"Forgive me father, for I have measure" | Leadership and Purpose | Ethical Finance Global 2022

"Forgive me father, for I have measured"

An eclectic conversation between Simon Thompson of The Chartered Banker Institute, Sarah Birrell Ivory of University of Edinburgh Business School and Will Goodhart of CFA UK saw us close out a wonderful day of debate and discussion at Ethical Finance Global 2022.

With no moderator to keep the peace, a freewheeling and entertaining conversation between the trio asked how to translate the day's good intentions into action.

They pondered whether the ceaseless call for better data is a sin against real activity, how professional education and professional values can produce socially and environmentally aware employees, the need for leaders to listen, and everything in between.

Watch now at https://youtu.be/D5u4gvpFOVY.


Geopolitical Risk and Ethical Finance | Ethical Finance Global 2022

What does the war in Ukraine mean for energy policy? Where does China fit in on sustainable finance efforts?

In an excellent first panel from Ethical Finance Global 2022, with Dame Susan Rice FSCB, Agi Veres, UNDP, Stephen Hibbert, ING and Leon Kamhi, Federated Hermes engaged in a wide-ranging discussion.

They discussed China's progress on sustainability and sustainable finance, and its vital role in delivering green infrastructure at the scale needed for the world's net zero transition.

Another topic was the energy crisis, and the tensions inherent in balancing environmental and social sustainability, the differing rates of inflation in society and whether the rise in prices brought about by the war in Ukraine justify rolling back commitments made on fossil fuel financing; according to ING, they do not.

Finally, participants discussed the need for companies to protect their lowest paid workers from the crisis, and the role that younger eployees, who are more purpose-oriented, have had on transforming their places of work.

Watch now at https://www.youtube.com/watch?v=9ru4QUM3F8k.


Achieving Net Zero | Ethical Finance Global 2022

James Wilde of Phoenix Group, Eva Cairns of abrdn and Chris Hayward of joined our Ethical Finance Global 2022 climate change panel, with David Pitt-Watson as moderator. Watch now at

The panel was focused on fielding questions from the audience, with a number of insightful contributions from those gathered. The session looked at the different initiatives present in the market, the role of metrics and their reflection of reality and the need for deep engagement with companies.

In particular, Eva remarked that "you can divest quickly with a low carbon portfolio… but you haven’t actually moved anything in the real world". A net zero portfolio can be achieved by excluding high-emission sectors, but as sectors such as cement are likely to be economically useful, this may do nothing to transition towards a clean economy as a whole.

James Wilde emphasised the need for a long-term view, and argued for greater collaboration between the constituent parts of a normally competitive sector, in order to address the climate crisis.

Closing the session, Chris Hayward issued a rousing call for politicians and financiers to shed their "short timescales", reject the ease of saying "let the millennials sort this out" and take responsibility for the crisis.

Watch now at https://www.youtube.com/watch?v=StsHWeGkcF4

 


Why Scotland is the natural home of ethical finance – Chris Tait (The Scotsman)

This article was authored by GEFI Chief Operating Officer Chris Tait, and originally appeared in The Scotsman at https://www.scotsman.com/news/opinion/columnists/why-scotland-is-the-natural-home-of-ethical-finance-chris-tait-3814486

Even with the highest increase for nearly three decades, 1.75 per cent is way below the levels recorded in the late ’90s and the early to mid-noughties.

That’s why, in recent years, many who can afford to do so have turned to investment funds instead.

There is always risk attached to this, and with a recession looming and inflation rampant, it’s vitally important to remember that values can go down further. But the flip side is that you could be buying at a low.

Anyone considering putting money into funds is strongly advised to do so for at least five years, giving more time to ride out the impending bumps in the market.

But another key consideration is how to invest sustainably.

YouGov surveys for the Edinburgh-based Global Ethical Finance Initiative show that Scots consider it important that their investments reflect their views about ethical, environmental, and social issues.

Yet many people who have pensions don’t quite think of themselves as investors, when in fact they are. Others who invest their savings directly in funds perhaps don’t realise the options available to them.

People want financial services companies to take the lead and do more to help.

It’s clear that many people do not yet know how to make responsible investment decisions for themselves, which is why we need to explore awareness-raising and education ideas so that everyone is empowered to take the decisions which reflect their own ethical values.

Next month, the Ethical Finance Global 2022 summit will be held in Edinburgh, which will focus on the role of finance in today’s world, including protecting and restoring nature and biodiversity. With more than half of all Scots indicating the importance of taking ethical, environmental and social issues into account in their investments, Scotland is the natural home of ethical finance.

Edinburgh hosts a large financial sector, and this is something which the institutions must address in the wake of the COP26 climate summit.

Among those attending who will call for greater action are the head of the World Bank and the Bank of England.

Financial institutions undeniably have more to do – and that will be highlighted at the summit – but sustainable investment choices are already becoming increasingly available.

Yet standing in the way of that is a clutter of vague jargon. A fund can be called sustainable, ethical, responsible, green, stewardship, or combinations of these labels and more.

