The Data Dichotomy: Courage or Caution | Ethical Finance Round Table

Our next Ethical Finance Round Table event, entitled The Data Dichotomy: Courage or Caution, will take place on Tuesday 14 June 2022. It will explore developments in ESG data provision, its limitations and how asset managers are using data to inform long term investment decisions.

Our speakers will respond to some of the toughest questions facing the industry:

  • Is "we need better data" becoming an excuse for inaction from the industry?
  • Are ESG ratings fundamentally compromised by being at least partly based on subjective data?
  • How does the backwards-looking nature of data square with the long-term, forwards-looking view that responsible asset owners should take?
  • As disclosures become more widespread and data improves, is there pressure to avoid sectors or regions with poorer disclosures, even if they might deliver genuine impact?

Confirmed speakers are:

  • Graham Burnside, Co-Founder and Senior Advisor, GEFI (moderator)
  • Dr Richard Mattison, President of S&P Global Sustainable1 and CEO of S&P Global Trucost.
  • Hetal Patel, Head of Climate Investment Risk, Phoenix Group
  • Kate McGrath, ESG Analyst – Fixed Income, abrdn

Sign up now at https://us02web.zoom.us/webinar/register/1716527070480/WN_i9UjoXj0QZm6xbEczOhEKw.


Diversity and Inclusion | Ethical Finance Round Table | Summary

Finance experts shared academic research, personal perspectives and technical expertise on the integration of diversity and inclusion concerns into finance. They emphasised the need for a process that goes beyond mere representation toward a deeper appreciation and integration of diverse voices. Watch now.

For our first Ethical Finance Roundtable of 2022, chaired by Amy Clarke, Chief Impact Officer at Tribe Impact Capital, we were delighted to welcome Prof. Alex Edmans, Professor of Finance at London Business School, Gavin Lewis, Managing Director, UK LGPS at BlackRock & equality campaigner and Lynne Highway, Director of Colleague and HR Experience at NatWest Group to discuss Diversity and Inclusion in the finance sector and beyond. Whilst the discussion showed that the sector must strive to improve, there is a clear appetite for progress on diversity and inclusion from across the financial sector and beyond.

Opening the event, Prof. Alex Edmans explored the business case for diversity, showing that many claims are based on flimsy evidence that is accepted uncritically and emphasising the need to be aware of our confirmation biases when making the case for diversity. Ultimately, while the evidence doesn’t support a business case for boosting superficial diversity metrics, it does support a business case for diversity and inclusion – as Professor Edmans highlighted “it involves far more than putting a few token minorities on the board to tick a box. It is much harder to create a culture where everybody feels psychologically safe at work”. As he powerfully stated, after sharing some of his personal experiences with racism and age discrimination in the workplace, “maybe making more money is not the real reason to do this. Maybe we just agree it’s the right thing to do”.

The question about the moral case for action on diversity and inclusion carried over into a fascinating intervention from Gavin Lewis. Lewis, who co-founded the #TalkAboutBlack’ movement to break the taboo surrounding conversations about race, noted that whilst progress has been made to foster inclusivity, finance had not gone far enough. For example, while hiring practices have improved markedly, retention still lags behind for myriad social, cultural, and economic reasons.

One fundamental problem, he argued, lay with the tacit expectation that firms would do the right thing, and that there was a straightforward business case for doing so. If there was, he said, it would have been done by now, and as he aptly commented, “The right thing didn’t happen when George Floyd was murdered. The right thing has been here all along and it hasn’t worked”.

Lynne Highway shared some of the work that NatWest have done to foster an inclusive culture within their ‘organisational DNA’ in order to not just meet, but exceed, statutory requirements on diversity. She said that NatWest is proud to be nurturing a fair and inclusive bank where they champion potential, helping people, families, and businesses to thrive.

Having a diverse, equitable and inclusive workplace is essential to achieving our purpose, as it enables the Bank to work together to achieve great things with our colleagues, communities, and customers. Improving representation, Lynne argued, requires creating an inclusive environment where colleagues feel able to bring their whole self to work. One way that NatWest have done this is via reciprocal mentoring, to allow for an open dialogue between colleagues from different backgrounds, and at different levels of an organisation.

