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A call for greater transparency in the finance sector

What should the financial institutions of the future look like? How can we stop them from funding pernicious or damaging projects? Or from failing to correct poor ethical decisions by managers in companies in which they own shares?

As investors and savers, we can start by making sure that our own capital is not causing damage, and combining this with support for regulation to make such changes permanent. Helping people to do this is the primary purpose of our financial product guides.

Thirty years ago, when we first began trying to look for ethics in global financial markets, the response was largely one of sarcasm and disdain. In 2018, ethical banking and socially responsible investment and ‘impact investment’ employs thousands of people around the world and, according to the Financial Times, reached ‘tipping point’ in 2017.

It is still horribly compromised in parts, and very thin in others, but we are beginning to get a glimpse of what a systematically ethical financial sector might look like. In short, it will be a radically transparent one. Demands from campaigners such as ShareAction and 3D Investing are beginning to coalesce around key asks.


Avoidance, engagement and voting

Ethical Consumer and others have long urged financial companies to avoid clearly unethical sectors such as tobacco and land mines. Two years ago, in 2016, we looked at how the argument for the wholesale avoidance of sectors was being extended to fossil fuels by climate campaigners, and we produced a guide to carbon divested funds.

For the majority of investment firms, such as those selling ethical investment funds and ethical pensions, this discussion is uncomfortable. They have learned to ‘spread risk’ by investing across all economic sectors and, 20 years ago, they argued that instead of divesting they would ‘engage’ as shareholders with companies to improve their behaviour (for an alternative see our quick guide to impact investing). 

The scepticism that greeted that response has, in time, generated attempts by some firms to systematically demonstrate how hard they are trying. Sometimes this engagement looks effective, such as when it is part of a collective exercise like the Climate Care Coalition. Often it does not.

Many investment firms now have searchable online databases of the AGMs of each company they hold shares in, and how they voted on each resolution. 

There is clearly much more of this kind of disclosure than when we last reviewed this sector in 2014, and some of this will be down to collective initiatives such as the ‘Financial Reporting Stewardship Code’. 

This is good news, and currently more open firms will tend to get a better score in our transparency rankings (see below).

A lot of this disclosure, though, simply reveals how uncritical many investors are. Aviva, for example, one of our best ranked companies, disclosed honestly that they didn’t vote against a single director or resolution at the most recent Shell AGM.

In future, we hope that rankings can become sufficiently sophisticated to look more critically at all this disclosed data. This is not a trivial task, however, with just one company – BMO for example, disclosing that it voted on 91,182 resolutions at 8,996 meetings across 52 countries in 2016.


Our transparency ranking

We checked all the finance companies for loans to, and investments or shareholdings in some key unethical companies, and used the data in our rankings. Building societies were not rated in this way because they usually don’t make loans to companies, only on property.

When we found a loan or investment in these problem companies, the finance company lost marks on the table corresponding to the problem identified at each company. For example, holding shares in BP lost a company a half mark in the Climate Change column.

While this system is good at letting you know how compromised most firms are across most ethical issues, it does tend to reward companies that are less transparent about their loans and investments.

We have, therefore, used the following transparency ranking to amend how financial firms score on our corporate critic database. The ranking mainly covers insurance, pension and investment fund companies who are more likely to hold shares in other companies.

‘Top of the pile’ companies were not marked down for their investments, as they appeared to be engaging transparently with them in a systematic way, unless they have received specific external criticism.

‘Worst’ companies were assumed to hold investments in companies criticised across all our main categories as they had no apparent ethical policy stating that they did not.

Best for Transparency

  • 1. A clear ethical investment or lending policy and
  • 2. Clear lending and investment disclosure and
  • 3. Full disclosure on engagement and voting

Aviva, AXA, Castlefield, Royal London, Triodos, WHEB

Getting there

Some details of investment, engagement and voting policies, with limited disclosure of voting history.

Aegon, Allchurches, Allianz, BMO, Fidelity, Impax, Janus Henderson, Jupiter, Legal & General, Liontrust, Lloyds Banking Group, Premier, Rathbone, Sarasin & Partners, Standard Life Aberdeen.


Some reference to a voting policy or engagement strategies, or a published stewardship statement, but more information required to assess how robust they are. No voting, or voting or disclosure for a single subsidiary only.

Prudential, Covea.

Worst for Transparency

No information on investment, engagement or shareholder voting policies, could be found.

Admiral, Ageas, Caledonia, Co-operative Group, Direct Line, esure, Hannover Re, Hiscox, HSBC, J. C. Flowers, Liverpool Victoria, Markerstudy, Marsh & McLennan, Munich Re, NFU Mutual, Old Mutual, Red Sands, SVM, Ultimate HC, Virgin Money, Zurich.

What we want from financial companies

1. A clear ethical investment or lending policy

This should address social and environmental issues and apply to all the assets held by the company group – not just those in ethical funds or products. Some very big companies, like Aviva and Legal & General, do this already, as do Co-op Bank, Ecology Building Society, Triodos Bank and Charity Bank.

2. Clear lending and investment disclosure

We want companies to publicly list all the assets they hold. Some smaller companies do this already such as Triodos, Charity Bank and WHEB. Other companies may do this indirectly through full disclosure of their voting history.

3. Full disclosure on engagement and voting

We think that responsible corporate shareholders should vote on all company resolutions according to a clear engagement policy which addresses ethical issues. They should publicly disclose and explain each vote on an online database or document. Many very big companies do this already.

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