I have just heard from the senior sponsors about the ways in which the Group’s work has managed to combine ambition with a practical edge. It seems that what began as an exercise in thought-leadership is now ready for implementation. That is extremely encouraging, because none of us should be in any doubt whatsoever about the level of urgency required, nor the unique role that lies ahead for financial institutions in dealing with the challenge of sustainability.
As many of you will know, the University of Cambridge Institute for Sustainability Leadership, or C.I.S.L, which hosts the Investment Leaders Group, is working across the insurance, banking and investment industries to enable their leadership, and there is encouraging progress to report.
For example: its insurance industry group, ClimateWise - which incidentally, stemmed from gatherings I had at both Highgrove, Gloucestershire and Clarence House - recently launched an Advisory Council of industry leaders to explore with financial regulators how to align the financial system with the zero carbon, resilient economy that we must build for the future.
The Banking Environment Initiative recently secured the support of the Indonesian financial regulator and Indonesian banks to adopt its trade finance instrument to incentivise the sustainable production of palm oil.
And, with the help of C.I.S.L., the world's largest bank, I.C.B.C. in China, published its first ever environmental stress test of heavy emitting client portfolios.
These developments are significant in themselves. However, this is also the year in which, under China’s presidency, “green finance” arrives on the G20’s agenda. Ministers of Finance and Central Bank Governors from around the world are now considering how to ‘green’ the banking, capital markets and investment industries, including through enhanced environmental risk management in financial appraisal tools. I am delighted to hear that C.I.S.L. has been asked to act as a Lead Knowledge Partner for the G20’s important work – clearly a case of 'fame at last' after 25 years of banging our heads against a very hard brick wall!
If nothing else, attention from the G20 signals that sustainable finance is finally becoming mainstream. But where does this leave investment? Well, after years in a comparative wilderness, responsible investment also shows signs of joining the mainstream. I know some of you will feel that the weight of capital still lies in the old economy rather than the new but, increasingly, the winds of change are gathering there too.
Last year’s Sustainable Reality report from Morgan Stanley found that nearly three quarters of investors surveyed felt that good environmental and social practices in companies achieve higher profitability, and hence are better long-term investments – something my Accounting for Sustainability Project has been saying for years. Despite half of those surveyed by Morgan Stanley considering that responsible investment requires a financial trade-off, the report found that, and I quote:
Investing in sustainability has usually met, and often exceeded, the performance of comparable traditional investments. This is on both an absolute and a risk-adjusted basis, across asset classes and over time.
That is encouraging to hear, but I think it is clear to all of us that the value and imperative of responsible investment – not just to society but to financial institutions – is not yet apparent to all parts of the industry. This needs to change, because as long as the reticence to embrace sustainable investment continues, I fear we will continue to stumble from one bewildering environmental and social challenge to the next. These challenges are driven, in many cases, by the costs heaped on the planet by unguided economic activity and by the ultimate threat-multiplier of them all – climate change – and materialise in the form of long-term damage to essential natural resources, accompanied by social desperation and, increasingly, I am sorry to say, violence.
Now, while the demand for responsible investment may still be small, it is certainly growing, which is just as well, because the need for it has never been greater. The research undertaken by my International Sustainability Unit underlines this only too well.
It strikes me that what we still need most is leadership. This is why I am delighted with the work circulated by the Investment Leaders Group today and, even more so, by the knowledge that its members are committed to putting their very credible thought leadership into practice. I am convinced that your collective leadership can and will make a difference.
I hope you will share my commitment to a future in which we judge the performance of our investments not only by their financial returns, but by the way they add value socially and environmentally and in long term stability. The metrics necessary to achieve this are being launched today. I also hope that you will be heartened by the prospect of asset-owners expressing their interest in long-term, sustainable investment mandates. Again, the Investment Leaders Group launches guidance to this effect today.
Naturally, I am not suggesting that investors should take on these immense challenges alone. Leadership from governments and businesses in the real economy is critical. As C.I.S.L. reminded us last year in its Rewiring the Economy framework, this is a task for all economic actors – business, government and finance – and can only be achieved in partnership. It was therefore immensely heartening to hear that the Ministry of Finance of the French Government had accepted the invitation to address you today. The efforts of that ministry, and of the French Government as a whole, were of course absolutely central to the success of the Paris Summit last year.
The agreement reached at that summit was a remarkable success. But it is utterly essential to recognize that it was only the beginning. A large number of people agreed to set out on a journey, after almost disastrous delays, to a destination, which is some way short of where we ought to be aiming. None of the really hard work has yet been done! Nor can we afford to be distracted from our journey by the gathering impacts of climate change, whether in forest fires, droughts or other environmental calamities brought about by record-breaking weather events…
The great challenge ahead of us is to find ways to de-carbonize an entire system, because we cannot be remotely comfortable with the prospect of a 2ºC temperature rise. We know that would leave all of us – and our successors – in an increasingly dire situation, so we need to bring that down to below 1ºC.
Ladies and gentlemen, the international community has ticked the box marked 'climate change' and published its "wish-list". That was, indeed, a start. But now the ambitious action and innovations that are so urgently needed to get us to our destination have to come from the private sector – hence the vital importance of your leadership.
Now, I am sorry that I must leave you shortly but do hope that you have a productive afternoon. I trust that you will look carefully at the tools and ideas presented today by the Investment Leaders Group and see how you can put them into practice in your organizations…
I don’t think I need to remind an audience of this kind that there really is no further excuse for watching and waiting: responsible investment is simply the right way forward for the industry and, with your continued leadership and inspiration, I am confident we can get that message across much more widely.