The roundtable then moved on to a lively audience Q&A which included discussion on:

  • Whether we might see a TSFD (Taskforce on Social-Related financial disclosures)
  • The need to be aware of – and compensate – the emotional labour that might be expected of colleagues from underrepresented groups in the process of improving workspaces
  • Whether it is more important to focus within (on the internal operations) or outside (on investee companies or clients)
  • How the sector can learn from the relatively successful process of integrating climate-related concerns

Click here to sign up to our next event, the launch of the Scottish Taskforce for Green and Sustainable Financial Services, on Monday 28th February.


EVENT ANNOUNCEMENT | Ethical Finance Round Table: Inclusion and Diversity

Our next Ethical Finance Round Table, taking place on the 22nd February from 14:00-15:30 GMT, will focus on the issue of inclusion and diversity; sign up now. While climate has broken past being a "niche" issue in finance, social issues are frequently neglected in the industry. We will ask whether the finance sector has done enough on inclusion, when it comes to race and ethnicity, as well other social issues including gender and sexuality.

8years on from the beginnings of the Black Lives Matter (BLM) protests, we still seem no closer as a society to resolving the tensions which brought them about. While these issues pervade society as a whole, the finance sector is a part of society, and this event aims to ask the tough questions of those in finance.

Is the sector doing enough, and what is its role?

Should it focus internally (on its own operations) or externally (on the assets it holds or manages on behalf of clients)?

We will be joined by moderator Amy Clarke (Tribe Impact Capital & GEFI Global Steering Group), Gavin Lewis (BlackRock), Lynne Highway (NatWest Group) and Prof. Alex Edmans (London Business School).


The Path from COP26: Implementing the Glasgow Climate Pact | Ethical Finance Round Table

We heard from a varied panel during this Ethical Finance Round Table who delivered their thoughts on COP26, COP27, finance for nature and more, with a series of interesting presentations followed by a lively panel discussion. Click here to watch a recording of the full session now, or click on the names of each of the presenters - Hakima El-Haité, Ashley Hamilton Claxton, Sefton Laing & Jamie Ervin - to see their opening remarks.

Hakima El-Haité, President of Liberal International kicked off by asking how COP26 has succeeded in meeting the hopes of the global south. She emphasised the need to ask ourselves what we achieved and what is next. This COP26 was meant to show progress in CO2 emissions reductions and ambitions for next 5 years and show trust. The developed world was expected to fulfil its promises, and we missed an opportunity to be on the correct side of history, said Hakima.

Ashley Hamilton Claxton, Head of Responsible Investment at Royal London Asset Management followed, and explained that getting commitments from financial sector is easy; action is the hard part. COP26 has inspired more conversations with clients about climate in the past 3 months than RLAM have had in the prior 8 years. Ashley suggested that we need a bottom-up approach (carbon metrics, bonds etc.) but need to develop a high level plan as to how we are going to achieve NZ and the terms of the Glasgow Climate Pact. She cautioned that there is a risk that finance can become a distraction for policy makers - a panacaea for all of our problems around the environment. Finally, she explained that perfect data is a distraction; data will never going to paint a full picture or be complete and can tell a skewed side of a story but is vital for building tools and systems needed post COP and beyond.

Sefton Laing, Senior Climate and Environment Specialist at Baillie Gifford pointed out that COP26 was the first COP at which Big Finance truly arrived. The commitment to trillion dollar funds is a massive step forward, however there is a gap between allocated finance and practical action on the ground - money is not always regulated or properly allocated if you listen to NGOs. He echoed Ashley’s point about the need for strong governance and shifts towards policy to support the individual commitments we have seen particularly from financial services.

Finally, Jamison Ervin of UNDP highlighted 7 trends from the past year on financing nature and 7 predictions for the coming year, looking at how nature has contuined to shoot up the agenda on both climate and finance, and predicting that it will continue to do so.


Ethical Finance Round Table Summary: Leadership is crucial in driving better economies

Leadership is crucial in driving better economies. From fighting the climate crisis, to driving inclusion across business and society, we cannot build a better world without effective leadership. The pandemic, combined with the threat of the climate crisis, has created a uniquely challenging set of circumstances for leaders across the spectrum.

