The Guide to Sustainable Investment 2012 (NEIW edition)

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to Sustainable Investment

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IT IS DIFFICULTTO GET A MANTO UNDERSTANDSOMETHING,WHEN HIS SALARYDEPENDS UPONHIS NOTUNDERSTANDING IT!

THE GUIDE

OCTOBER 2012

National Ethical Investment Week edition


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Abou

Bu & G Tmw

he right of Blue & Green Couniction iited to be

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directed to fully qulified finncil dvier (ee pge 47).

LIFEis for livinG

wcosTinG

the eArth.There is no

Pa () B.

Essential intelligence on sustainable

investing and livingBlue & Green Tomorrow wants to support

innovative businesses that balance the

needs o the planet, its people and our

prosperity.

We aim to provide our readers with

the knowledge they need to make

inormed choices without prejudice,scaremongering or greenwash.

We want the world to be as

blue and green tomorrow as it

was yesterday.

We believe that everyone can play a part

and anyone can make a diference. Not by

going back through misplaced nostalgia

to some bygone age, but by striding out

to a bright new uture in which we take

advantage o the new approaches thatcan improve our quality o lie, the ood we

eat, the air we breathe, the water we drink

and the land we live on.

Visit Blue & Green Tomorrowblueandgreentomorrow.com

CPYG & DsCam


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04 FOREWORD05 INFOGRAPHIC: FOLLOW THE MONEY

07 JAMES GIFFORD, PRINCIPLES FOR

RESPONSIBLE INVESTMENTEncouraging sustainable finance: the Principles for

Responsible Investment

12 THE UNITED NATIONS PRINCIPLESFOR RESPONSIBLE INVESTMENT

18 PENNY SHEPHERD, UK SUSTAINABLEINVESTMENT AND FINANCE ASSOCIATION

(UKSIF)

Understanding how your savings and investments

are used is integral to sustainability

22 JOHN DITCHFIELD, BARCHESTERGREEN

Ethical investment wins on price, performance and

the planet

24 HELEN WILDSMITH, CCLABringing ethical investment back to its roots

27 RAJ THAMOTHERAMThe long-term matters, and sustainable investment

holds the key to prosperity

32 JAMIE HARTZELL, ETHEXEthex: empowering education on ethical investment

35 MICHAEL YOUNG, SUSTAINABLECAPITAL

Ethical investment: doing something decent with

your money

38 SUE ROUND, ECCLESIASTICALSue Round and Ecclesiastical: pioneers in ethical

investment

40 EUROPEAN FORUM FORSUSTAINABLE INVESTMENT (EUROSIF)

44 ASSET OWNERS

45 INVESTMENT MANAGERS

49 THE WORLD OF FINANCIAL ADVICE

52 IFAS

53 ETHICAL POST CODES

54 FUND REVIEW

59 AND FINALLY

contentsWWW.BLUEANDGREENTOMORROW.COM

Get set or a journey

o discovery

embarking at ethical

origins, travelling

through the green

and growing elds

o sustainable and

socially responsible

investment and

disembarking at a

new, enlightened destination.

Take time to read and digest the wise words

o Mike Scott, Penny Shepherd, Sarah

Pennells and a host o others; realise that you

are not alone and then, better still, realise there

are people who have devoted their working

lives to help you understand and change the

impact o your money on the uture.

Read the previous edition oThe Guide to Sustainable

Investment
http://blueandgreentomorrow.com/reports/the-guide-to-sustainable-investment-2012/


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Welcome to Blue & Green Tomorrows

Guide to Sustainable Investment

produced and published especially

to coincide with National Ethical

Investment Week 2012.

Now into its fth year, the event serves as afocal point for proponents of this enlightened

investment sector, and were genuinely delightedto do our bit in making a difference.Weve managed to secure some of the sustainableinvestment sectors biggest names, including JamesGifford, Penny Shepherd and Raj Thamotheram,and its their inspirational words that we hope will

encourage you to invest sustainably.The quote on the front cover of this Guide comesfrom an American author by the name of UptonSinclair.

It is difcult to get a man to understandsomething, when his salary depends upon his

not understanding it! he once said. And thissentiment links unequivocally to the investmentindustry.

In the past week alone, despite it being NationalEthical Investment Week, weve seen a numberof articles that completely miss the point ofsustainable investment. If its not stranglingreturns in one piece, its delivering sluggishones in another.

But ethical, sustainable and responsible investorsdont, as the names suggest, invest solely for prot.They do it because they are insightful enoughto see the potentially destructive impact of their

portfolios, and so want to invest using ethicalcriteria; either by avoiding certain unethicalindustries (negative or exclusionary screening)or focusing on ones that reap signicant social orenvironmental benets (positive screening).In short, sustainable investors are responsibleglobal citizens.Thats why in debates between the two

sides ethical and unethical, sustainable and

unsustainable, responsible and irresponsible theformer will always have the moral high-ground.Whats the point of a ludicrously inated rateof return if what youre investing in is activelydestroying the planet and ruining peoples lives?But I dont want to sound too militant.

I genuinely believe that the vast majority of people

in this world maybe 95% plus are good. Therewill always be a small minority of individuals whoare inherent proteers, where prot at any cost isthe name of the game, but theyre not the people

were talking to.We asked over 5,000 private investors whetherthey would be willing to switch to more ethical orenvironmental investing and if not, why? (Seethe infographic on page 50).The results, on the face of it, arent pretty only8% of people said they would switch. But over64% of those said they wouldnt because of a lack

of understanding of the sector or concerns aboutthe return on investment. Its these people that arekey.

Much like the swing states are set to be crucialin the forthcoming US presidential election, theinvestors that are open to investing ethically,sustainably and responsibly are the ones that will

be the driving force behind the sectors futuregrowth.To quote Sinclair again, I intend to do what littleone man can do to awaken the public conscience,and in the meantime I am not frightened by yourmenaces.

I urge you to open your mind and join thesustainable investment movement early. Its a

journey of discovery with innite tickets available;but the best seats, as always, are at the front.

EDITOR, BLUE & GREEN TOMORROW

foreword


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Value of goodsand servicesproduced in 2010

(Global GDP)

For every $1 of goods and services produced, $26 is traded in the financial markets

Source: Der Speigel, 2010

Shares andbonds traded

Financialderivatives

Foreign currencytransactions

= $ 1 trillion

$63trillion

$87trillion

$601trillion

$955trillion

FOLLOW THE MONEY


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At Blue & GreenTomorrow, we believe in

great long-orm journalism.

Journalism that is evidence-

based, impartial, optimistic

and responsible. But,

great journalism costs and

advertisers oten want to

pay or avourable or badjournalism.

Thats why we needyour help. Each month we

want to produce an in-depth

report on one aspect o

sustainability.

To help, you can pledge

anything rom 10 to

2,500.

Ethical ShoppingIn the build up to the busiest

shopping period o the year,

we explore what to buy or

amily and riends without

costing the Earth

Responsible Media

Post-Leveson, what does amedia landscape look like

that inorms, educates and

entertains?

What the money pays or:

It pays or the reports - our

researchers, writers, sub-

editing and designers. Most

importantly though, it pays

or distribution to the widest

possible audience possible.

HELP CROWDFUND OURNEXT TWO REPORTS

To read our pitch, please visithttp://www.sponsume.com/project/blue-green-tomorrow


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T

he PRI investor initiativewas established after

the launch of its sixprinciples in April 2006

to help its signatories implementthe principles, which reect the

view that environmental, socialand corporate governance (ESG)issues can affect the performanceof investment portfolios andtherefore should be givenappropriate consideration by

investors.

The initiative is a partnership

between the United Nations and

global investors with the goal ofpromoting and mainstreamingresponsible and sustainable

investment practice.

The principles provide a

voluntary framework by which allsignatories can incorporate ESGissues into their decision-makingand ownership practices; a set of

criteria for investors to accuratelymake judgements on what theyare investing in.Pension funds, insurancecompanies, sovereign wealth anddevelopment funds, investmentmanagers, service providers andother supporters make up the PRInetwork.

