Guest post by:
Magnus Furugård, President and Managing Director, GES International, a Manifest partner

Asset owners and asset managers should engage more strongly on ESG performance with the banks in order to contribute to a more sustainable financial sector, a recent survey by GES concludes. The current situation in the industry, where the trust in banks and the financial system is very low, has caused many to wonder how it came about and what to do to regain that trust. It is a common opinion of the investors that they can do more with their ownership to shape a better future for the financial industry as well as wider groups of stakeholders.

GES has conducted a survey among investors on the issue ‘Banking on sustainability: what must the financial sector do better and how can investors become a great contributor to the solution?’ The survey results were presented by Magnus Furugard, President and Managing Director of GES International at the GTQ Investing in Responsibility Conference in London on November 15:

“The survey showed there is a strong belief within the investment community that the asset managers and asset owners (i.e. themselves) could have done more to prevent the crisis. This reaffirms what we hear in our daily engagement with companies on ESG issues: that too few investors raise these issues with their investees. The survey has also identified a need for adequate leadership, transparency and for a cultural change within the financial industry.”

The signs of major problems within the financial sector have been there for some time, but have not been acted upon. In the GES Alert Service, where clients of GES are weekly alerted about systematic and/or severe ESG controversies in a company, there have been 220 alerts on 84 banks over the years. These signalled issues within governance, project financing with high risk of breaching various environmental and human rights conventions, accusations of fraud, economic espionage, discrimination, association to possible money-laundering in connection to corruption etc.

GES has pinpointed, from an ESG perspective, the three areas where improvements can be made:

• there is too little engagement by asset owners with their asset managers;
• there is too little engagement by asset managers with companies; and finally
• there is too little engagement by banks with their clients, especially in project financing.

In order to achieve change, GES suggests the players in financial markets should incorporate the following:

1. The asset owners need to have a sustainable long perspective approach and evaluate their asset managers on ESG performance.
2. The asset owners need to engage more with asset managers on ESG issues and both sides need to increase their competence in this area.
3. The asset owners and asset managers need to embrace the opportunity, which the current financial crisis is providing to improve the financial market into a more sustainable industry.

“We need to see reinforced leadership to regain the trust and to provide a better future for all, not just the golden per cent at the top. This will be a difficult task to achieve but we encourage asset owners and asset managers to step up their engagement on all levels and make ESG issues a natural part of the mainstream investor world. This is the way forward for the financial sector itself to improve from within and regain trust. We at GES are a part of this engagement and change, and hope to bring on as many responsible investors as possible to improve the financial sector.”

Magnus Furugard