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Pressure from institutions is driving change

This article is part of
Guide to ethical investing

Pressure from institutions is driving change

The Union Nations’ Sustainable Development Goals provide an important benchmark for managers of sustainable funds to align themselves with.

Agreed by world leaders in 2015, and aiming to be achieved by 2030, there are 17 goals in total and these provide a vital reference point for managers looking to identify and monitor firms' ethical credentials.

As Mr Kenny notes, although increasing investor demand has been a significant reason for the ESG boom, another key growth has been the pressure heaped on governments and other relevant bodies to implement policies which aim to cause less harm to the future of the planet.

There are numerous examples of this, including some on these shores, according to Bryn Jones, manager of the Rathbone ethical bond fund.

He says: “Many supranational issuers like European Investment Bank and [German bank] KFW have sustainability as one of their main principles, and in fact many governments and government bodies have started to issue green government debt.

“In July 2019, the Financial Conduct Authority published a Joint Declaration with the Prudential Regulation Authority, the Pensions Regulator and Financial Reporting Council, welcoming the publication of the government’s Green Finance Strategy, and setting out their shared understanding of the financial risks and opportunities of climate change.

“They will work in a collaborative way to address these risks.”

Paris climate agreement

Mr Jones highlights other developments.

“The Paris Climate agreement is the most-high profile of these.

“We have the Department of Work and Pensions concerns around ESG and climate change, and the UN Sustainable Development Goals to name a few.

“The Bank of England is carrying ongoing work to assess and respond to climate change risks, and in May 2018 the Bank published a joint article on the climate challenges for banks and financial regulators.

“This paper presented the key controversies in the central bank and regulator’s response to climate change and discussed potential areas for future research and policy.”

FCA

Prior to its collaboration with other regulators in the summer, the FCA had conducted other work in sustainability, most notably a report that was published this time last year.

The paper, entitled, Climate Change and Green Finance, aimed to open the discussion on climate change and the potential impact of financial services firms and their consumers. In its executive summary, the paper said: “Over the next few decades, climate change is likely to fundamentally transform our economies.

“The FCA must consider all major risks that have an impact on the markets and institutions we regulate, including those posed by climate change.

“The physical risks of climate change, international and domestic political commitments on climate change, and the subsequent response of corporations, capital markets, and investor demand, have started to cause changes in the financial services sector.