Resource scarcity under the spotlight
Sustainability credentials in the banking sector
Jupiter urges mandatory carbon reporting
Resource scarcity under the spotlight
We recently attended the annual UBS SRI Conference which this year explored the issue of increasing resource scarcity due to climate change and global demographic trends, and their economic and social impacts. Under discussion were issues surrounding water scarcity, growing demand for metals and soft commodities such as food crops and as well as threats to biological species.
The severe drought in Russia during the summer, heavy rain in Canada, floods in Pakistan and wheat fungus in Africa, are all reminders of the challenges of a changing global climate in an era when demographic growth and rising standards of living in emerging countries are driving an increasing need for natural resources.
Multinational companies are already being impacted. These climatic conditions have affected grain supplies* and retailers have been impacted through their supply chains by soaring cotton prices, with price increases likely to hit the high street next year. This has led Lord Wolfson, chief executive of Next, to claim that 'The age of ever-decreasing clothing prices is over.'**
The resources scarcity issue - whether it is crop or metals - reinforces the need for an efficient and responsible use of resources but also the development of recycling technologies. According to HSBC Climate Change Research, 'mounting pressures on energy, land and water resources require a step change in economic behaviour'***. This theme will remain on top of the agenda in our dialogue with companies in which we invest.
*HSBC Global Research, Latin America Agricultural Products, Grain Commodities
**FT article http://www.ft.com/cms/s/0/e2299c1a-c091-11df-94f9-00144feab49a.html
***HSBC Global Research, Global Climate Change, September 2010
Sustainability credentials in the banking sector
Amid recent high-profile management changes and expectations for a tighter regulatory environment, we have engaged with several banks, including Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland, on how they are addressing post-crisis reputational and regulatory challenges. We were particularly interested in learning about bank sustainability and responsible lending agendas.
A key goal of the Government's proposed green investment bank is to give the UK appropriate funding arms and mechanisms which will enable a transition to a low carbon economy. Although this project has no direct implication for the big banks, it gives a strong signal of what funding is needed; therefore we explored with the bankers their role in addressing the green agenda.
The creation of a climate business council by HSBC has highlighted the bank's willingness to develop activities in the clean technology and clean energy sectors. Both Lloyds Banking Group and RBS were keen to highlight the effort they are placing on improved environmental risk assessment, especially where they are involved in lending to the extractive industries. In the same vein, it is worth noting that at the Clinton Global Initiative's 2010 Annual meeting, Barclays newly appointed CEO Bob Diamond underlined the bank's commitment to embedding sustainability into its long-term business strategy. Mr Diamond also drew attention to the social benefits of the bank's financial services to disadvantaged communities in developing countries*. Alongside environmental topics, in our meetings we challenged the banks on their responsible lending practices, including lending to small and medium sized enterprises which have been suffering from a lack of funding, even though their continued activity is crucial for the country's economic recovery.
Big bank sustainability programmes are not only a means of addressing the crucial green agenda, but should also help to re-build the sector's reputation and deliver due services to society. At a high level summit to consider how "values and trust" could be restored in the City, the chairman of RBS addressed the remuneration debate and declared that regulation was the only way to curb excessive bonuses**. The change of leadership at several large UK banks is likely to intensify scrutiny into how these banks address issues of sustainability and best practice. We believe a strong commitment to the sustainability agenda would go a long way to restoring public trust and adapting organisations to the more circumspect economic environments that have emerged following the credit crisis in the UK, Europe and North America.
*Barclays Press Release http://group.barclays.com/About-us/Barclays-news/NewsArticle/1231784868072.html
** http://www.guardian.co.uk/business/2010/oct/05/bonuses-bankers-regulation-financial-crisis
Jupiter urges mandatory carbon reporting
Jupiter recently joined 30 MPs and Lords as well as organisations including Microsoft, Siemens and BT in signing an open letter to government ministers arguing that "a clearer, stronger signal is needed now for the introduction of mandatory carbon reporting in the UK that is consistent with international standards".
Orchestrated by the Aldersgate Group - a high-level coalition of progressive businesses, environmental groups and individuals who believe that strong environmental standards will be a major part of future economic growth and international competitiveness - the letter seeks to galvanise the government into ensuring that all large organisations measure and report their greenhouse gas (GHG) emissions. Under the UK Climate Change Act, the government must legally put forward regulations for mandatory carbon reporting by 2012, or explain to Parliament why this has not been the case.
Chief amongst the arguments for this measure is that mandatory carbon reporting would go a long way to providing investors with a fuller picture of companies' material climate risks and opportunities.