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Market Report MARKET REPORT MAPPING THE RESPONSIBLE INVESTING LANDSCAPE IN SCOTLAND MAY 2020 @ef_hub ethicalfinancehub.org MAPPING THE RESPONSIBLE INVESTING LANDSCAPE IN SCOTLAND 1 Foreword Across the globe individuals, organisations and governments are starting to move from talk to collective action as we strive to achieve inclusive economic growth without depleting natural resources. It is now widely recognised that the financial services sector has a fundamental role to play in delivering universally supported targets such as the Paris Agreement and the UN’s Sustainable Development Goals (SDGs). However, despite its potential, the current financial system can be a cause of, rather than a solution to, some of the pressing challenges our planet and its people currently face. In trying to address this predicament Scotland is reflecting on its heritage and seeking to emerge as a leading centre for a new financial paradigm that looks beyond profit and shareholder value to deliver social, economic or environmental impact as well as financial returns. From Adam Smith, renowned as the father of modern economics, to the Reverend Henry Duncan, founder of the world’s first commercial savings bank, Scotland has been a pioneer in financial innovation and the development of professional standards for over 300 years. These strong purpose-led roots continue to underpin today’s financial services sector in Scotland – a country with a growing reputation for ethical finance. Although ethical finance is not a modern concept, it is an idea that has never been more popular or needed. The failure of trickle-down economics to fairly distribute wealth and encourage inclusive growth, the damaging impact on the planet of the unchecked pursuit of profit and the banking scandals of mis-selling and rate fixing of the last decade has accelerated the recent growth in ethical finance. The ethical finance agenda is being driven from the top in Scotland. Being one of only a handful of countries in the world to have integrated the SDGs into its National Performance Framework, the Scottish Government is focused on creating opportunities for all in Scotland to flourish through increased wellbeing and sustainable and inclusive economic growth. In recognition that the environment and economy are intrinsically linked Scotland is currently transitioning to a low carbon economy and, having declared a ‘climate emergency’, the Scottish Government has committed to a world leading 2045 target for net zero emissions. Given the UK’s strength in financial services and commitment to climate action Glasgow was an obvious host for COP26 – the United Nations Climate Change Conference. In 2021 eyes from across the globe will be focused on Scotland as political leaders participate in the most important international climate negotiation since the landmark Paris Agreement was ratified in 2015. A core theme for COP26 will be on the role of finance in helping to limit global warming to 1.5 °C. COP26 is likely to take place at a time when the world begins its long road to recovery from the unprecedented economic impact caused by the coronavirus pandemic. In an increasingly globalised and interconnected world the pandemic has highlighted the fragility of our planet and the vulnerability of its people. Despite the temporary fall in carbon dioxide and nitrogen dioxide emissions, which greatly improved air quality, resumption of business as usual will reassert the often-damaging human footprint on the earth. It is therefore hoped that the coronavirus pandemic leads to a deeper understanding of the ties that bind us on a global scale and an increased social awareness. With climate change also representing a health security threat, efforts to resuscitate the world’s economy after the pandemic should promote health, equity and environmental protection. The research conducted for this report was carried out prior to the coronavirus pandemic with the intention of mapping, quantifying and presenting the responsible investing sector in Scotland. Although fund values will undoubtedly change as a result of the pandemic the report presents a snapshot in time of the responsible investing landscape in Scotland. Our aspiration is to periodically re-run this analysis to provide a longitudinal study. Finally, we would like to thank all those who have supported us in compiling this report and special thanks go to our key contributors University of St Andrews Centre for Responsible Banking & Finance and Jon ‘JB’ Beckett. Graham Burnside Director, Ethical Finance Hub MAPPING THE RESPONSIBLE INVESTING LANDSCAPE IN SCOTLAND 2 Contributors Jimmy Xing Chen is a faculty member of the Centre for Responsible Banking & Finance (CRBF). Established in 2011, the CRBF brings together an experienced team of researchers within the University of St Andrews and external group of academic fellows who are internationally excellent scholars in the field of banking and finance. The Centre aims better understand current issues and challenges facing corporates, financial institutions, and financial markets. A particular feature of the Centre’s activities is its orientation toward empirical research on corporate governance, social, environmental, ethical and trust issues for financial and non-financial firms. www.st-andrews.ac.uk/business/rbf Jon ‘JB’ Beckett is a leader in the fields of fund management, strategy, research and governance. Currently a Non-Executive Director, and independent advisory committee member for Royal London, JB was the author of #NewFundOrder. He is Emeritus for the Association of Professional Fund Investors (APFI) and presides on a number of advisory boards including the Transparency Task Force and Stirling University Investment Managed Fund. jbbeckett.simpl.com Against a backdrop of the 2008 financial crisis, sustainability, climate change and social justice themes led to a collective desire of practitioners in Scotland to create a more ethical financial sector that operates on a transparent and ethical basis. In this context the concept of the Ethical Finance Hub (EFH) was conceived. With funding from Scottish Government, the industry-led, local Scottish market-focused initiative was launched in 2016 with the aim of assisting individuals and organisations interested or active in the ethical finance market to raise awareness, educate and facilitate practical activities that help create a fairer, more inclusive and socially responsible financial system. Since then the EFH has successfully delivered executive education courses, launched an internship placement scheme, facilitated government consultations, advised the Scottish National Investment Bank on their ethical framework and advised on business-led inclusive growth policies for the South of Scotland region. In addition, as a stakeholder endorser of the UN Principles for Responsible Banking, the EFH has specialist expertise in the (SDGs). The EFH is now part of the Global Ethical Finance Initiative, which seeks to promote finance for positive change. ethicalfinancehub.org globalethicalfinance.org MAPPING THE RESPONSIBLE INVESTING LANDSCAPE IN SCOTLAND 3 Contents 1. Aims of this Report .................................................................................................................................................. 4 2. Key Findings ............................................................................................................................................................... 5 3. Methodology and Data Challenges .....................................................................................................................6 4. Historical Background and the Scottish Dimension ................................................................................. 12 5. Mapping the Scottish Financial Services Landscape ............................................................................... 14 6. Disentangling the Responsible Investing Taxonomy ............................................................................... 19 7. Taxonomy: The Approach of Scottish Asset Managers .......................................................................... 24 8. The Scottish Responsible Investing Market in relation to the UK and Ireland ............................. 45 9. SWOT Analysis ....................................................................................................................................................... 55 10. Conclusions .............................................................................................................................................................. 56 Appendices ............................................................................................................................................................................. 58 To access a separate Executive Summary of this report, please visit ethicalfinancehub.org DISCLAIMER: This publication includes information in summary form and is therefore intended for general guidance only. The Ethical Finance Hub does not accept any responsibility for the consequence of acting or refraining from action as a result of any material in this publication. The data used in this report is based on published information available at the time of drafting and information from interviews undertaken. Whilst every care has been taken in the preparation of this report, no responsibility is taken by the Ethical Finance Hub as to the accuracy or completeness of the data used or consequent conclusions based on that data. If you wish
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