I think that it is important

to point out that the PRI isaspirational, and we dontprescribe what you can and cant

invest in, remarks Dr JamesGifford, executive director of theorganisation.You can invest in whatever you

like but the PRI talks about theimportance of understanding what

youre investing in, and once youare invested, then having an on-going dialogue with the entities in

which you invest.The overall aim of the PRI is togrow investor interest in ESG

issues, and support signatories

in their fullment of the six PRIprinciples by sharing best practiceand facilitating collaboration.From a risk mitigation perspective,numerous cases from the past andpresent can highlight where thepoor management of these ESGissues has damaged companiesand investors nancially.

The dissolving of ethical standardsat News Corporation is oneobvious case, as was the BPexplosion in the Gulf of Mexicoback in 2010 which led to an oil

spillage of more than 20m gallons.Vedanta is another company

which had serious problems

with indigenous rights, and theshare price of Vedanta reectsits inability to manage a veryimportant social risk, whichresulted in the Indian government

removing its license, explainsGifford.And Barclays it is real ethics

violations and now look at what

has happened.

These are examples of companiesnot having ethical cultures andtrying to take shortcuts. And whatthe PRI represents and I think,at the heart of what responsibleinvestment represents, is thatinvestors should be allocating

capital to productive enterprises

ENCOURAGING SUSTAINABLE

FINANCE: THE PRINCIPLESFOR RESPONSIBLEINVESTMENTDR JAMES GIFFORD, EXECUTIVE DIRECTOR OF THE UNITED NATIONS-BACKEDPRINCIPLES FOR RESPONSIBLE INVESTMENT (PRI), SPOKE WITH JAMIEMCKENZIE ABOUT THE WORK BEING DONE IN HIS ORGANISATION AND WHATIS REQUIRED OF INVESTORS AND GOVERNMENTS TO ACCELERATE THE

TRANSITION TO A SUSTAINABLE GLOBAL FINANCIAL SYSTEM.

As well as being executive director

o the PRI, James Giford is an

honorary research ellow at the

University o St Andrews in Scotland.


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that deliver value in the long-term.If you do that, you should be inbusiness for a long time. If youare taking shortcuts or if you areunder investing in the future justto make short-term cash owslook better, then that is not a long-term sustainable company.These instances alone should

be enough to send signals tocompanies about the risks posed

by short-termism approacheswhich fail to account for ESGissues.

Indeed, there are a range of casestudies where PRI signatories

have allocated their capital intoindustries and projects whichspecically reect social orenvironmental themes, suchas cleantech, micronance andsustainable agriculture. Thesekinds of investments are oftentermed ESG-targeted or impactinvestments. What many of themshow is that as investors get toknow these investment areas

better, they have found that the

risks associated with may not beas high as initially perceived andthat healthy nancial returns canbe gained.We started with about 40

signatories, and now we have1017, representing $30 trillionassets under management (AUM),

which is round about somewhere

between 15-20% of global capitalmarkets, Gifford states.So in terms of achievements,signing up that amount of capital

to these principles is quite a largeachievement in itself. But moreimportant that just signing themup and we have demonstrated

this is in last years annual report

year on year there is persistent

increases in investor activity

around responsible investment

and ESG issues. And I think that isin part because of the work weredoing.Today, investors have a seat at the

table, and a meaningful say in how

companies manage ESG issues.Corporate sustainability is now

viewed by chief executives andpolicy-makers as central to runninggood business, and investors asactive-owners are increasinglyintegrating ESG issues into theirstewardship processes.

Having done a PhD thesis inshareholder collaboration, Giffordmakes clear that this doesnt mean

the PRIs signatories have thepower to change a company ontheir own. Often companies haveinternal champions pushing forchange, and sometimes it is downto NGOs, consumer groups, oreven governments.It is simply very difcult toattribute one cause to changes inbehaviour in corporations, giventhat corporations have so many

forces on them, he says.What we can say, is that

shareholders are among themost important stakeholders ofthe rm, and we have facilitatedthem mobilising themselves intoa whole range of areas whichinvestors were not really lookingat in the past.The PRI initiative has a wholerange of implementation support

work programmes which focus onaiding signatories in implementingthe principles within investment

processes across asset classes,

such as listed equity, xed incomeand property. Work is also beingdone in a local context to deliverimplementation support more

effectively in different countriesthrough the PRI country network.

Additionally, the PRI has an annualreporting and assessment process

which is used to monitor the

progress of its signatories.But perhaps the most inuential

work stream is the Clearinghouseengagement the agshipprogramme created by the PRIto effectively facilitate ways forsignatories to implement the sixkey Principles by bringing themtogether to catalyse changes incorporate behaviour.

Finding ways to seek improveddisclosure of data around ESGissues is an area which the PRIfocuses on developing with itssignatories, with the third principle

being directly linked to this issue.Detailing the extent to which thePRIs work has led to changes inbehaviour inside corporations,Gifford says: I think it is verydifcult to say that we can pointto a specic company and say

we did this or that. There are

certainly some examples, in theGlobal Compact for example,

where investor letters are resultingin signicantly more corporate

disclosure.

WHAT THE PRI REPRESENTSAND I THINK, AT THE HEART

OF WHAT RESPONSIBLEINVESTMENT REPRESENTS,IS THAT INVESTORS SHOULDBE ALLOCATING CAPITAL TOPRODUCTIVE ENTERPRISESTHAT DELIVER VALUE IN THELONG-TERM


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So I think certainly when it

comes to things like corporateESG disclosure, there is absolutelyevidence that investor pressure

has led to greater disclosure butjust because a company disclosesmore, that does not necessarilymean it is more sustainable.

We try not to claim that this

causes that, necessarily. But Ithink, shareholders were absent,and now they are present and

pushing in very much the samedirection as other groups.

And the reality is that there is stilla great deal of work to be done in

the area of corporate disclosure.Many of the PRIs on-goingcollaborative engagements suchas the CEO Water Mandate,Emerging Markets DisclosureProject, and the CarbonDisclosure Project demonstratethe scale of work needed tobring investors together andeffectively pressurise companiesinto changing the way in whichthey disclose and ultimately

manage sustainability issues. Butonly so much can be achievedfrom effectively engaging

with companies that need

encouragement to monitor anddisclose their activities when

there are thousands of them outthere and many more which

unfortunately fail to publish anyESG data at all.

To build an economy at the

macro level which is more

sustainable requires a change in

political conditions, meaning thatgovernments need to take thestep to support a move for betterand more systematic corporate

disclosure on ESG issues in

companies annual reports and

improve the regulatory policyframework.I asked Gifford about any newareas of focus in the PRIs strategy,and how addressing those areas

would help foster the transition to

a more sustainable global nancial

system.

His reply: I think the rst thingis this: if every investor does

what the leading PRI signatoriesare doing, it would make aprofound difference. In terms ofimplementing the principles, theleading signatories are integratinga full range of ESG risks intotheir investment analysis, so theyreally understand the risk in their

portfolios.They understand the risks

carefully, and when they seea risk, theyll raise it with thecompany. So this is all about

sending signals to companies thattheir investors their owners

want them to be long-termsustainable companies.

If other investors were to dowhat our leading signatories weredoing it really would transformthe signals sent to companies. Atthe moment, companies receiveall sorts of mixed signals frominvestors, who say, If you justexceed your quarterly earnings

expectations the share pricewill go up and youll get biggerbonuses. So there is a lot of short-termism in the markets.

Having investors send a signalthat they want those companies

to be world-class companies and world-class companiesprotect the environment and

human rights and so on ifthat signal was coming reallystrongly and persistently from theinvestor community, that would

have a profound impact oncorporate behaviour. But were

not there yet.It is only a matter of timebefore a transition takes placeto a more sustainable globaleconomy. But companies need

to receive stronger signals frominvestors that ESG risks matter.

Nevertheless, it is clear thatawareness of the long-term valuecreation of long-term responsible

investment within the investor

community will continue to

grow.However, without sufcientgovernment support forcorporate ESG disclosure, asustainable global nancialsystem will be a long way off.This means that governmentsand policy-makers must nowengage with investors andsupport them by creating apolicy environment which sends

stronger signals to companiesthat investors expect strongercorporate reporting anddisclosure, and ultimately better

management of sustainabilityissues.