Such labels are used quite inconsistently and two funds with sustainable in their names may mean two different things.

Regulation is trying to help sort this out for the investing public, but time will tell if it will be able to.

Proponents will tell you that sustainable investing will make you more money than alternatives and the critics will tell you it will make less.

As with any investment, returns can vary, but by choosing to invest responsibly you can put your money more in line with your world view and help address the sustainability challenges the world faces.


Scots want more responsible finance: GEFI study covered in The Herald, Insider Magazine and Scottish Financial News

Our new study shows that most Scots want finance firms to take the lead and deliver more responsible investment to tackle climate change.

We commissioned YouGov to poll 1,002 adults earlier this month, finding that a quarter thought the pandemic had increased their interest in responsible investment.

54% think it is important that their current or future financial investments reflect their personal concerns about ethical, environmental and social issues, while 38% said this was not important.

Chris Tait said: “Edinburgh hosts a large financial sector, and this is something which financial institutions must address in the wake of COP26."

Read more in Insider, Scottish Financial News or p2 of today's Herald!

https://www.scottishfinancialnews.com/articles/scots-want-finance-firms-to-deliver-more-responsible-lending

https://www.insider.co.uk/news/finance-firms-must-reflect-scottish-27754002


What does the recent ClientEarth victory mean for finance?

ClientEarth recently won a landmark high-court case in which the Secretary of State for BEIS was ordered to provide more detail on the UK’s plans to achieve net zero. Martina Menegat summarises the background to the case, the decision and what this means for the finance sector below.

Some background:

  • In June 2019, the UK Parliament amended section 1 of the 2008 Climate Change Act to achieve the #netzerotarget in 2050.
  • The Secretary of State was required to break the overall target in a series of 5-year #carbonbudgets leading up to 2052. The budgets were approved by the Parliament.
  • The 2008 Act imposes a legal duty upon the Secretary of State to ensure that the target will be met.

The case:

  • The Secretary of State failed to comply with the Climate Change Act which requires preparing credible policies and proposals to enable the carbon budgets to be met. The policy package published under the Net Zero Strategy is ambitious but too vague: most notably, 1) it does not estimate exactly how policies set out for affected economic sectors will meet the carbon budgets 2) it quantifies how to achieve only 95% of the target of the first carbon budget.
  • As a result, the Secretary of State did not discharge his reporting obligation towards the Parliament – which prevents it from exercising sufficient scrutiny on his activities.

The result:

  • The High Court has ordered the Secretary of State to inform his Strategy with the quantitative effects of sectoral policies. Also, he must explain which policies the Strategy could rely on to meet 100% of its first carbon target. A new report must be submitted to the Parliament and to public scrutiny before the end of March 2023.
  • The Secretary of State was refused the appeal on the basis that has not put grounds with a real prospect of success.

What does it mean for finance?

  • The dilemma that the Secretary of State is called to solve is how to fill the gap between promises and delivery of the Net Zero Strategy. A report published by the House of Lords Industry and Regulators Committee in March already revealed that in the Strategy there was no plan in place to unlock essential investments to lead the #netzerotransition.
  • The Secretary of State will not only have to estimate how to reduce emissions across the economy, but also plan how to pump unpreceded amounts of #greeninvestments into the UK economy.
  • #Followthemoney to test the credibility of the new report. To plan a credible carbon-neutral future, we must have clear in mind how to pay for it. #Climatefinance is ready to meet the challenge.

 Congrats to ClientEarth, Friends of the Earth, Good Law Project and Joe Wheatley for their fantastic work.

 

 

 


Impact Investing: Verification under the Operating Principles for Impact Management

Embedding impact is a challenge and so is its verification. There has been limited guidance on it in the market. To address this challenge, the International Finance Corporation (IFC) launched the Operating Principles for Impact Management (the Impact Principles) in April 2019.

What are the Impact Principles?

The Impact Principles provide a framework of leading market practice for investors for the design and implementation of their impact management systems across the investment lifecycle.

Source: https://www.impactprinciples.org/

The Impact Principles are not limited to specific types of impact investors, sectors, geographies or asset types but are widely applicable and can be adopted for specific funds or vehicles or the portfolio. There are currently more than 150 signatories from more than 35 countries with AUM exceeding $450 million.

Why are the Impact Principles important?

Investors new to impact can use it as the start of their impact journey to design their systems and processes and investors that are already operating in impact can use it to benchmark their practice and look for areas of improvement.

The Impact Principles provide a structure for embedding impact. Each principle has action points and associated guidance, found here.

Becoming a signatory and undergoing verification

An organisation must first submit a Signatory Letter confirming its adoption of the Impact Principles. Within 12 months and annually thereafter, signatories must produce a Disclosure Statement in a standardised format describing their alignment with the Impact Principles. The Disclosure Statement is published on the Impact Principles as well as the signatories’ website.

Alongside the Disclosure Statement the alignment of the impact management systems and processes with the Impact Principles must be independently verified. The frequency of verification is not mandated by the Impact Principles, instead signatories must disclose the frequency of verification along with the reason for their choice.

