The buck stops here

Prof studies environmental accountability of financiers

Should banks and investment firms be held accountable when they bankroll corporations that harm the environment?

That’s a question being tackled by Benjamin Richardson, UBC Canada Research Chair in Environmental Law and Sustainability, who is exploring how to advance socially responsible investing in the financial sector.

Richardson, who joined UBC’s Faculty of Law in January, says that many corporations that cause environmental degradation and climate change are enabled by the “unseen polluters” that finance their ventures, including banks, investment firms, mutual funds and pension plans.

“For many people, the financial sector is simply a transactional mechanism: people lend money, buy shares and hope for returns,” says Richardson, who joins UBC from York University’s Osgoode Hall Law School, following stints at the University of Auckland, and the University of Manchester. “In fact, the investment or lending decisions banks and other financiers make can have huge downstream impacts on the environment, in addition to social consequences, such as for human rights.”

But while environmental laws exist to hold corporations accountable for their impacts, these don’t normally extend to the financiers that support them, says Richardson, a native of Sydney, Australia. “Financial institutions therefore might have little incentive to consider the environmental implications of their decisions,” he says.

However, with public concern for the environment growing, Richardson says the pressure is mounting on government, business, and the financial sector to adopt more environmentally friendly business practices, investment policies and regulations.

“The environmental protests that once occurred in front of bulldozers are now occurring in banks and corporate locations,” says Richardson, naming Alberta’s oil sands as Canada’s most pressing environmental issue. “They are drawing attention to the seminal role that financial institutions play.”

Beyond public pressure, a growing body of research suggests there sometimes are financial advantages to investing socially responsibly, Richardson says. The problem is a mismatch between financial and environmental “returns”: the social and environmental benefits tend to accrue over the long-term, while fund managers must demonstrate financial returns in the near-term.

Richardson is working with a number of stakeholders—oil, mining and investment companies, investors, fund managers, First Nations and international NGOs—to understand barriers to socially responsible investment (SRI) and to determine where inroads are most likely to succeed.

One area well-positioned for advances is pension funds, he says. “It is an untenable position for any organization that aspires or claims to be socially responsible to hold investments that contribute to environmental degradation or human suffering,” says Richardson, who injured his right eye as a teenager and wears a patch.

He offers Norway’s Global Pension Fund as an important global precedent. The fund has an SRI policy and actively divests from companies that harm the environment. In contrast, Canada’s Pension Plan has a less stringent requirement to engage in “dialogue” with the polluters in its portfolio of over 2,000 companies, he says.

Ethical mutual funds are another force for SRI. Richardson says a number of reputable funds now exist on the market, including in Canada—a far cry from their antecedents, which lacked rigorous investment strategies and sometimes suffered from low returns.

Despite these inroads, moving SRI from niche status to the mainstream will require regulations, Richardson says. “You can outline myriad reasons for institutions to change—ethics, public opinion, the business case, research evidence—but some will still refuse,” he says. “We need informed public policy and legal intervention, because the market alone isn’t going to do it. There needs to be a level playing field and mechanisms to discourage ‘greenwash.’”

Richardson traces his connection to the environment to a pivotal moment in his youth. “When I was a boy we lived in a rural village in England, where I was appalled how some of the local kids would look for bird nests, pilfer the eggs and smash them as a hobby,” he says. “I have always been deeply connected to the environment, but that was one of my transformational experiences.”

Richardson sees much progress since observing that hostility to the environment. “We have environmental laws today that would have been unimaginable years ago,” he says. “Back in the 1980s and ‘90s, Margaret Thatcher and other leaders were incredibly hostile to the idea of carbon tax. But in 2001, the UK created the climate change levy, which has a similar purpose. And in 2005 the European Union introduced a regional cap and trade scheme for carbon polluters—so we are definitely moving forward.”

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UBC Reports | Vol. 57 | No. 4 | Apr. 6, 2011

Benjamin Richardson says the financial sector can have major impacts—good or bad—on the environment. Photograph: courtesy of Benjamin Richardson

Benjamin Richardson says the financial sector can have major impacts—good or bad—on the environment. Photograph: courtesy of Benjamin Richardson

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Richardson’s projects include:

The role local governments can play as climate change regulators while bottlenecks occur in law-making at international and national levels

The role of socially responsible investors in improving Canadian extractive industries

Hosting conferences and workshops that will examine issues of financier and corporate environmental responsibility

Planning a new global environmental internship program at UBC’s Centre for Law and the Environment, which Richardson directs, that will place UBC and visiting law students with organizations for real-world experience dealing with environmental regulation and policy problems

Milestones in socially responsible investing:

18th Century

Quakers refuse to participate in the trans-Atlantic slave trade

20th Century

Ethical investors led by religious groups boycott companies in South Africa during Apartheid

21st Century

Norway’s Global Pension Fund starts divesting from mining giant RioTinto and Wal-Mart on environmental or labour grounds

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