Taking a responsible approach to changeMore by Old Mutual - Back to the Summer 2015 issue
The origins of financial services were good. Banks, insurance companies and investment houses used the power of the collective to pool and manage money, offering the customer a better deal than had they been acting alone.
The sector, back then, was on our side. Then along came what Bank of England Governor Mark Carney recently referred to as “ethical drifting”. The original banking ethos was replaced by a commitment to shareholders exclusively – and ensuring executive enrichment along the way.
“Now,” says Helen Wilson, Head of Responsible Business: Positive Future Plan at Old Mutual, “we have come full circle.”
Old Mutual believes that the future lies in the past, going back to its true purpose. ‘Our message is: we’re on your side and here to help you look after your money better than you can alone and we will deliver back to you, our customers, by investing funds in ways that will create a positive future for you, your families, communities and the world at large’.
The international investment, savings, insurance and banking Group Old Mutual was established in 1845 in South Africa and, with more than 17m customers worldwide and more than £319.4bn funds under management, is in the vanguard of the Responsible Business movement within the financial services sector.
“Up until the 2008 banking crisis the attitude towards financial institutions was pretty much: we don’t really know what you do but we trust that you know what you’re doing,” says Wilson. “People didn’t ask questions.”
By 2010 this attitude had turned on its head and the idea of trusting banks was a joke. Suddenly, everyone was asking questions: what have you been up to? What are you doing with our money? How can we believe you?
“At Old Mutual we commissioned an independent survey of all our stakeholders – customers, experts, NGOs, investors, shareholders – and asked them: what do you want us to do? How do you want us to behave?” says Wilson.
“The answers came back loud and clear: get your house in order, look at your governance, treat employees and customers fairly, respect the environment and, above all, ask us what we want - don’t assume to know.
“From this to-do list we identified our five pillars of Responsible Business: Customers, Responsible Investment, Employees, Communities and Environment. Now we want to be best in class and have identified two focus areas that we will look to lead in – financial wellbeing and responsible investment.
“We firmly believe, and we are lucky in that our CEO Julian Roberts was an early supporter, that business can be a source for good and that the financial services sector is uniquely positioned to be regenerative rather than destructive.”
Responsible business, says Wilson, is a world away from corporate social responsibility or social investment. “It’s not about charitable giving or sponsorship, although these still have their place, it’s not about avoiding socially irresponsible investments. Responsible business is about actively doing good, actively tackling issues like inequality, inclusion and environmental degradation.
“It involves a sea change in our thinking: caring about all our stakeholders not just our shareholders, and this has to be our strategic policy across the Group.
“For example,” she says, “we insure African farmers and at the same time invest in companies whose actions maybe exacerbate problems (think climate change) for those same farmers. How do we manage this loop and what is our role in breaking this cycle?”
“In South Africa, for example, we are investing in infrastructure and renewable energies – needs identified in the National Development Plan of the South African government. Thus, through our asset management we are contributing to the country’s energy security.”
“The key words are Financial Wellbeing and Responsible Investment, looking after the financial wellbeing of our customers while at the same time investing their money in ways that bring about positive societal outcomes.”
To date, by applying an environmental, social and governance (ESG) lens to its investment processes, Old Mutual judges that 60% of investments mostly comply with its aspirational Responsible Investment Standard, while 40% fully comply. The target is 100%.
Looking ahead, the Group is actively seeking investment opportunities that will build its leadership in responsible investment, particularly in its African-based operations.
Old Mutual is a member of the collaborative Blue Marble Microinsurance consortium, and it is here that it feels it can make a particular contribution in delivering to those who have not yet been reached, or been underserved, by the financial services market, in particular through micro finance and micro insurance and by partnering with those with on the ground knowledge.
A large part of this involves customer education. “Many African farmers live hand to mouth,” says Wilson, “and it is not unusual for them to offer two or three months of their harvest to creditors. However, these creditors would not necessarily care for the land as well as the farmers. We can show them a better route to managing their money than risking part of their livelihood.”
“In Kenya we are facilitators for a community-based lending scheme. This way we can teach people about managing their own money, budgeting and finance before going on to get a loan. We make sure they know how to read the small print and understand the terms and implications before using financial services organisations. If we can build the customer’s trust that we care both for their financial wellbeing and responsible investing, we have a partner for life.
“For our high net worth customers it is matter of finding innovative ESG investments such as in climate change or affordable housing funds and offering these right across our portfolio.”
Although the myth that positive social impact and high returns are incompatible is fast being disproved, in any conversation there is still one person who says: but you can’t do good and make a profit.
In fact, says Wilson, if you are acting in the long-term, which Old Mutual is, you can get a better long-term profit. In any case responsible business is the future of the international financial services industry.
In the, arguably conservative, US markets sustainable, responsible and impact investing grew more than 76% between 2012 and 2014. In the UK, some 80% of pension funds now demand ESG credentials of their investees and in Sub-Saharan Africa the Africa Infrastructure Country Diagnostic (AICD) says in excess of US$93bn in infrastructure development is required annually over the next 10 years.
“It’s a matter of understanding that the upside of risk is opportunity,” says Wilson. “The scale of change, both in your processes and in your thinking, is one of the big challenges of responsible business but those investment houses that show ways in which this is possible will reap the benefits. The innovation opportunities and the trust relationships that can result will create a significant competitive advantage.”
The benefits are not only financial but come from knowing that you are dealing with the differences you can make to people’s lives. “We try to ensure that our employees understand their role in this machine and that they are making a difference very day,” says Wilson.
To those who have not yet embraced responsible business, she says: “Be brave. Be courageous. It can be done. Ask for help; others will, and will want to, share with you what they are doing.
“At the very least, even if you are not ready yet, be part of the conversation around what is happening right now.”
more about Old Mutual
O|d Mutual provides investment, savings, life assurance, asset management, banking and property & casualty insurance to more than 17m customers in Africa, the Americas, Asia and Europe. Originating in South Africa in 1845, Old Mutual has been listed on the London and Johannesburg Stock Exchange, among others, since 1999. In the year ended 31 December 2014, the Group reported adjusted operating profit before tax of £1.6bn (on an IFRS basis) and had £319.4bn of funds under management from core operations.
Old Mutual has a proud history since its foundation in 1845. In operating in the financial services sector it has been hit by the public lack of trust in the sector, albeit the banks specifically. In going back to its original and true purpose; articulating its definition of Responsible Business; and with clear leadership from the top, the company is actively working to rebuild trust.
Points of note:
• Recognising the responsibility of not only supporting the customer base but investing for the greater good through the twin tracks of Financial Wellbeing and Responsible Investment
• Their examples of investing responsibly by building financial capacity with African farmers and in Kenya through a community based lending scheme
• Their call to encourage others to pick up the baton too is positive
• Whilst not mentioned here Old Mutual’s Group Values of Respect, Integrity, Beyond Boundaries and Accountability are brought to life in this article.