In the latest Ethical Finance Round Table, taking place on 5 May 2021 and entitled ‘Leadership: Embedding Responsibility’, Michael Cole-Fontayn, Chairman at the Chartered Institute for Securities and Investment (CISI) and the Association for Financial Markets in Europe (AFME); Helen Cook, Chief HR Officer at NatWest Group; and Karina Robinson, CEO at Robinson Hambro joined moderator Graham Burnside of GEFI to discuss the role of leadership in driving social and environmental responsibility in organisations. Despite the scale of the challenge, the panel offered optimism that leadership in the finance sector is moving in the right direction.

While the current global health and economic crisis has tested the resolve of leaders throughout finance, Michael Cole-Fontayn emphasised that climate change, biodiversity loss and social inequality offer a challenge many times greater. He added that, on top of these existential pressures, managers in the finance sector are facing increasingly complex demands from clients, governments and regulators.

Helen Cook discussed NatWest Group’s journey to put their purpose at the centre of the bank’s strategy, stressing the importance of action over words. While the NatWest journey began 5 years ago, it has become the bank’s ‘North Star’ during the pandemic by providing a guiding purpose through its three core tenets: enterprise, learning and climate. One manifestation of this has been the shift towards hybrid working, likely to continue after the pandemic. Helen also remarked on the ways in which her role has changed over the years, with investors more concerned than ever about the practical steps companies are taking to look after their employees.

Karina Robinson gave an optimistic view of the future: while the finance sector is in no way perfect, there is an effective ‘carrot and stick’ across the industry, with incentives to perform well allied with much-needed effective regulation. Even prior to Covid-19, Karina argues that there was general dissatisfaction with capitalism, consistent across generations and even income levels, and only by addressing this dissatisfaction can the business sector make the case for capitalism.

The session ended with a Q&A; one particularly interesting question asked about the challenge of leading hybrid workforces, creating cohesive teams while some employees are in the office and others work remotely. Michael pointed out that those physically present tend to unconsciously exclude virtual participants, with Karina arguing for effective education to resolve this issue and Helen highlighting the role of behavioural scientists employed by NatWest Group to understand the psychology behind the challenges of a hybrid workforce. “Middle manager” might be a term with negative associations, but as Helen pointed out, it is becoming an increasingly difficult job as working patterns become more complex.


Upcoming Event: Ethical Finance Round Table 'Leadership: Embedding Responsibility', 5th May 2021 16.00 (BST)

We are pleased to invite you to our next Ethical Finance Round Table 'Leadership: Embedding Responsibility' which will take place on 5th May 2021 at 16:00 BST.

We will be welcoming three excellent industry- leaders to shed light on this important conversation: Michael Cole-Fontayn, Chairman of CISI, Helen Cook, Chief HR Officer of The  NatWest Group, and Karina Robinson, CEO of Robinson Hambro and Chair of the Lord Mayor’s Appeal Advisory Board.

Leadership is often an overlooked factor in the drive to create socially and environmentally responsible organisations in finance and beyond. While it is easy to make bold statements about social and environmental issues, real change can only be achieved via effective leadership at all levels of an organisation, ensuring that employees are empowered and motivated to enact changes.

We are delighted to be able to shed new light on this vitally important conversation. Discussion points will include:

  • Why should organisations want to embed social and environmental responsibility in their practices?
  • What role do ambitious targets on social and environmental issues play in driving change?
  • What role does organisational culture play in ensuring social and environmental issues are properly accounted for, and how can leaders foster a positive culture?
  • How can leaders communicate effectively with their organisations about changes?
  • How can companies effectively execute policies on diversity and inclusion (e.g. around gender, ethnicity or sexuality) when there is internal pushback on them?
  • What aspects of leadership on social and environmental issues are particular to the finance industry?

This event forms part of our Path to COP26 campaign.

You can register your interest by following the Zoom link below:

https://us02web.zoom.us/webinar/register/4916184056551/WN_0TKJK91JSS68llR1j8PsPw

 


Ethical Finance Round Table | Accounting for Sustainability

At the latest Ethical Finance Round Table, we were joined by Professor Michael Mainelli, Alderman and Sheriff of the City of London, founder of think-tank Z/Yen and qualified accountant, and Jon Williams; Partner, Sustainability and Climate Change, PwC. The discussion centred around the need for companies making commitments to net zero to truly understand what this means for their business models year on year, as well as emissions trading schemes and the need to price embed the true cost of externalities within the economic system.

