Sustainability holds key to capital market reform

The final report from a parliamentary enquiry into sustainable business practice has highlighted the importance of reforming capital markets to ensure investors are driven by a focus on sustainability, thereby ending the short-termism of capital investment.

The final report of the Industry and Parliament Trust Sustainability Commission was launched in the House of Commons this week, making a number of key recommendations to businesses and governments on how to promote and foster sustainable businesses models. 

Investment firm Aviva – a main contributor to the report – believes that a ‘Capital Markets Union’ should include, from the very start, a long term, sustainable vision on investment and working practices in business. It sees risk to European and global economic growth from two sources. 

The first is from assuming unlimited natural resources which creates fundamentally flawed pricing systems in capital markets. The second problem of capital markets that are systematically short-term also magnifies the associated problems of a flawed pricing system. Aviva therefore welcomes the inclusion of sustainable economic growth and climate change among European Commission president Jean-Claude Junker’s 10 priorities.

Robust economic growth

While Aviva believes good progress is being made, it makes four key recommendations: –

-Investment banks should be required to include a view on a company’s performance on corporate governance, corporate sustainability, culture and ethics when they make recommendations to investors.

-Incentives need to be aligned with long term performance and sustainability to end short-termism.

-EU policy-makers need to create an environment in which economic growth can be robust and sustainable.

-The European public needs to be engaged with how money held in our pensions is being used to influence and encourage responsible investment. 

Sustainable Business Models

The report has been published by the Industry and Parliament Trust Sustainability Commission, chaired by Caroline Spelman MP, after it received evidence from a number of FTSE 100 companies at six sessions to a cross-party panel of parliamentarians.

Working in partnership with the University of Birmingham, the report makes recommendations to businesses and governments on how to promote and foster sustainable businesses models.

-Businesses need to continue to “spread the word” to peers that are less fully engaged with sustainability; and to ensure that a sustainability mind-set is a part of the DNA of 21st century business as standard.

-Government should support engagement with sustainability by creating an improved enabling infrastructure, especially via transparency across financial markets and by encouraging investments in innovation.

-Greater collaboration is essential to advancing sustainability. Pooling of skills and expertise will enable social and environmental issues to be addressed more effectively, and will maximise the efficiency of business and government investments in sustainability.

-Companies can and should encourage sustainability and co-operation across their supply chain by encouraging more collaborative, relational, and developmental strategies instead of more traditional and transactional approach.

-Governments should encourage integrating sustainability reporting by players in the financial market supply chain to ensure that environmental and social costs are internalised into profit and loss statements.

Commenting on the report’s release, Nick Maher, chief executive of the Industry and Parliament Trust, said “The Sustainability Commission has provided a forum for companies to showcase how to take commitments to achieving a long-term sustainable economy seriously. I hope the final report can be used as a springboard to showcase the importance of having a business model, based on the three pillared harmonisation of the economy, environment and society.”

Lucinda Dann

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