And when more companiesimprove the management oftheir sustainability issues, there

will be a rise in more responsible

investment and nancial marketscan become more sustainable at

the macro level.

The PRI will also be developinga new research and public policy

programme which is still in its

very early stages.Gifford says, We will beworking closely with signatoriesto develop a programme thatreally tries to answer the

question, How, over the nextve to ten years, could we helpcreate a sustainable nancialsystem which creates those

incentives for long-termism andethical conduct, or managementof the social and environmentalrisks for well-governed

companies?Key insights andrecommendations from this new

work stream will ow directlyinto the PRIs implantationsupport and collaborative

engagement activities.

www.unpri.org


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ReportsPrevious
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Write for us.

Whether anonymously, under a pseudonym,

or with your name published loud and clear.

Journalism is changing rapidly through a

digital and social media revolution. It is no

longer the preserve of press barons and elite

groups; journalism is now democratic and

everyone has a voice.

And though that means theres a lot of noise

and rubbish out there, theres a lot of great

stu, too.

The role of media has changed. We still write

stories every day about the amazing people

and organisations that make a positive

dierence to the world in which we live, but we

also promote and publish the most relevant

blogs, tweets and articles from our readers.

We want to report on the diverse voices of our

audience and beyondregular people writing

as travellers, investors and consumers.

So, if you blog, tweet or write about

sustainability we want to hear from you. You

dont need to be an experienced or aspiringwriter or worry about article length, spelling

or grammarwell tidy that up for you.

We cant publish everything, but if its likely to

resonate with our readers or challenge them

in some way, youll fly to the top of our list.

Join us today by emailing

[email protected] your thoughts and contributions.

Essential intelligence on sustainable investing and living


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THE UNITED NATIONSPRINCIPLES FOR RESPONSIBLEINVESTMENT

IT IS SIX YEARS SINCE THE UNITED NATIONS ESTABLISHED THE PRINCIPLESFOR RESPONSIBLE INVESTMENT (UNPRI) FOR ASSET MANAGERS AND ASSETOWNERS GLOBALLY. SIMON LEADBETTER EXPLORES THE SIX PRINCIPLESAND WHAT THEY MEAN FOR INDIVIDUAL INVESTORS.

Introduction

Nobel Peace Prize winner Ko Annan

was the United Nations secretary-general between 1997 and 2006. In2005, he invited the worlds largest

investors to develop a small number of principlesfor responsible investment. Twenty institutionalinvestors from 12 countries answered the call.That was only the beginning of UN PRI, which

was formally launched at the NYSE in April 2006.These principles helped inform the thinking

behind Blue & Green Tomorrow and the role ofinvestment in shaping our future.There are six principles of responsible investmentand in just under eighty words, they coverinvestment analysis, ownership, disclosure,promotion, collaboration and reporting. Not a badoutcome for the competing aims of twenty majorinvestors and 70 stakeholders from the industry,intergovernmental organisations, government, civilsociety and academia.

It is striking that these clear principles were

drafted in 2005 and 2006, well before the crash of2007 onwards, and even more telling that the rateof institutional sign-up increased after the crash.Supporting this growth in interest, Eurosifs SRIStudy 2012 (http://blueandgreentomorrow.com/2012/10/05/eurosif-study-shows-marked-growth-in-responsible-investment/) shows that allresponsible investment strategies surveyed haveoutgrown the market, and four out of six havegrown by more than 35% per annum since 2009.

The six principles of responsible investment areaspirational and voluntary guidelines that focus onthe triple bottom line elements of environmental,social and governance issues (ESG) colloquiallyknown as planet, people and prot (PPP).Aspirational and voluntary should and would

worry most committed sustainable investors but

it is only through such aspirational and voluntaryframeworks that international organisations caneffectively operate across conicting national andcorporate interests.

The Principles for Responsible InvestmentAs institutional investors, we have a duty to act in the best long-term interests of our beneciaries.In this duciary role, we believe that environmental, social, and corporate governance (ESG) issuescan affect the performance of investment portfolios (to varying degrees across companies, sectors,regions, asset classes and through time). We also recognise that applying these Principles may betteralign investors with broader objectives of society. Therefore, where consistent with our duciaryresponsibilities, we commit to the following: We will incorporate ESG issues into investment analysis and decision-making processes.We will be active owners and incorporate ESG issues into our ownership policies and practices.

We will seek appropriate disclosure on ESG issues by the entities in which we invest.

We will promote acceptance and implementation of the Principles within the investment industry. We will work together to enhance our effectiveness in implementing the Principles.

We will each report on our activities and progress towards implementing the Principles.


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with values and morals; people who treat their

families well and wouldnt dream of damagingtheir local environment or community or cheatingat anything. It is surprising therefore, that theperson who walks towards an investment terminal

leaves this moral person behind and thinks, Tohell with the environment, society and goodcorporate governance.It is not enough to argue that it is the system thatmakes this happen. The system is made up ofhuman beings making simple choices and decisionsminute-by-minute, hour-by-hour and day-by-day.The person who decides to hold their position in

News Corporation, long after the facts of theirappalling wrong-doing have broken, is saying that

hacking the phone of a murdered child is okaywith them. No system can make a person do that.

Its a choice that has been weighed and measured.Any sensible investment manager and investorwill now be looking a lot closer at companies intheir portfolio. The media scents blood in thebusiness world, especially nancial services, andthe public is really angry. There will be a lot moredisasters and scandals the LIBOR rate xingscandal hasnt even started yet and as we getcloser to an election there will be ever greaterpressure on politicians to act tough in national and

in intergovernmental debates. Action will followrhetoric or the public, egged on by the media anddigital vigilantes, will punish the parties that dontact.

Organisations, like EIRIS, provide an invaluableservice in screening funds based on the companiesthey invest in, but relying on external parties is notenough. Institutional investors need to invest inmore ESG training, research and analysis tools toensure that the companies they invest in are livingup to their ESG responsibilities. The fund manageris responsible and accountable as he is, in effect,part owner of the enterprise.

Principle two activeownershipIn the beginning, owner-managers ran their ownbusinesses using their own money. Over time,the business owner-investor relationship becamemore distant as owners delegated the runningof their organisations to a managerial professionand allowed money managers to run theirinvestments. Finally, they spread their investmentrisk over multiple ventures in multiple sectors

across multiple territories through multiple money

managers. This meant their ownership of any oneorganisation was reduced to fraction, often held fora short fair weather period and with no managerialinterest in the actual function of the company.For the time being the active owner was dead,apart from in small to medium sized enterprisesand some very rare large ones. Business strategyand management was devolved to a managerialprofession whose own tenure was often short-termand whose goal was to maximise prot, in the timethey had.

This model seemed to serve society tolerably well

as our own economy grew, shareholders earneddividends and saw the value of portfolios rise,households became more afuent and there was

plenty of stuff to go round.Then in 2007, the system failed catastrophically, asit had with remarkable regularity over the previouseighty years.Prudent checks and balances in the system hadbeen abandoned in the 1970s and 1980s. Capital

had become hypermobile across industries and

borders. Financial speculation became an end

in itself, rather than a means of creating realinvestment in real businesses. In the pursuit

of prot, any remaining responsibilities to theenvironment and societies from which these

companies emerged were forgotten. Costs likeenvironmental protection, more expensivehome-grown employees or the taxes that housed,educated or healed them had to be avoided.

There were to be no limits to growth. Institutionalinvestors and the managerial profession conspiredto game the system to their advantage. They saton each others remuneration committees, owningstakes in each other as a cosy cartel. This allowed

them to guarantee escalating rewards regardlessof business or share performance. The owneror individual investor was side-lined, alongsidethe home-grown employee and customer, as

their stakes in the businesses became irrelevantagainst the scale of nancial speculation. By 2010,for every 1 of real trade, 26 was speculatednancially.If shareholders can or wish to, they can exertno inuence over their holdings. If managementbureaucracies are free to ignore shareholder votes,they will. However, those who see the failure ofcapitalism as a good thing tend not to live in thecountries that been recent beneciaries of freetrade, or have a very weak grasp of history and theoften brutal downsides of alternative systems.

