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December 10, 2001
City of London Principles Anticipate Global Summit on Sustainability
by William Baue
The UK financial sector is developing sustainable business principles that it hopes can act as a
blueprint for similar principles to be created and adopted at the UN's 2002 World Summit on
The Corporation of London, an
organization that works to enhance London's role as an international financial center, is busy
preparing for the Rio+10 World
Summit on Sustainable Development (WSSD). The Summit will be held in Johannesburg, South
Africa in September 2002. The Corporation commissioned the Forum for the Future, which is
associated with the Centre for Sustainable Investment, to develop the "City of London Principles
for Sustainable Finance." The Corporation hopes the City of London Principles will serve as a
template for WSSD financial sector resolutions.
Britain's Minister for the
Environment Michael Meacher announced the effort to create the London Principles at the UK Social
Investment Forum (UKSIF) Annual Lecture on October 23. The Principles, which are based on the best
practice of UK financial institutions, encompass three areas: pricing assets and exercising
ownership, providing new finance, and risk management.
"The Government believes that
further strides towards sustainable development can be achieved if a partnership is formed between
governments, businesses, and society as a whole," said Mr. Meacher. "Any progress the City makes
in the area of financing for sustainable development will have a positive worldwide impact."
Brian Pearce, director of the Centre for Sustainable Investment, explains that the Forum for
the Future is developing the Principles "to promote sustainable development in the economy as a
whole," not just in the community of those who already support sustainable business practices.
According to a Forum of the Future document, currently "mainstream financial activities do not
integrate environmental, social, or ethical considerations into investment, lending or insurance
The City of London is working hand-in-hand with the United Nations Environment
Programme (UNEP) Finance Initiative, anticipating the likelihood that the London Principles will
serve as the model for WSSD resolutions on financial sustainability.
"The UK's financial
services sector has an essential role to play in achieving sustainable development," said UKSIF
Executive Director Penny Shepherd. "Future economic success depends on social and environmental
The Forum for the Future is still in the process of developing
the Principles, soliciting recommendations from over 40 UK-based financial institutions in order to
draft proposed resolutions. For example, in the category of "providing new finance," the Forum has
identified the problem- sustainability is not integrated into credit risk assessment and due
diligence in commercial and investment banking projects.
The proposed solution
involves evaluating and integrating sustainability risks into credit risk assessment and due
diligence. It also involves accounting for how sustainability impacts project viability and bank
reputations in project finance cost-benefit analysis.
Mr. Pearce provided one example of
a resolution under consideration: "The 'London Principles' Resolution asks investors, asset
managers, and/or investment banks to disclose information on how they are implementing SRI
[socially responsible investing strategies] for their retail and institutional investor clients."
By requiring asset managers to disclose how they account for environmental, social, and ethical
concerns in their services, investors can discern which asset managers are merely paying lip
service to sustainability.
The Forum for the Future is convening a workshop at Chatham
House on December 13 to determine the resolutions that will comprise the London Principles. The
workshop will cast a broad net for input on the wording of the recommendations, as recommendations
to be adopted globally should be as comprehensive as possible.
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