Financing the Future

The number and extent of global sustainability commitments and actions by governments and companies are growing but we’re well off meeting the 1.5-degree warming goal––in fact, arguably that ship has sailed. Further, only 15% of the SDGs are on track to be delivered by 2030. We are doing too little, too late. We need to acknowledge that our systems of governance––how society organises itself and how individual companies do business––are set up for incremental change, just when we most need transformational change. 

The financial system and its actors are in a unique position to accelerate a greener, fairer economy. We sat down with leading thinkers in finance to chat about the changing state of finance and how firms can help tackle the climate and nature crisis, champion social justice and advocate for systems change.

Panellists were from sovereign investor and an international institutional manager QIC, provider of FX and payments in frontier and emerging markets Crown Agents Bank, specialist insurance broker Howden Group, ethical financial planning and fund manager EQ Investors and social science specialist university London School of Economics. 

Finance in 2024 

This year promises to be disruptive for the finance industry with major elections taking place across the world, growing societal unrest regarding sustainability inaction and social injustice, continued conflicts and resource scarcity. 

Bring Energy to the Table

We all know that infinite growth on a finite planet is impossible. We need an economy that factors in planetary and societal well-being. The idea of a stakeholder or wellbeing economy where companies are responsible for more than just shareholders is gathering steam. However, there’s also increasing backlash against this new type of economy. Climate change science is still being denied and powerful interests are continuing to stall progress. We need all actors in society to continue pushing to make a well-being economy a reality. 

The Rise in Societal Purpose 

The rise of the social purpose concept––companies adopting a purpose beyond making profit––is a direct challenge to the current profit-maximising mindset that drives most business decisions. Finance companies are realising that they have a role to play and are clarifying what that is with a social purpose. Purpose helps align leadership to a greater cause which in turn affects everything from their business model, to their daily operations. For investing companies, purpose can guide their investment and divestment strategies. For banks, purpose can guide their lending strategies and general practices. For accounting firms, who are trained in evaluating evidence rather than words, purpose assurance could well be a service line that we start to see more of and will help hold companies accountable to their purpose statements. 

QIC’s purpose is to create shared value by responsibly investing for the prosperity of clients, people and communities.

B Corp is a Helping Hand

With sustainability practices constantly shifting, it can be tricky for a financial company to know where to start. There’s also ever more scrutiny from stakeholders as to whether firms are acting on their words. Third-party certifications like B Corp can help guide finance companies towards a greener, more inclusive business. The B Impact Assessment is free to take and acts as a comprehensive evaluation of a firm’s positive and negative impact. 

ESG is Complex 

As the ESG debate is becoming ever more polarised, it’s important to understand nuances and tradeoffs. Recently, parts of the finance community have been excluding high-carbon clients from their investments. While we clearly don’t need any more investment into oil and gas projects, investment is needed for decarbonisation projects within these giants. Rachel also gave the example of cobalt mining. Due to the ethical issues surrounding cobalt sourcing in the DRC, some companies are moving their sourcing to places like Australia. While this cobalt is being produced more responsibly, it also means lost revenue for developing nations like the DRC. 

Much-Welcome Legislation     

Incoming legislation such as the CSRD (Corporate Sustainability Reporting Directive) is a welcome mandate which will force many companies to disclose their progress on sustainability and will bring stakeholder thinking into the boardroom. We need more legislation like the CSRD to catalyse industry-wide changes in the finance industry but we also need a shifting of mindset: companies should be leading the charge, pushing ahead of what is simply required legally. 

The Power of Collaboration

Individual company action will not achieve the transformation we need. Collaboration around new practices––as well as failures––will be vital for the finance industry to evolve. We also need companies to be collaborating with a broad range of peers, not just sector peers. Only then can we make progress on systems change. We’re seeing promising signs of collaboration such as the hundreds of members of the Principles for Responsible Investing and Banking. Other networks are also making traction such as the Global Impact Investing Network (GIIN), the Global Sustainable Investment Alliance (GSIA) and Climate Action 100+.