But capitalism and the foundation of equity


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investment both need to return to their business

and innovator roots. Owners of companies, themajority of whom are institutional investors,need to exert greater inuence over, and engage

with, their holdings managerial bureaucracies.They should demand higher performance,environmental, social and governance standards. Iffor no other moral or ethical reason it will protecttheir investment in a resource scarce, polluted, lessstable world.

As individual investors, we can act as ownersand demand that those funds we invest in exertthis inuence, or not invest in them. We haveregularly argued that we live in an incredible timeof limitless information and connectivity. If you

are lucky enough to have a portfolio you havethree votes in our economy compared to most

peoples two as a voter (every ve years or so), asa consumer (every day) and as an investor (at leastevery March), whether directly or through a proxy.

Principle three disclosureSunlight (as well as being an exceptionalsource of limitless, clean energy and investmentopportunity) is the best disinfectant, to bastardisea quote from Associate Supreme Justice, Louis

Brandeis.Our political and business leaders would clearly

be far more honest if they knew their dealingswere subject to greater scrutiny in a transparentenvironment. Companies would often behavemore responsibly if they knew their recklessnesstowards the planet and its people was to be

regularly disclosed and well-publicised.Most commercial entities seek to safeguard theircompetitive advantage by putting into the publicdomain only what they need to by law or a highlypolished image in the form of an annual reportor marketing. Very few organisations are happy

to disclose anything that might give a competitorsome inside knowledge or tarnish that shinyimage in any way. They will also often ruthlesslyhunt down those who attempt to tarnish that

reputation.

Nevertheless, the environmental and socialfootprint of business affects all of us, the commons.It is not a commercially sensitive issue, but a publicinterest one. Governance issues have a material

effect on investors. Any prospectus would be falseif it did not cover ESG issues that may have a hugeimpact on future performance. Clearly, they should

be fully disclosed to a recognised standard.

In this area, some of the greatest progress is beingmade through the Global Reporting Initiative andprojects such as the Carbon Disclosure Project.By simply naming those who have disclosed theirESG activities, it shames those who do not. It alsoleaves people with the impression that those who

do not disclose have something to hide.One of the challenges is how little the averageperson or investor knows about these reportingstandards. Institutional investors and advisers

therefore have a duty of care to be aware of thesestandards and ensure that the values and ethics ofthe investor are matched by the disclosure of thecompanies being invested in.In addition, most investors invest in funds that

contain holdings in multiple enterprises. It isdifcult to identify funds that have a consistentdisclosure performance across the holdings. Again,the adviser or fund manager plays an essential rolehere ensuring that disclosure is reported on in aconsistent and transparent way.

Many of these initiatives preach to the convertedin that those who take an interest in ESG issues

know the standards. As we have regularlydiscussed most people do not make the connection

between their investment portfolio and real worldenvironmental and social outcomes. When there

is a disconnect between and investment and anindividual company, governance issues oftendo not register. Even fewer people make theconnection between their pension fund and thecompanies it invests in.

We would like to see far greater promotion of theseprinciples and regularly listing of those major assetowners and managers who comply with them and,perhaps more controversially, those that do not. Itis only in an environment of complete knowledgethat investors can make the informed choice theyhave a right to.

Principle four promotionPage 44 lists the signatories and non-signatories ofUNPRI. We recommend the former over the latter.The key word in this principle is implementation.

Implementation is perhaps the most interestingand challenging for asset managers and owners. Itmakes the alignment of long-term ESG implicationscore to everything in an investment its mandate(the purpose and limits of the fund), monitoring,performance indicators and incentives.Many signatories would struggle to say that all of

their assets are structured along those lines, but it is


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There have been a growing number of responsiblefunds.Moreover, in happy coincidence, as old sectorsfail, new clean technologies are emerging andbecoming established. These represent exceptionalinvestment opportunities while also reducing ourimpact on the planet or addressing the damage wehave done.

We now have a framework in which responsibleinvestment can take place (the principles), we havestyles of investment (negative [excluding those thatdo harm] and positive screening [investing in thosethat benet]) that cater for all attitudes and degreesof responsible investment.So there you have them: the UN Principles for

Responsible Investment (UN PRI). They go asfar as any investment industry, international andaspirational set of principles can go. In analysingthem, we have been impressed with the clarityof thought that has built simple steps aroundinvestment analysis, ownership, disclosure,promotion, collaboration and reporting.

The futureUNPRI is a set of six aspirational and voluntaryprinciples, which we have explored over the last

eight days. As more and more asset owners andmanagers become signatories, representing evermore trillions of investment, we ask, will it make adifference?The short answer is yes.

Anything that draws attention to the directconnection between investment and its real world

impacts, on the environment and society, hasto be a good thing. The connection between

what you invest in and the world we are creatinghas been ignored for too long. UNPRI makesenvironmental, societal and corporate governanceissues a core area for signatories to consider in their

investments. Awareness and engagement are therst step towards creating investment that is moreresponsible.

The longer answer, by two letters, is maybe.Trillions still ow into companies and activities thathave no regard for their impact on environmentand society, or do not conform to good corporategovernance norms. Many of them are signatoriesto UNPRI. The current model of irresponsibleinvestment has enormous momentum, whichcreates a conscious and unconscious resistance to

new models.

In addition, the majority of investment activity

takes place in the speculative and unproductive

areas of currency trades and derivatives. For every1 of stocks and shares trading, 11 is traded incurrency and 7 in derivatives. The huge owof funds in these areas have dramatic real worldeffects on societies by creating exchange rate, shareand commodity price uctuations. They affectthe environment by changing the nascent greenpriorities and policies of governments. Can suchtrades ever be responsible where their only motive

is prot?If responsible investment is to take hold in thetimescales our planet and its people require, we

will need something far more binding and urgentthan aspirational principles, although they are a

very good place to start. Our climate, resourcescarcity and environmental degradation do nothave the luxury of time.Increasing disclosure about the ESG behaviourof companies that have been invested in allowsinvestors to make informed choices. Morereporting on the progress made by asset ownersand managers in making ESG issues core toinvestment decisions and ownership allows

investors to make informed choices. Naming thosewho do not sign up to the principles would be avery powerful stick although this probably goes

against the spirit and ethos of organisation and itsvoluntary nature.Six years ago, a brilliant global statesman,Ko Annan, established UNPRI. We have aframework that has hundreds of signatoriesglobally, representing trillions of pounds worthof investment. The principles are necessarilyaspirational and voluntary to encourage the widestparticipation and engagement.That is just the beginning. The next six yearsrepresent an exciting new chapter for UNPRI.The opportunity exists to create a rapidly-growingand inclusive rather than exclusive movement

that informs and educates as wide an audienceas possible of the possibilities of responsibleinvestment.

Before it is too late.

You can read UNPRIs annual report herehttp://www.unpri.org/les/Annual%20report%202012.pdf
http://www.unpri.org/files/Annual%20report%202012.pdfhttp://www.unpri.org/files/Annual%20report%202012.pdfhttp://www.unpri.org/files/Annual%20report%202012.pdfhttp://www.unpri.org/files/Annual%20report%202012.pdf


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N

ow into its fth year, National Ethical

Investment Week (NEIW) is arguably thesustainable investment industrys mostimportant event. Fronted by UKSIF in

collaboration with The Co-operative, Ecclesiasticaland CCLA, its a chance to create real discussionabout the green and ethical nance and investmentoptions on the market, and get the notion out to a

wider audience.

Penny Shepherd is one the sectors mostrecognisable names, having been chief executiveof UKSIF since 2005. As executive directorbetween 1997 and 2001, she helped bring sociallyresponsible investment to the fore. UKSIFs

membership tripled during these four years andShepherd was awarded an MBE in 2000 forservices to sustainable economic development and

socially responsible investment.Twelve years on, shes still as passionate about greenand ethical investing as she was from day one, andrecently outlined some of her thoughts to Blue &Green Tomorrow.

Another year; another National Ethical

Investment Week. What has been dierent

about it this year, though?

It has grown and deepened each year. The thing

were particularly enthusiastic about this year is the

involvement of church groups. Theyve really gotbehind the week brilliantly. Our model for successis Fairtrade Fortnight and were very conscious of

the degree to which church groups were absolutelypivotal to the success of that. Were seeing themdoing things up and down the country.Its very important to have a dedicated week in

addition to communicating throughout the yearbecause its about all of us raising awareness at thesame time. We can have much, much more impactthan just communicating during the week. Its abouthaving critical mass.

