GLOBAL - A failure of governance is to blame for the current credit crisis, delegates at this year's Triple Bottom Line Investing (TBLI) conference in Amsterdam heard.
According to Kirsty Jenkinson, director of governance and sustainable investment at asset manager F&C Investments, two governance issues that have been fundamentally flawed are short-term incentive structures and management accountability.
"Because the credit crunch is a systemic problem, we need to find systemic answers," she said. That means issues such as the incentives structure and management accountability need to be addressed. Appropriate capitalisation by banks as well as smart and competitive regulation also are among the next steps to be taken.
But Jenkinson also warned against a mispricing of risk. "The real risk is that carbon is going to be mispriced," she said. "So the lessons from this crisis must be learnt and taken forward."
"We are in need of second generation engagement," added Stéphane Voisin, head of SRI at Crédit Agricole Cheuvreux, although he was unsure what exactly that is. "The first generation is about putting a price on carbon and the second could be about climate change or carbon constraints. But carbon should be included as a currency in the financial system."
"Banks need to analyse risk in a more forward-looking way," agreed Paul Mudde, reputation manager at Netherlands-based Sustainable Finance and Insurance.
"They assume their clients are properly insured but various studies have shown that the large majority of small and medium-sized enterprises are under-insured to events such as, for example, floods. And because of this investors and banks risk losing money when they invest in these."