Key headlines

Michael Mainelli

  • Green finance was born with the creation of sulphur dioxide permit trading
  • The EU Emission Trading Scheme is often dismissed, but appropriate carbon pricing was not achieved due to governments issuing too many permits
  • Carbon pricing works. Miles driven in America dropped 4% in 2011 due to a 32% increase in oil prices, not due to an outbreak of environmental awareness
  • Policy performance bonds could be a useful tool for governments and companies to deliver on their commitments and hedge against climate and policy risk.

Jon Williams

  • Over 1,500 companies and 50 countries have made net zero commitments, but very few understand the true scale of the challenge to achieve this.
  • To meet the Paris commitment to limit global warming to 1.5C means an annual reduction in carbon of over 11% No economy in history has achieved this on a sustained level; the global reduction in 2019 was 2.4%.
  • Financial institutions are unsure of their “carbon liabilities”, and have assumed around 2/3 of the reductions they need for net zero will come from government policy outwith their control. If they are required to offset these emissions, it could cost as much a 500% of the profits from these assets.
  • if the finance sector is to support this transition, every finance professional needs to start understanding these issues and supporting their clients to deal with them.

Watch now:

Michael began by explaining that green finance as we commonly know it came into being with the trading of sulphur dioxide permits in the USA in 1992. Traders thought they might be able to bring down these emissions by around 20%, but actually managed to halve them in just 4 years, creating considerable optimism around carbon permits going into the Kyoto climate conference.

A small group in the City of London, including Professor Mainelli, then picked this up and ran a market around this in London, later developed by the EU in 2002 to become their emissions trading scheme (ETS). This is often thought of as a failure, though Prof. Mainelli argues that the carbon price it produced did fairly reflect the supply of and demand for permits, but the issue was that far too many permits were issued by governments – roughly double what was needed. While governments had committed to keeping the price above 25 euro/tn, it plummeted to pennies shortly after launch.

Top-down pressure on capital allocation is good, explained Prof. Mainelli, but plans and awareness alone are insufficient. There needs to be an internalisation of environmental factors into the billions of everyday economic decisions. Incorporating environmental factors into prices works: in 2011, Americans drove 4% fewer miles not because of “awareness” of issues, but due to a 32% increase in oil prices. In fact, China has now implemented an internal emissions market, so even communists think that carbon markets work.

In Prof. Mainelli's view, carbon pricing is achievable and effective, and if companies internalise carbon in their decisions , there will be no need for banks to decarbonise their loan books, as many are calling for, as the carbon will be internalised in traditional measures of risk and reward. Some of the voluntary schemes, however, leave something to be desired; the issuer of a 25-year carbon credit could simply burn the forest after 26 years!

One area Prof Mainelli felt had a lot of potential was that of policy performance bonds. They were proposed a number of years ago, but never truly caught on in the Anglophone finance community. They have been successful in France, with major companies including Danone and Enel issuing them. One major opportunity around them could be in governments buying bonds – if you miss your emissions target, you pay interest, but if not, you essentially get free government money. The UK government is looking to do this ahead of COP26, which would effectively allow financiers to hedge against government policy. Sadly, progress in this area has not been as fast as it needs to be; one of Prof Mainelli’s final slides was taken from 2007, and the issues remain largely the same in 2021.

Jon Williams sits on the TCFD, and explained that the endgame for TCFD is forward-looking metrics, but this requires a level of information that businesses and the finance industry just do not have right now.

He posed the question of what is meant by “net zero”? Over 1,500 companies and 50 governments have made announcements or commitments around net zero, but what do they really mean when they make these announcements? Have they got concrete plans and timetables, or are these more “aspirational” commitments? PwC’s Net Zero Economy Index 2020 shows some of the data around net zero and decarbonisation. By combining carbon data and a macroeconomic model, PwC estimate that global carbon intensity fell by 2.4% in 2019.

This is still below what is needed – the decarbonisation rate needed to limit global temperature increases to 2C would be 7.7% per year, and to limit to 1.5C would be 11.7% per year, which no economy in history has every achieved on a sustained basis. The companies that are committing to net zero need to understand that this level of decarbonisation is implied, and start to plan how they will actually achieve that. This is a huge challenge, much bigger than the one faced by COVID.