GEFI’s verification for SIS Ventures

Principle 9 of the Impact Principles requires signatory investors to “[p]ublicly disclose alignment with the Impact Principles and provide independent verification of the alignment”.

In accordance with Principle 9, GEFI has recently completed the verification of the impact management systems and processes for SIS Ventures.  Formed in 2018, SIS Ventures is a part of the Social Investment Scotland Group, a leading Scottish impact investor. SIS Ventures’ aim is to support and grow high impact organisations through access to mission-aligned investment and it became a signatory of the Impact Principles in July 2021.

GEFI reviewed and documented SIS Ventures’ impact management systems and processes in line with each of the Impact Principles in turn. This was done through interviews with staff and review of key documentation. GEFI produced the verification statement and provided SIS Ventures with recommendations on how its impact management systems and processes could be further developed.

Next step for verification methodology

As an independent verifier, GEFI developed its own methodology to complete the verification.

Tideline, an impact investing consultant, has produced a report on investor alignment with the Impact Principles which includes verification methodology and scoring.

Verifiers developing their own verification methodology has both pros and cons. On one hand, innovation and experimentation are needed in this relatively new field. On the other, there is a risk that different methodologies may end up undermining the integrity of the verification process.

Moving forward, the Impact Principles may benefit from releasing methodology guidance and checklists for verifiers to ensure that verifications are completed in a standardised or similar way.

SIS Ventures quote

“As signatories to the Operating Principles for Impact Management we need to work with external experts to satisfy the requirements of Principle 9. The team at Global Ethical Finance Initiative were methodical and robust in their verification approach, whilst also highly professional and approachable. The team also provided us with a useful short report on how we could further improve our impact processes and this will help inform our future practice. I would confidently recommend GEFI’s services in this area to others.” Lindsay Wake, Head of Impact, Social Investment Scotland.

Please join us in Edinburgh on 6 September 2022 for our annual ethical finance summit, “ESG in a Volatile World – Profit, Purpose or Politics?


GEFI & UNDP release Guide to Help Malaysian Banks Support SMEs on Sustainability

On Wednesday 29th June 2022 United Nations Environment Programme Finance Initiative (UNEP FI), in partnership with Global Ethical Finance Initiative (GEFI), published a Guide for Malaysian Banks supporting SMEs in the Sustainable Recovery from Covid.

The Guide, launched at the inaugural Ethical Finance ASEAN 2022 summit, aims to assist Malaysian banks in helping Small to Medium-sized Enterprises (SMEs) to embed sustainability / ESG practices as business-as-usual and suggests practical steps and examples.

The findings presented in the Guide, as well as the development of a new Framework for banks, are based on the findings of a desk-based review and interviews with 13 Malaysian and international banks that took place earlier this year.

SMEs play a vital role in the Malaysian economy and, as has been the case across the globe, the research found that Malaysian SMEs have been negatively impacted by the COVID-19 (covid) pandemic. As Governments commit to ‘building back better’ the recovery from covid provides an opportunity to align spending and initiatives towards creating a more sustainable future and taking action to combat pressing issues such as climate change.

The Guide found that SMEs in Malaysia are at an early stage of embedding sustainability as, for many, the focus has been on survival during the covid pandemic. While many corporates have made headway on sustainability initiatives, especially around net zero commitments, there is a risk that SMEs are left behind.

Banks are uniquely positioned to support SMEs in taking action on sustainability, both through finance related activities (such as developing sustainability products) and broader activities (such as capacity building). The research found that during the covid pandemic, Malaysian banks primarily supported SMEs through the disbursement of Government funding and ensuring continuity of business through digitalisation. There has been some wider activity to date but, as we recover from the covid pandemic, momentum is building amongst Malaysian banks to further support SMEs on their sustainability journey and further develop areas such as product development, capacity building, offering a one-stop-shop for sustainability initiatives and accelerator programmes.

The Guide provides a Framework for action that Malaysian banks can take in supporting SMEs in the sustainable recovery from the covid pandemic in three key areas:

  • Bank Wide Approach;
  • Supporting SMEs; and
  • Product Development.

The Framework - which is intended to supplement existing sustainability tools, frameworks and initiatives rather than replace them - identifies 19 key suggestions for bank wide approach, supporting SMEs and provides a step-by-step guide for product development. Each of these areas is supported by several practical steps augmented with of work already being undertaken by Malaysian and international banks.

Banks can play a significant role in supporting SMEs on their sustainability journey and the Guide highlights the appetite amongst Malaysian banks to further assist SMEs in progressing their sustainability journey. Further support could be through assisting SMEs in measuring greenhouse gas (GHG) emissions, educating internal staff, capacity building for SMEs, further development of sustainability products and a greater consideration of the social and governance aspects of sustainability.

The Guide concludes that responsibility for assisting SMEs on sustainability should not lie with banks alone and support is also required from Government and other industry players to incentivise action.

Click Here to visit the UNEP FI page to access the Guide.