, and
- better understanding of the trends and importance of consumer
preferences
The initial papers forming the core of the London Accord
focussed exclusively on climate change.
However the project is ongoing and since its launch additional
papers have been added covering topics as diverse as Genetically
Modified Organisms, Food and Corporate Social Responsibility.
The London Accord is an invaluable resource for policy makers,
NGOs and investors who are seeking to harness the power of the
market in seeking solutions to global issues. The Accord continues
to grow as more organisations donate research free of charge, and
with in excess of 45 research papers available for download it is
already the largest resource of its type in the world. Visit
www.london-accord.co.uk
for more information.
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.
For further information on socially responsible investment visit
the UK Sustainable
Investment and Finance Association website.
July 2011 saw the publication of the pioneering research
report 'Investor Perspectives on Social Enterprise Financing.
The report examines the factors influencing the attractiveness
of social finance investment products to potential investors as
well as providing recommendations into how investment vehicles can
be structured to meet investor needs.
Download Investor Perspectives on Social Enterprise Financing
(3.9mb)
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” examined the role of the UK financial services sector
in promoting sustainable development. The report contained a
compendium of best practice, drew out lessons for future innovation
and proposed mechanisms to ensure continual progress.
With respect to the last point, one of the mechanisms explored
was a set of seven “London Principles”, which proposed conditions
under which financial market mechanisms can best promote the
financing of sustainable development.
The seven principles
- Provide access to finance and risk management products for
investment, innovation and the most efficient use of existing
assets
- Promote transparency and high standards of corporate governance
in themselves and in the activities being financed
- Reflect the cost of environmental and social risks in the
pricing of financial and risk management products
- Exercise equity ownership to promote efficient and sustainable
asset use and risk management
- Provide access to finance for the development of
environmentally beneficial technologies
- Exercise equity ownership to promote high standards of
corporate social responsibility by the activities being
financed
- Provide access to market finance and risk management products
to businesses in disadvantaged communities and developing
economies.
The London Principles report is available to
download here (867kb)
Who supported this initiative?
A broad range of organisations 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
Further work
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 also supported 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 legacy
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
Three years on from Johannesburg (510kb)
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.
For further information please contact
Simon Mills at
sustainability@cityoflondon.gov.uk
The Sustainable Development Unit, City of London