What is the role of finance? Providing the capital to help the economy transition from where it is today to where it needs to be in 10 or 20 years. Financial institutions need to move from looking merely at their own emissions, to those embedded in their loan books, or portfolios, and to do this it needs more data on emissions downstream.

Financial institutions are largely unsure what their balance sheet and loan books are actually exposed to – most companies  borrow for liquidity, not to tie themselves to financing specific projects. Many have made huge assumptions about how large residual emissions will be – in other words, how much of the emissions reductions will be achieved by government policy without any active interventions on their part. If these assumptions turn out to be inaccurate, the cost of offsetting residual emissions will vastly outweigh the profits from the assets behind them.

Jon concluded by saying that net zero is not a myth. It is a reality, but a very difficult reality. Companies need to take net zero seriously. The pathway to net zero includes climate risk and impact baselining, strategy development, organisational transformation and transparency and reporting. Ultimately, if the finance sector is to support this transition, every finance professional needs to start understanding these issues and supporting their clients to deal with them.

The Q&A at the end of the session discussed a number of issues. Michael Mainelli highlighted that the tools for carbon reduction can also be used for maintaining biodiversity, but this is much harder to measure, and that trade is a key issue – it has been a major driver of growth over the last half-century, but there may need to be adjustments for embodied emissions. Jon argued that the furore over pricing nature is often misplaced – it is not that there is a price at which you can destroy nature, but instead that there is a need to put a price on the ‘free ride’ that people get out of emissions, nature and biodiversity.


Ethical Finance Round Table | Festive Fireside on Reasons to be Cheerful in 2021

After a year that will live long in the memory for all the wrong reasons, the final Ethical Finance Round  Table of the year discussed reasons to be optimistic about what the future holds, in an event focused on Scotland. The session looked at the newly formed Scottish National Investment Bank and how it aims to tackle inequality, drive innovation and be at the center of Scotland’s transition to NetZero. It also discussed how we have a unique opportunity to determine the future and reignite a fair economy for Scotland. Dame Susan Rice, Chair of the Scottish Fiscal Commission was joined by Willie Watt, Chair of the newly-formed Scottish National Investment Bank (SNIB), and Andrew Wilson of Charlotte Street Partners and the Sustainable Growth Commission.

But, Och! I backward cast my e'e.
On prospects drear!
An' forward, tho' I canna see,
I guess an' fear!

To a Mouse, on Turning Her Up in Her Nest With the Plough, November, 1785 - Robert Burns

After our very own Graham Burnside welcomed attendees in typically Scottish fashion, quoting Burns, moderator Dame Susan Rice explained that she was looking forward to hearing about the ‘what’ and ‘how’ from the speakers. How can a mission led financial institution support business and celebrate outcomes that are both fair and inclusive? What are the opportunities that can reignite the Scottish economy, such as COP26 and the COVID rebuild?

Willie Watt introduced us to SNIB, which opened for business less than four weeks ago. Funded by the Scottish government with £2bn over the next ten years, the bank has three missions:

1) Address inequality in Scotland

2) Invest in innovation

3) Assist in Scotland’s transition to NetZero

The Bank will look for both financial and impact returns from its investments and hopes to be fully self-sustaining in five years. Willie Watt stressed that maximising profit and purpose is no longer an either or – good governance and sustainable business are the path to profit and purpose. While accepting that the Sustainable Development Goals are a good guide to business and asset owners, Willie felt they are too complex to create a successful investment strategy and so the three missions will instead be the focus.

Andrew Wilson, Founding Partner of Charlotte Street Partners and Chair of Scotland’s Sustainable Growth Commission, stated that there has never been a better time to take risks and make big policy changes. While the most powerful force has traditionally been what we did yesterday, the COVID crisis has left us with no choice but to enter an era of reform, accelerating many of the challenges we face, including inequality and deglobalisation.

Andrew argued that we can no longer afford to look to the future with fear. We must instead determine what the future will be with the opportunity afforded to us. One risk is that lending stops at haste post COVID and we do not support the emergence on the other side. While debt is at record levels, the cost of servicing that debt has fallen by half and is historically cheap. The tyranny of short-termism is one of our greatest risks and we must be more honest with society - stop “promising jam tomorrow”, promise hard work for a generation to get this country and others to a point of civilisation that they deserve.