Why did you choose to base NEIW on

Fairtrade Fortnight?

At Fairtrade Fortnight, there are lots of people up anddown the country undertaking events and activitiesat the same time everything from running eventsthrough to mentioning it to a friend over coffee.But because that is then backed up by a higherconcentration of media coverage during the week,people are more likely to hear it from multiple places,and that means that its more likely to have an impact.

What eect has NEIW had on the ethical

investment industry in terms o interest?

Weve seen both the number of events growing overthe last few years, and also the number of nancial

advisers involved. Last year, there were 50 eventstaking place up and down the country which was a21% increase compared to 2009, and those eventstook place at 18 locations. Three hundred and ftynancial advisers were involved last year in some

way, and that was a 40% increase from 2009.

Religious groups were particularly targeted

this year. Just how important are they in

spreading awareness o ethical investment?

Very, because as with Fairtrade Fortnight, theyrea group that reaches out into their communities

and can spread the word as to what is possible.

UNDERSTANDING HOW YOUR

SAVINGS AND INVESTMENTSARE USED IS INTEGRAL TOSUSTAINABILITYPENNY SHEPHERD, CHIEFEXECUTIVE OF THE UK SUSTAINABLEINVESTMENT AND FINANCE

ASSOCIATION (UKSIF), SPOKE WITHBLUE & GREEN TOMORROW ABOUTNATIONAL ETHICAL INVESTMENTWEEK, THE GREEN INVESTMENTBANK AND ENCOURAGINGINDIVIDUALS AND BUSINESSES TOTHINK MORE SUSTAINABLY ABOUTTHEIR FINANCES.


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And really, what were tryingto achieve with NEIW is two

things; dispelling the commonmyths that are still out there, andtherefore to help people get betterinformed about modern greenand ethical investment, but also,after the nancial crisis, I thinktheres a general recognition that

we all need to understand better

how our savings and investmentsare used, and not just leave thatto the professionals.It can be very easy to put that

off, and so NEIW is a wake-up

call for people to understandmore about how their savingsand investments have an impact

on the world, and understandthe options that are available to

them.

In order to grow the ethical

investment sector, do you

think its just a case o

presenting investors with

the ethical, sustainable or

responsible option?

One of the key things that wewould say is that green andethical investment has grownand developed over the last 25

years and there are a range ofways and motivations for doingit everything from responsibleownership through to thetraditional negative screening.

And an increasing range ofoptions are deliberately tailored

to have social or environmental

impacts. For example, things likeinvesting in community windfarms where there are a number ofoptions available at the moment.

I suppose part of what werecommunicating is that it makessense to understand the area

better and to consider dippingyour toe in the water. There can

be a range of motivations, whichincludes a desire to make money

as well as a desire to make a

difference in the world.

Theres also a strong case or

simply outlining to oblivious

investors what it is that their

money is going towards. Do

you think this is a wise step to

take?

Yes, but you need to also saythat there are then a range ofthings that you can do aboutthat, particularly with savings,

investments and bank accounts.Move Your Money says that

over half a million people havealready switched bank accounts

from the major banks to ethicalalternatives, but whats also trueis that in the last year, weveseen the shareholder spring.

And so its also about investingwith fund managers that areusing their powers as owners toimprove corporate behaviour, as

well as making decisions about

whether you want to change theinvestment selected.

Whats stopping ethical

investment rom truly

becoming mainstream?

I think that its a number ofthings. One thing is that thereare still a lot of misperceptions people think its all or nothingand are often concerned withperformance. Another is that

green and ethical investment

only means the traditional

funds, but equally, I think thereare some challenges aboutmainstream fund managerscommunicating what theyredoing, so for example, many fundmanagers are now signed up tothe Principles for ResponsibleInvestment, but that isnt always

well communicated to the retail

market in particular.

Socially responsible

investment teams at

Henderson and Aviva were

both closed down in the last12 months. What impact do

these closures have on the

industry?

What were seeing at themoment is wider restructuringtaking place within theinvestment management sector.

And it isnt surprising that thereis some impact on sustainable

and responsible investment fromthat. But in fact, if you look

at both Henderson and Aviva,when the team that was formerlyat Henderson moved over to

WHEB, Henderson didnt close itsSRI funds; it just shifted to usingexternal research. In essence,those funds are still available inthe market; theyre just managedexternally rather than internally.

And then if you look at whathappened within Aviva Investors;they moved away from managingequities in London to managing

xed-income, so the key featureof the Sustainable Futures Fundis that they were by-and-largeequity funds, so they no longertted with the Aviva Investorsstrategy, so it wasnt surprisingthat it made sense for them tond a new home.Meanwhile, Aviva Investorsstrengthen their institutionalcommitment to responsible

investment by promoting Steve

Waygood to chief responsible

UKSIF chie executive Penny

Shepherd was awarded an MBE in

2000 or her services to sustainable

economic development and socially

responsible investment


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investment ofcer. And if you look at who hasprobably been one of the most vocal investmentindustry leaders on the subject of sustainability andcorporate responsibility over the last few months,then its been Paul Abberley from Aviva Investors.I certainly dont see those developments as

weakening sustainable and responsible investment;really quite the reverse.

You were part o the advisory group or the

Green Investment Bank, which this week

received state aid approval rom the European

Commission. What was the groups role?

We advised the secretary of state on the early stagesof creation of the bank. For example, issues likereviewing of the state aid application. What we

werent responsible for was individual investmentdecisions; and quite rightly so.The key point that the advisory group made to thesecretary of state was that it was important to make arapid decision, because the climate change imperativemeant that the bank needed to be up and runningand making effective investments as soon as possible.The advisory group ran up until when the boardof the Green Investment Bank was appointed. So

when it was announced that Robert Smith hadbeen appointed as chair, it was actually announcedat the same time that the advisory group had been

disbanded because basically our job has been done.In fact, last week they announced the non-executivedirectors of the bank, and one of those was TessaTennant, who is a former UKSIF chair and very mucha pioneer in this area, so thats very good news.

What do you think the main positives o the

Green Investment Bank are?

One thing that UKSIF is very pleased about wasthe strategy of doing smaller investments throughplacing mandates with specialist fund managers,and what were very pleased about is of the fourmandates that have been placed so far, three of them

have been placed with UKSIF members. Thatscompletely independent to my role on the advisory

group, I should say, but the non-domestic energyefciency mandates have both been placed withUKSIF members, with Sustainable DevelopmentCapital and Equitix, and then one of the earlier

waste management mandates was placed with theForesight Group.

What are your thoughts on the location

o the bank? Many commentators were

disappointed that Edinburgh an established

fnancial hub was chosen, rather than a

town or city that perhaps wasnt as thriving

economically.

Our concern was particularly about the speed

of making a decision, and I think that we werehappy that the decision was not unduly delayed.

Edinburgh is a one of the UKs leading nancialcentres, but there was a very long list of towns andcities that applied to be the host.

The primary purpose of the Green InvestmentBank is to speed the allocation of capital into greeninfrastructure. In order to do that, it needs accessto a deep pool of people skills. And so actually, oneof the criteria that was used in assessing location

was therefore the potential specialist employee baseavailable. But the other thing to say is that actually,the number of people directly employed by the GIB is

relatively small. Its not a number thats going to makea material difference to the economic development ofany area.

Long-term, its aim is to accelerate the nancing ofgreen infrastructure, but it acts to nance greeninfrastructure up and down the country, so the jobcreation impact is on the projects in which it invests,rather than the number of people who are workingfor the GIB. The GIB seeks to invest in the bestprojects across the UK there is no suggestion that asa result of its location, it will be more likely to investin Scotland compared to Wales or England.

There was certainly a school of thought that wouldhave liked it to have been based in London, andcertainly some of the dealmakers will be in London.But I think the underlying issue is that the decisionhas now been made and therefore the GIB is freeto move on and to achieve its aims and the nextcritical milestone is the state aid application. The most

signicant outstanding issue from our point of view isthe question of borrowing powers.

