Monday, April 6, 2009

Social investors left waiting for fundamental financial reforms

Sustainable and social investment advocates may be feeling short-changed by last week’s G20 summit in London, despite a pledge by world leaders to set aside more than $1 trillion US in an effort to overhaul the financial system and keep the global economy from slipping into a depression.

For the first time ever, six regional sustainable and social investment lobby groups, including Canada’s Social Investment Organization, came together, issuing a joint communiqué urging world leaders to transform global capital markets by “building the infrastructure, technologies and skills needed for a low carbon, resource efficient and socially sustainable economy using well-designed financial instruments and incentives for private investment together with direct government support.”

“The current economic crisis affords a unique opportunity and imperative to transition to a low-carbon, resource efficient and socially sustainable economy,” read the statement, which was also signed by ASrIA (Asia), Eurosif (Europe), RIAA ( Australia ), Social Investment Forum ( United States ) and UKSIF ( United Kingdom ).

Other proposed measures include financial instruments and incentives to build a green economy using private investment alongside direct government support and financial reform measures to require greater transparency and facilitate responsible ownership.

Longer term, the groups called for compulsory disclosure of ESG factors as part of disclosure obligations for issuers, greater corporate transparency on ESG issues, improved shareholder rights and promotion of inclusion of ESG factors into credit ratings, sell-side investment research and financial advice, including mandatory requirements to include social, environmental and ethical concerns as part of “know your client” provisions in financial product advice and sales.

In the end, the G20 didn’t include any ESG recommendations in its final statement, but there were a few encouraging signs. World leaders signed off on a crackdown on hedge funds and tax havens and agreed that new accounting measures were necessary to strengthen global financial market supervision.

And the sheer scale of the proposed reforms suggests that last week’s meeting was just the first step on what could be a very long journey. There’s already talk of another G20 meeting later this year in New York, giving world leaders another chance to add green policies to the myriad of fiscal stimulus packages in the works.

"The Social Investment Forums are not disappointed by the results [of the G20 meeting],” says SIO executive director Eugene Ellmen. “We went into this with a long-range view that this is the start of a dialogue with the G20 countries, not the end. The important thing is that -- for the first time -- the social investment forums are speaking with a single voice on the economic stimulus package and financial re-regulation.”

Ellmen says social investment groups will continue meeting with policymakers and regulators in their respective countries. “EuroSIF has started a process with the EU and the U.S. SIF is in discussions with the new Obama administration,” he notes. “In Canada , we'll be making recommendations concerning new corporate governance, and we'll continue to press the securities commissions for an ESG disclosure framework. We also want to re-start our proposal to the financial advisor regulators to create a mandatory framework for advisors to talk to their clients about social and environmental issues.”

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