For Andrew, while deglobalisation is a growing – and worrisome – trend, it offers an opportunity to smaller countries to collaborate. For example, Scotland, New Zealand, and Iceland are tied by their pursuit of a wellbeing economy. Another opportunity Scotland has in abundance lies in its natural economy. If the right collaboration took place, Scotland’s natural economy would be within the top three globally.

Andrew also spoke about the need for proper engagement with the developing world. It is not only right but also in the interest of developed counties to help out developing countries. The problems they face will not stay in the developing world. The second big risk Andrew identified was populism, which is driving deglobalisation and selling a myth of the past as an easy solution to the future. He was clear that this is not the solution, the solution is thinking long term and investing.

Dame Susan finished the session, explaining that history shows us that after a major crisis, there will be a shift in values and in how we live. We can use this moment to lead change and that is a reason for hope and festive cheer. Opportunity always exists and we must allow ourselves to test and experiment as we go forward. When she looks at Scotland, Dame Susan feels enormous pride of the efforts made to date. The Scottish Parliament voted unanimously for the world’s most aggressive Net Zero timeline. There is something special about Scotland that makes people come together and make things happen.


Ethical Finance Round Table: Impact Investing – Can it save capitalism?

The 24th Ethical Finance Round Table was hosted virtually on Wednesday 26th August 2020. Before introducing the session, GEFI Global Steering Group member and event chair Graham Burnside reminded us of the opportunities the virtual round tables have provided us, with the speakers taking part from three different countries.

Entitled ‘Impact Investing – Can it Save Capitalism?’, the session considered the role of impact investing as we shift from ‘shareholder capitalism’ towards ‘stakeholder capitalism’. Impact investing is an exciting and rapidly growing industry powered by 1,300+ investors (such as asset managers, foundations, banks, development finance institutions, family offices, pension funds and insurance companies) who are determined to generate social and environmental impact as well as financial returns. This is taking place all over the world, and across all asset classes.

The first speaker was Dean Hand, Research Director at The Global Impact Investing Network (GIIN). Presenting from New York, Dean introduced GIIN’s 2020 annual Impact Investor Survey report, which places the impact investing market size at roughly $715 bn. She focused on two key findings of GIIN’s research:

  1. The first was that whilst impact management and measures (IMM) practices have matured, opportunities remain for further refinement. Respondents to the survey highlighted substantial progress in research and the sophistication of IMM over the last decade. By far the biggest concern over the next five years, was the threat of “impact washing”. Almost all investors target social impacts (96%) and 60% targeted both social and environmental, which, Dean suggested, demonstrates how interrelated the two are for market investors. The most common SDG targeted was found to be SDG 8 (‘decent work and economic growth’) followed closely by SDG 1 (‘no poverty’). A number of frameworks to measure and manage impact have emerged in response to the growing interest in impact investing. 89% of respondents now use external frameworks, with the UN SDGs the most popular. This could go some way to address the issue of impact washing.
  2. The second key finding Dean covered, was that impact investors hold a positive outlook for the future, despite the headwinds. 99% reported that their impact was in line with or outperformed expectations and 88% also highlighted that this was also true of financial performance. Although many expect a financial underperformance as a result of the COVID-19 pandemic, 18% felt that their impact performance will still exceed expectations. The majority plan to maintain their capital commitment plans for 2020.

The next speaker was Tribe Impact Capital’s Amy Clarke. Amy started by posing the question as to whether we should save capitalism and whether it was the right tool for the challenges ahead? She positioned inequality and inequity as unintended consequences of the current financial system and, argued that while impact investing is part of the required system upgrade, it is not the whole solution.

Amy gave examples of several trends she has observed in the impact investing sector. The Make My Money Matter campaign was offered as an example of citizen empowerment where consumers are provided with the knowledge and tools to demand to better influence where their pensions are invested. According to Amy changing human capital is coming in the finance sector and the focus on increasing diversity and inclusion will ensure that financial institutions better represent the societies they serve. One thought that Amy felt would be controversial was that GDP should be laid to rest with real measures emerging as an alternative. Some cities are already transforming using Kate Raworth’s doughnut economy model. Amy concluded with a question around whether capitalism can survive the wave of change coming, or will it emerge as something different?