Finally, what would you say to individuals,

businesses and policymakers in order to

encourage them to act more ethically,

sustainably and responsibly with theirfnances?

The world is changing and how money is made in thefuture will be different, and we are already seeing theevidence that taking into account environmental andsocial factors should help you both to make money inthe future and also make a difference in the world.

www.uksi.org


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hicalSh

opping

www.b

lueandg

reentom

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THEGU

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sooncoming

november 2012 december 2012

Ethical Shopping In the build up to the busiest shopping period o the year,

we explore what to buy or amily and riends without costing the Earth

Responsible Media Post-Leveson ,what does a media landscape look like thatinorms, educates and entertains?


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Statistics released as part of NEIW2012 by research rm EIRIS conrmthat almost 11 billion is invested UKgreen and ethical funds up from 4

billion a decade ago and there are some1 trillion worth of responsibly-managedassets in the UK contributing to 18% ofthe European total.

I question the assertion that ethical

investment is a cottage industry, says JohnDitcheld, managing partner at Barchester

Green, one of the UKs oldest ethicalindependent nancial advisers.It is reasonably large, but I do think there isa barrier around public perception.

The general public in the UK still regards itas a bit of a fringe enterprise for people whoare nutty about environmental issues.

In a sense its already there in the

mainstream; its just that individuals dontrecognise that.

As for the assertion that there is aperformance sacrice to be made when

opting for dedicated ethical investments,Ditcheld adds that this is factuallyincorrect.Ethical funds, just like conventional ones,

do vary in performance there are somethat do underperform and there are somethat dont. But there is simply no evidence

or noticeable trends to suggest that byinvesting ethically, youre guaranteed to geta lower return than if you were to opt formainstream investments. Just the opposite,

in fact.A recent study by German rating agencyOekom found that rms in the PrimePortfolio Large Caps index a group of 300major rms with sustainability accreditations reaped a 15% better return over a seven-

year period between 2004 and 2011 than

the MSCI World Index.This is on top of a study by the now-defunctDB Climate Change Advisors, DeutscheBanks climate change research arm,

which after looking at over 100 academic

papers into sustainable investment, foundthat 89% displayed evidence for market-based outperformance for companies thatfactored sustainability into their investment

strategies.Ditcheld points to the three Ps of ethicalinvestment in order to encourage individualsto invest in this way.

Firstly, on price, ethical funds are verycost-effective. Theyre not expensive funds

to invest into, he begins.Secondly, the performance is very good onmany ethical funds.And thirdly, we do need to look after the

only planet weve got, because investing inbusinesses which are about sustainability

and protection the environment is very

good.A fourth point would be to do with values its more interesting to invest, to a certainextent, in line with your values Id say.

Ditcheld was last month elected to theUK Sustainable Investment and Finance

Associations (UKSIF) board, and hiscompany, Barchester Green, held an eventas part of NEIW, called Heroes of EthicalInvestment.

A number of awards were presented toindividuals and companies all of whomhave excelled in investing ethically over thepast 12 months.

Triodos Bank picked up the pioneer

award for its signicant contribution to

the sector by encouraging responsiblenancial practice, thought leadership andinnovation.Meanwhile, the Cheviot Climate AssetsFund and Kames Capital won performanceawards; the UKs only 100% renewableelectricity provider Good Energy was giventhe award for potential and WHEB AssetManagement went home with the one to

watch award.

Provided we can raise the prole ofthe sector, then its a very useful thing,comments Ditcheld, when asked about the

potential impact of NEIW 2012.Currently, I think there is a large chunk ofthe population that you can invest ethically

and environmentally whilst making anancial return.Its really about educating the public andputting information out into the publicdomain on ethical and environmental

investing. Its very important for the sector.

www.barchestergreen.co.uk

ETHICAL INVESTMENT WINS ON PRICE,PERFORMANCE AND THE PLANETMANY PEOPLE IN THE ETHICAL INVESTMENT INDUSTRY ARE HOPING THAT THIS YEARS

NATIONAL ETHICAL INVESTMENT WEEK (NEIW) CAN GO A LONG WAY IN DISPELLING SOME OFTHE COMMON MISCONCEPTIONS OFTEN ASSOCIATED WITH THE SECTOR.

ETHICALINVESTMENT IS

ALREADY THERE INTHE MAINSTREAM;

ITS JUST THATINDIVIDUALS DONT

RECOGNISE IT

John Ditcheld is managing partner at

Barchester Green, one o the UKs oldest

ethical independent nancial advisers.


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Ethical investment has witnessed

signicant growth in the last decade ortwo. In the UK alone, almost 11 billionis now invested in green or ethicalretail funds, compared to just 199m in

1989. But the sectors beginnings are even morehumble.

Its said that the Religious Society of Friends

also known as the Quakers devised the idea ofinvestment that isnt solely for prot. And JohnWesley, the 18th century theologian who laid thefoundations of the Methodist movement, is alsooften credited with paving the way for the ethicalinvestment industry to prosper.

The love of money, we know, is the root of allevil; but not the thing itself, he said, in a 1760sermon called The Use of Money.The fault does not lie in the money, but in themthat use it. It may be used ill: and what maynot? But it may likewise be used well: it is full asapplicable to the best, as to the worst uses.

Ever since those light bulb moments, ethical,sustainable, responsible investment has alwayschimed well with religious groups and charities.Theyre mission-driven organisations who careabout the impact they have on the world, saysHelen Wildsmith, head of ethical and responsibleinvestment at the CCLA, a specialist investmentmanagement group for churches, charities andlocal authorities (hence its name).We offer investment funds that invest in listedequities, in bonds, in property, and we have cashdeposit funds for churches, charities and the public

sector, and so from that point of view, we look

like a normal fund management house, but theunusual bit is that we only serve UK not-for-protorganisations and were owned by our clients.This means that when any organisation investsone of CCLAs long-standing Investment Funds,it automatically becomes a co-owner of CCLA.Clients are assisted by CCLAs dedicated ethicaland responsible investment team in aligning their

organisations principles with their investmentportfolios whether its avoiding certain industriesor focusing specically on making a social orenvironmental impact.

The natural alignment between ethical investmentand charities and churches is something thatdirectly inuences and inspires many people to

work in the sector. Jeremy Newbegin, director ofThe Ethical Partnership, is just one of a number ofspecialist ethical nancial advisers that B&GT hasspoken with who have said that their religion ledthem naturally to ethical investment.

His Christian beliefs go hand-in-hand with this

kind of investment, but it was still his personalpreference to become a nancial adviser in thiseld. Muslim investors, however, have less of achoice to make, with Sharia law Islams legalsystem preventing them from investing in certainindustries. This has led to the growth of Islamicinvestment funds, like the SWIP Islamic GlobalEquity Fund, which specically prohibit investmentin tobacco, pornography and nancial services,amongst other areas, meaning these vehiclesare often found under the more broad ethicalinvestment umbrella.

Seeing the vast opportunity presented by this

BRINGING ETHICALINVESTMENT BACK TO ITSROOTSTHE PRINCIPLES OF ETHICAL INVESTMENT CHIME NOTORIOUSLY WELLWITH THE VALUES HELD BY CHARITIES, FAITH GROUPS AND THE PUBLICSECTOR. BLUE & GREEN TOMORROW SPOKE WITH HELEN WILDSMITHOF CCLA A CLIENT-OWNED FUND MANAGER THAT PROVIDES

RESPONSIBLE INVESTMENT SOLUTIONS FOR ALL THREE.


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Investment and Finance Association (UKSIF),runs through some of the many ethical optionsfor charities. Called Responsible Investment byCharities: the Role of Pooled Funds, the guide

clearly explains what charities should do if theywant to focus on or exclude various industriesand areas in their investments.

CCLA provides the secretariat for the ChurchInvestors Group, a coalition of over 30 investorsthat have over 12 billion in combined assets.We believe it will serve to increase the witness

and inuence of the church in society if ourinvestment portfolios reect the moral stanceand teachings of the Christian faith, the groups

website states.

Two CCLA funds, Wildsmith says, are amongst

the ve largest socially responsible investment

(SRI) investment funds in Europe. It recentlyaltered the make-up of one of its funds, the EthicalFund, which from January 2013 will have a 10%turnover limit for companies that derive turnoverfrom alcohol, gambling, pornography, tobacco andstrategic military sales. This gure will decreasefrom 33%, and for the rst time, will also apply tothe extraction of coal for energy use.

