Catherine Howarth says unlike the EU, our own policy-makers have been cautious in seeking to make the financial sector useful to Britain's environmental and social goals
At an event at the London Stock Exchange earlier this month, members of the European Commission's High Level Expert Group (HLEG) on sustainable finance launched their recently released final report to a UK audience.
It is a visionary report, covering the entire financial sector and the regulatory apparatus around it. The commission's intention was to secure strategic recommendations for designing a financial system in the EU that supports sustainable investment. It is now in the final stages of preparing an action plan, which will be published in early March. This will draw heavily on the recommendations made by the group and will, we understand, include legislative proposals, including to amend existing financial directives.
The group included a large number of highly expert Brits and drew on work from the UK, including the legal analysis on investors' fiduciary duties undertaken by the UK Law Commission. It was therefore entirely appropriate that the group should hold an event to profile its recommendations in the City of London. Sir Roger Gifford, who chairs the UK's Green Finance Taskforce, observed that this is not a global competition between financial centres: we are all working for the same ends. Quite right.
And yet, there cannot but be a niggling concern that the UK risks being left behind here with the price to be paid both damaging to our financial services industry and to the environmental, social and governance (ESG) objectives that are served by a smart sustainable finance agenda.
A striking shift underway is that EU financial services policy no longer appears primarily focused on the success of the financial services industry per se. Rather, the framing now is that the Capital Markets Union must be a tool to serve society's wider interests. The two agendas highlighted in particular by the commission are the 2030 climate and energy framework and the 2030 Agenda for Sustainable Development, through which Europe commits to the ambitious social objectives expressed through the sustainable development goals.
How might the UK respond in the context of our imminent departure from the EU?
The first observation is that whatever now emerges from the commission in the form of policy and legislation seems likely to influence financial actors in the UK regardless of Brexit. This is not only because our Brexit negotiations may result in a highly aligned regulatory approach to financial services but because policy ideas with merit on the continent will generally have merit here too. The commission looks likely to extend the mandates of the European Supervisory Agencies to include management of sustainability-related risks. Here, The Pensions Regulator has also been moving forward to address climate change, but the Financial Conduct Authority could certainly do more. And both could benefit from greater explicit powers to address sustainability issues. For many reasons, it would be smart to move in sync with Europe.
Secondly, there is actually a noticeable gap in the HLEG report that UK leadership could seek to address. Its report focuses predominately on climate change and hardly touches on the ‘S' part of ESG. But this too can have a huge impact on investment value. The EU has shown leadership on the environmental side. In doing so, it has provided a potential springboard for better addressing social risks. Here the UK could seize an opportunity for leadership that would serve those in our society left behind by economic growth.
Finally, while the HLEG's report by no means resolves all the challenges associated with short-termism in capital markets, by embedding financial services policy in a framework of society's long-term ambitions, we see here a basis for giving private investors the confidence to make significant capital allocations into green and otherwise sustainable investments.
The UK has a mighty financial services sector but our policy-makers have been cautious in seeking to make the sector useful to Britain's environmental and social goals. Indeed setting bold long-term policy objectives of any sort, let alone ones that explicitly harness the power of finance, seems out of vogue. But we too can be bold and would benefit from being so.
Catherine Howarth is chief executive of ShareAction. She can be found tweeting at @ca_howarth
In this live blog, Professional Pensions' sister title Investment Week collates all the breaking market news, analysis and opinion on equity, bond and currency movements as well as the impact of trade wars, tightening monetary policy and the Brexit negotiations....
Ross Trustees has secured investment backing from private equity investor LDC, as it prepares to capitalise on growing demand for professional trustee services.
Lee Sanders says the fast and adaptive market response to the crisis of 2020 has shown how much the financial system has improved upon the credit market liquidity issues that were at the heart of the 2008 global financial crisis (GFC).
The stabilisation of US economic growth amid unprecedented fiscal and monetary stimulus has raised questions about the likelihood of inflation returning. Global Head of Fixed Income, Jim Cielinski, and Global Bonds Portfolio Manager, Andy Mulliner, explain...