The third and final presenter, Azman Mokhtar, was speaking from Malaysia and offered his experiences of delivering true value in the wake of the Asian financial crisis. Azman began working at Khazanah Nasional in 2004, developing an investment style called ‘Building True Value’, delivering through financial, economic, and societal returns.

The project ran from 2004 to 2018, with the portfolio increasing in value 3.5 times, despite no inflow of funds. It also saw economic returns through job creation, transformation of strategic companies and knowledge development. Societal returns were improvements in education, poverty alleviation and reskilling. One example of the project’s work given by Azman was after the restructuring of Malaysia Airlines following two high-profile air disasters. The restructure meant laying off 6,000 employees and through the project, $50m was invested in a reskilling centre for those no longer working. To conclude, Azman felt that the project demonstrated that it is possible to deliver ‘true value’ over long periods of time.

As ever there was no shortage of questions during a lively Q&A session. Which covered topics including the drivers behind the confident outlook for the impact investment sector and how to develop an environmental impact investment approach in mature political economies.


Virtual Ethical Finance Round Table: the Role of Ethical Finance in Rebuilding the Economy after Covid-19

In response to the coronavirus pandemic, on 21st May 2020 the GEFI team hosted its first virtual Ethical Finance Round Table to explore the potential role of ethical finance in rebuilding the economy post Covid-19.

The coronavirus pandemic has impacted financial markets with unprecedented speed and ferocity. It has led to a re-evaluation of many assumptions about the global economy, with health security now joining the climate emergency as the most pressing challenges of our generation. This session provided an opportunity to hear from leading global experts on how the macro-economic impact of Covid-19 might catalyse financial institutions and economic systems to better serve people and the planet.

The session opened with an update from Rupert Watson, Head of Asset Allocation at Mercer. With their AUM totalling $304.5 billion and advising on a further $15 trillion in assets Rupert was able to provide a unique insight into Mercer’s economic and market outlook. Mercer has identified three interdependent high level economic impacts of the coronavirus crisis:

  1. Direct impact – what we see with our own eyes resulting from the enforced temporary shut down of the economy
  2. Indirect impact – businesses in a vulnerable financial position are placed under additional stress, often requiring increased borrowing as consumers become more cautious due to the economic shock and threat of job losses
  3. Policy impact – unprecedented financial support from Government and central banks has attempted to freeze the economic picture and restart it three (or more) months later.

Despite the high levels of discretionary fiscal easing, unemployment in the US will jump to its highest level since the depression. Although global GDP and corporate profits will undoubtedly plunge in Q2 Rupert nevertheless expects the recovery to begin in Q3 as activities start returning to normal. The US is likely to experience a slower recovery than the UK due in part to the job retention scheme helping to sustain UK employment and consumer spending power.

In terms of the recovery, Rupert suggested that not only what consumers are allowed to do as the lockdown eases but what they are willing to do would be of significance. The speed of the rebound will therefore depend on reaching the point where the population’s fear of Covid-19 infection is substantially diminished. A critical success factor is the availability of an effective vaccine and this is not something Rupert expects this calendar year.

Michael Moe, CEO of Silicon Valley-based GSV Asset Management and one of the world's pre-eminent authorities on growth investing, followed Rupert with his views on the response from asset managers. Adam Smith’s "The Wealth of Nations" marked the birth of modern free market capitalism which, according to Michael, has created unprecedented prosperity and inequality.

Although as many people will have died over the period of the lockdown through lack of access to clean water as have died from Covid-19, the fact that virtually the entire planet been impacted by the pandemic has led to an almost immediate global response. Covid-19 is a ‘game changer’, a mind-altering event similar to Hiroshima and 9/11 that will result in permanent global change. Michael distinguishes this paradigm change as BC (Before Coronavirus) and AD (After the Disease).

Michael highlighted that BC the venture capitalist mindset of optimising shareholder value was already under attack and in his view as we enter AD there will be a surge in recognition that the best businesses will generate a profit (as required by shareholders and for sustainability) with purpose (serving the needs of employees, communities, customers and the environment). This is not a purely philosophical idea: it is here and now. The best companies will combine the drive of for profit with the heart of a not-for-profit.

For Michael, expediting and accelerating important trends (such as the overnight shift from physical to digital and to profit with purpose) is an exciting outcome of the coronavirus pandemic.