You may wonder why the fund allows thesesectors at all. Businesses like supermarkets or

off-licenses for example, sell alcohol and mildpornography, but dont derive the vast majorityof their turnover from selling these products.By implementing a turnover threshold, thesecompanies are able to invest ethically.

Its very easy for individuals and trustees tosee the investment as a black box and not thinkabout whats happening inside it. Blind moneycan lead to missed opportunities and unintended

consequences, describes Wildsmith.UKSIF has modelled NEIW on FairtradeFortnight so aspirations are very high. We hopeit will be as famous as Fairtrade Fortnight as thedecades pass.

Its clear that if youwant your personal

morals and principles

to be reected in allaspects of your life regardless of whether

youre religious, giveto a charity or work fora public sector body

then ethical investment

is by far the wisest andbest route to go down.

It seems tting, therefore, to round off this piecewith a quote by John Wesley, which still serves asa simple and eloquent bit of life advice for people

wanting to do good.

Do all the good you can, By all the means youcan, In all the ways you can, In all the places youcan, At all the times you can, To all the people

you can, As long as ever you can.By opting to invest ethically, you might just bemaking the biggest difference to the world that

youll ever make in your life.

ITS VERY EASY FORINDIVIDUALS AND TRUSTEESTO SEE THE INVESTMENT ASA BLACK BOX AND NOT THINKABOUT WHATS HAPPENINGINSIDE IT

www.ccla.co.uk

John Wesley, the ounder o the Methodism

movement, is oten credited with paving the way

or the ethical investment industry to prosper.

Photo: Jon Worth.


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Speaking with Raj Thamotheram, itsdifcult not to get inspired aboutsustainable investment. The 52-year-old boasts an impressive CV, having

worked for some of the largest pensionfund management rms in the country, as wellas spending signicant time in his early career inthe international development and campaigningsectors.

Now though, he splits his time betweenconsultancy, supporting reform initiatives,public speaking and writing. And underpinningeverything he does is a rm belief that investment

is integral to ghting the majority of the worldsenvironmental, social and economic battles. Buthow does a degree in neuropharmacology andanother in medicine lead someone to become a

thought leader in investing sustainably? By a strokeof luck, it seems.

After working for Saferworld and Action Aid inthe late 80s and early 90s, he left to become acorporate responsibility consultant, and it was

whilst doing this job that he had his rst foray intothe investment industry.

By mistake, I got led in a recruitment folder

[at a large pension fund] and got called for an

interview, he recalls.The man who was then to become my boss

started the conversation by asking whether I wouldlike the job. I said, What job? He said, The job

youve applied for. I said I hadnt applied for a job,so he looked at the le, closed it and said, Letspretend you had applied for the job. Why would

you like it?And so I ended up working for UniversitiesSuperannuation Scheme (USS) for seven years ashead of responsible investment.I had a great time there, learnt a lot and amproud to have been able to help the organisationbecome one of the leading pension funds involvedin responsible investment. I was then headhunted

to do the same thing at AXA Investment Managers

and I was there for ve years.When I look back on my career, it all makessense, but it didnt make any sense whilst I wasdoing it.Whilst at AXA, Thamotheram helped launchand then became president of the Network forSustainable Financial Markets, an international,non-partisan network of nance sectorprofessionals, academics and others who have anactive interest in long-term investing.When sitting at the back of the room during

what he describes as a very boring investmentconference one day, Thamotheram and a very

bright investment actuary called Sally Bridgeland,who he had met for the rst time that day, decidedto stop whingeing and leave to do somethingcreative. The brainstorm over drinks that ensuedpaved the way for the investing as if the long-termmatters competition run in partnership betweenUSS, Hewitt and FTfm and a notion that hechampions so passionately today.

We thought about how the investment industryoperates on competition and so it was obvious

we had no money to invest in this new way so we

decided to create a hypothetical competition, he

explains.

THE LONG-TERM MATTERS,

AND SUSTAINABLEINVESTMENT HOLDS THE KEYTO PROSPERITYBLUE & GREEN TOMORROW SPOKEWITH DR RAJ THAMOTHERAM,WIDELY RECOGNISED AS ONE OF

THE LEADING THINKERS IN THESUSTAINABLE INVESTMENT SPACE.HE TALKS ABOUT THE NOTION OFINVESTING AS IF THE LONG-TERMMATTERS, AS WELL AS THE TERMPREVENTABLE SURPRISES ANDHOW IT ALL BEGAN WITH A DEGREEIN NEUROPHARMACOLOGY.


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Both of us had read Schumachers EconomicsAs If People Mattered, and so we did a pun onthat and created a competition called Managingpension funds as if the long-term matters.We had a quite major success actually, especially

when you think it was long before most people feltthere was a problem with short-termism. At thattime, serious players in the industry were openlysaying the long-term is just a series of short-termsteps.

Now, everyone is talking about the issues andfew would dare say it in public even if they stillthink it. It was quite a thought leadership projectat its time and it got a lot of publicity. But it didntinuence investment behaviour.With now nearly 15 years of experience in

the investment industry, its fair to assumethat Thamotheram has witnessed a few majorchanges in his time. Not least, the fact that ethicalinvestment at a private level in the UK has grownto a size of around 11 billion, with over 80 fundsavailable to individuals.

On top of this, as of December 2009, UKSIFestimated that there were around 938 billion

worth of socially responsible assets undermanagement in the UK a 19% increasecompared with the end of 2007, and a gure thathas undoubtedly increased since.

Thamotheram describes the biggest changeshes witnessed during his time in the investmentindustry.

Whatever we choose to call it, what were talkingabout today is no longer seen as completely off theother end of the planet, he says.There are more and more people in the roles.

When I started, there were about 15 of us in therst three years. Now, its a huge sector and theUNPRI quotes assets under management of morethan $30 trillion. Thats something like one in teninvestment dollars. Thats the positive side.

The negative side is that theres a really big

disconnect between the scale of the investmentchallenge and our understanding of this challenge

and what people are actually doing, and despitehaving evidence of this disconnect, it isnt beingclosed in many important areas. Am I saying thingsare getting worse? No, Im just saying things arentgetting better at the scale at which the awarenesshas increased or should have increased.Thamotheram is known for being unusually frankabout the sustainable investment sectors progress.He cites the executive pay saga as one example,saying that whilst there are lots of people doinggood work, 73% of Barclays shareholders voted ina way to allow the pay packages to go through.He also uses a case study of oil giant BP, whichin 2010 hit the headlines after more than 20mgallons of oil (equivalent to 4.9m barrels) spilledinto the Gulf of Mexico following an explosion at

its Deepwater Horizon rig. Shares in the companyswiftly plummeted, and chief executive TonyHayward resigned from his position as a result. Butthe chair of the companys safety committee, SirWilliam Castell, remained in his job for two yearsafterwards, only retiring in April this year.Thamotheram explains how this disaster, as well asa number of other incidents during his time in theprofession, led him to come up with the project,Preventable Surprises.Having lived professionally through theexperience of Enron, WorldCom, RBS, HBOS

and then seeing BP happen as well, what struckme was that even the environmental, socialand corporate governance (ESG) and sociallyresponsible investment (SRI) communities largelyfound it hard to engage with what was our role asinvestors in that process, Thamotheram says.What havent we learnt that helped allow this to

happen?And I came up with the phrase preventablesurprises, adapting it from an academics work in

which they talked about predictable surprises. I

wanted to say that they were predictable, but theywere also preventable.