The final speaker was Liz Grant, Professor of Global Health and Development at the University of Edinburgh who presented on the role of well-being and compassion in the new economic paradigm. Messages around compassion and well-being have gained prominence during the coronavirus pandemic.

According to Professor Grant the concept of compassion is best articulated by a quote from CS Lewis’ commemorative stone in Westminster Abbey: I believe in Christianity as I believe that the sun has risen, not only because I see it but because by it I see everything else.”

The coronavirus pandemic has turned humanity upside down, shining a light on an economic system that increases rather than reduces inequality. Although mortality rates for malnutrition, malaria and HIV are far higher, due to its global proliferation, the response to Covid-19 has been unprecedented in terms of the speed and range of health, social and economic measures taken.

As we look to the future the SDGs provide a blueprint and ‘meta-narrative’ for a new and better society. The Global Goals are underpinned by planetary health through a recognition that the health of humans is interconnected with the health of the environment. Professor Grant offered a sobering reflection by challenging the notion that we have mortgaged the health of future generations for economic gains in the present by suggesting that we have in fact now entered the territory where we are suffering today.

Compassion is not merely about acts of kindness or goodness; it is about seeing the world through someone else’s viewpoint. Professor Grant suggested a 4 step process for demonstrating compassion:

  1. Notice
  2. Interpret
  3. Empathise
  4. Alleviate

Professor Grant then pointed to the legacy of Francis Hutcheson, a major exponent of the theory of the existence of a moral sense through which man can achieve right action.

As we look beyond the pandemic Professor Grant argued that, as a global family, we must both care for ourselves and use compassion to awaken and drive action to reduce the suffering of others. Although the SDGs set out the end game they do not define our individual and collective roles. Embracing compassion can therefore be a transformative strategy and a mechanism to shape the way we see the world and provide motivation to do things differently.

The session concluded with an engaging question and answer session of which these were some of the key points emerging:

  • Timescale for economic recovery (Rupert)
    • Near term – watch the speed of the lockdown unwinding
    • Income maintenance – Governments making up shortfall so preserving capacity for people to spend when lockdown eases
    • Little desire for immediate period of austerity
    • Policy approach is to grow out of crisis (higher inflation) and reduce the level of Government debt (cf. post WW2)
    • Some possibility of severe austerity of up to 10 -15 years but reasonably confident that economy will come back quickly
  • Resilience of asset managers (Rupert)
    • Trying to avoid moving client and investor money too frequently
    • Positioning clients so they are reasonably protected across all eventualities
    • Stress test – imagine what might go wrong, test and do not panic!
  • Resilience of asset managers (Michael)
    • Difficult to know what will happen in the market so focus on fundamentals of business
    • Level of fear has created opportunities for those who can take a long term perspective
    • Challenging and exciting times for growth investors as ‘future accelerated to the present’
  • Shifting towards action in the finance sector (Professor Grant)
    • Individuals
      • Define their inward motivation (what is it that each of us find meaning in life / why are we doing what we are doing?)
      • Identify their inner journey (does it matter that there is inequality, injustice etc and do I see my connection to that?)
    • Institutions and organisations
      • Recognition that there has to be a different way of being
      • Model of compassion - not just about employees but about the practice of work
      • How important is profit and should it be at the expense of someone else / is it destructive?
      • Proactively embed a culture of compassion as compassion fundamental to sustainability
  • Shifting towards action in the finance sector (Michael)
    • Introduction of B-Corp is well-intended but does not go far enough
    • Need to incorporate approaches that can be embedded into how businesses operate
  • Impact on Europe (Rupert)
    • Lingering worry that EU may be pulling apart but Italy withdrawing would be devastating for the country and the EU
    • Publication of joint statement by France and Germany on supporting the broader region (health strategy, recovery fund, green / digital transitions and single market resilience) is a positive development and critical for Italy to achieve economic growth for living standards, employment, welfare.
  • Human (Professor Grant)
    • Consider unintended consequences of intended good action – think collectively and ethically through a lens of compassion
  • One thing to lose post-coronavirus (All)
    • Business travel (Rupert)
    • Quarterly earnings reporting (Michael)
    • Replacing thinking about what we want and need with what others want and need (Professor Grant)