In the same way that in medicine, you can havea preventative health approach, it doesnt mean

WE KNOW THE CLIENTS WHO MOVETHE FASTEST ON INNOVATIONS IN THEINVESTMENT SYSTEM ARE HIGH NET-WORTHINDIVIDUALS. AND A FEW PEOPLE ACTING

HAS A DISPROPORTIONATE IMPACT


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The debate has been taken over, but to my mindthats largely the responsibility of the very largegroup of people who are in the middle, sitting on thefence and staying silent. This includes mainstreaminstitutional investors. There are many, many thingsthat these investors could do if they took a rationalperspective. But the really sad thing is many decisionmakers seem to think they can double-check everyscientic fact about climate change.This is plain silly. The level of scientic condenceabout climate change is much, much higher thanmany other things that investors just take forgranted today.The bottom line is the national academies ofRussia, America and so on are saying that itshappening and humans are a major cause. Even

climate change sceptics that have looked at it inorder to prove its not happening have said theynow largely agree with the IPCC conclusions.Overshadowing the debate about climate changethough is the need to reduce our pollution and

waste, as those two combined are arguably thebiggest problems we face. And it would take, saysThamotheram, a rather ill-informed investmentprofessional to argue that resource scarcity is not amajor threat to societal well-being and investmentreturns.

This is why there really shouldnt be a debate

around investing sustainably and responsibly.Thamotherams passion for sensible investmentis contagious. Speaking with reference to Blue &Green Tomorrows readership, he issues a rallyingcall to action to encourage and inspire individuals

who have signicant wealth to take a leadershipposition on sustainable investment.

Look, we know the clients who move the fasteston innovations in the investment system are highnet-worth individuals, he proclaims.Its their money, they can make the decisions andthey can choose what signal they send to theirfund managers. There is no need for the backside-

covering duciary duty debate that characterisesinstitutional investors who are trapped in a system

where deviating from the herd carries real risk.And a few people acting has a disproportionateimpact. We know from the theory and practiceof tipping points that system change can happen

with about 10% of the community taking action.So thats one of the opportunities created by theconcentration of wealth today a small numberof high net-worth individuals acting collaborativelyand seriously could have a big impact.And when I say seriously, I dont mean

syphoning off 5% of their assets and putting it in

some cleantech or sustainability niche fund. WhatIm talking about the 95% of their assets thats partof the problem. A little change here is what willbring the biggest positive societal impact. And itcan be done without losing money.Today, no-one would eat well 5% of the timeand then pig out for the rest of the week at fastfood restaurants on food that was stocked full ofantibiotics, steroids and pesticides and where the

workers were treated badly. No-one would thinkthats healthy, especially if they were fortunateenough to be a reader of this magazine. But that is

what many of us do in relation to our investmentbehaviour.

We dont clock that we are what we invest in.

Thats all we have to do. And a few people starting

to do it will create a different environment.

SYPHONING OFF 5%OF YOUR ASSETS

AND PUTTING IT INSOME CLEANTECH

OR SUSTAINABILITYNICHE FUND IS

NEITHER HERE NORTHERE. WHAT IM

TALKING ABOUT ISTHE 95%

Raj Thamotheram devised the phrase investing as i the

long-term matters to describe sustainable investment.


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Investment can be complicated. Indeed, a

mere mention of derivatives, mutual fundsand asset classes is often enough to turnmany peoples blinders on.

For every $1 of real goods and servicesproduced, $26 is traded nancially, but theglobal investment industrys complexityfrequently masks its impact, in that most peoplesimply arent aware of what damage theirmoney might be doing to the planet and itsresources.

But this applies for ethical investments, too. Justas investors are often oblivious to the bad things

that are happening behind the scenes, theyre

ETHEX: EMPOWERING

EDUCATION ON ETHICALINVESTMENT

JAMIE HARTZELL IS THE DEFINITIONOF AN ENTREPRENEUR. HEARRIVES AT HIS LATEST VENTURE,ETHEX, A NOT-FOR-PROFIT THATGIVES INFORMATION ON ETHICALINVESTMENT, AFTER A CAREERTHAT ENCOMPASSES FILMMAKING,PHILANTHROPY AND PROPERTY.HE SPOKE TO BLUE & GREENTOMORROW ABOUT HOW HE NOWHOPES TO HELP PEOPLE REINSTALL

POWER INTO THEIR FINANCES.

Managing director o Ethex, Jamie Hartzell, is

perhaps best known or ounding the Ethical

Property Company.


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also unaware of the good things. This is whereJamie Hartzell comes in.Hes launched Ethex, a not-for-prot organisationthat lays out information about ethicalinvestment in simple terms. It proles thesocial, environmental and historical investmentperformance of a number of businesses

whether its fair trade organisations, communityrenewables projects, rms working in socialproperty or ethical banks with the aim ofencouraging more people to think differentlyabout where their money might be invested.We include any business that has a very clear

positive benet at the heart of their mission,explains Hartzell.

As well as this, we would also expect themto conform to a set of ethical criteria and to be

working to improve those criteria.So, what are their carbonemissions as an organisation?How many women do they

have on their board? Is thepay of their chief executiveexcessive compared to thelowest paid people in the

organisation? There is arange of criteria that wed be

presenting.An environmental lmmakerfor much of the 1980s and90s, Hartzell is perhapsbest known for founding theEthical Property Company, anorganisation that buys properties and transformsthem into ethical service centres for not-for-protorganisations and social enterprises. Launched in1998, it now has nearly 20 centres across the UK,

with sister companies in France, Belgium and theNetherlands.

With the Ethical Property Company at a mature

stage, Hartzell decided to step back in the springand devote his time to Ethex.Our aim is to get as many people as possibletruly investing ethically, he says of theorganisations aim.How many people that will be is quite a hard

one to call but we have done a survey of ethicalinvestors in the UK and there are 45,000investors in existing membership through theethics businesses.

Thats already quite a substantial working baseto start from and I think there is more and more

interest.

People are getting a lot more active, particularlysince the Libor scandal, to switch their accounts.So there are a lot of possibilities out there if wecan access them.Hartzell is right. In the week immediately afterthe Libor rate-xing scandal came into the publiceye, dedicated ethical banks across the UK wereinundated with interest from potentially newcustomers.

Triodos Bank received a 51% surge in accountapplications and opened three times as many

accounts than normal on the day that formerBarclays chief executive Bob Diamond announcedhis resignation in July. Meanwhile looking furtherback, Charity Bank revealed that it had welcomed

440 new customers between January 1 and June30 this year a gure 300 more than the sameperiod in 2011.

Its this kind of action fromcustomers and investors

that leads Hartzell tobelieve there is a signicantgap in the market for theservice that Ethex provides.People are ratherdisempowered and

disillusioned when it comes

to nance.Weve had so manyscandals and abuse cases

over the last 15-20 years;I think people are deeply

distrustful now of thenancial system. They dont really know whatthey can do.

They think the situation is out of their handsand that all the power is in the City so they dont

really have access to it. They might also seenance as complex and difcult to understand.What we want to do really is make it much

easier for people to reengage with their moneyand help them to think about what it is they

would like to do with their money in order to

make a difference and help us get out of the messwere in.Getting across the message that its private andinstitutional investments that govern whichindustries are protable can be a difcult conceptto grasp. But at the same time, the uptake ofdedicated ethical, sustainable or green funds inthe UK is still microscopic compared to the hugerollout of conventional funds.

Hartzell places the reason for this as a lack of

OUR AIM ISTO GET AS

MANY PEOPLEAS POSSIBLE

INVESTING TRULYETHICALLY


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investor and adviser knowledge and a reticenceto think that its something that we can control,

when in reality, we can.I suppose you can parallel it to the growing

popularity of ethical consumerism and fair trade,he explains.For a long time, people were saying that theycant make these choices and they just had to buycertain stuff, whether it came from South Africaor exploited farmers, but I think thats now quite

well-established and you can make those choicesyourself.People dont look at investment in that way.Intermediaries and regulators arent necessarilyhelping in that regard, as theyre often acting onsomebody elses behalf, so theyre much moreprone to try to put you off because it doesnt tick

any of the right boxes.He adds that something has to change. And

without scaremongering, it has to change fast.If we continue the way we are, where businessconsiders only the amount of prot it makes andnot the social and environmental impact of itsactivities, were heading down an increasinglysteep and slippery slope.

There cant be any greater irony than howthe melting of the Arctic ice caps is merelyencouraging further oil and gas exploration inthose areas, because its now easier to do.

It seems to me that we have no choice, to

ultimately end up with a society where a

generation of prots also means a better societyand a better environment.The prot-driven ideology that engulfs theunsustainable nancial services industry possessesis one of the reasons Hartzell d

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