Having crossed the divide from finance to a non-profit during 2022, I’ve seen first-hand the challenges the finance sector faces when it comes to sustainability. Although I know from the inside that there are many incredible people within finance looking to champion change, who have a strong sense of social responsibility through their work, I also know the cold and material incentives that often power it. One of the biggest hurdles the sector faces is the ingrained “closed door” mentality.
The World Benchmarking Alliance’s Financial Systems Benchmark, published during COP27, assessed the performance of 400 of the world’s largest financial institutions against urgent sustainable development challenges including climate. It painted a worrying picture, showing only 20% of financial institutions currently publicly acknowledge their impact on people and planet, and less than 40% have disclosed long-term net-zero targets.
A lack of investible solutions is a common pushback from the finance sector, echoing the recognised need to stimulate more entrepreneurialism. One solution within easier reach is surely between research students and investment research. Students working on amazing solutions have no experience on how to take them to market. Pitching directly to investors is a brutal process. Over recent years we have seen financial institutions work with academia on sustainability. However, how do we replicate and accelerate finding and financing potentially game changing ideas? Re-building trust is essential for this to happen, and having open doors is a critical starting point.
Establishing trust has to be the number one priority for the level of collaboration needed. This ultimately comes down to transparency. Transparency not only shows where market forces work to guide policymakers on drafting good regulation – crucially, it can demonstrate the art of the possible. The whole industry must rise together to enable the scale required.
While it is in finance’s natural DNA to be competitive, the whole industry will benefit from coming together and upping momentum on building a sustainable economy. It is therefore hugely welcome news that the UK’s Competition and Markets Authority will ease the antitrust rules on climate change initiatives to tackle business concerns that collaboration on climate action could expose them to claims of collusion.
A common complaint is that financial institutions want to spend their time working out how to build sustainability into their financing rather than reporting on it. With regulation increasing, and pressure from all sides mounting, this is not a defendable argument. Disclosure identifies the state of play and measures progress in joining the dots across the system.
From my experience both in finance and now in civil society, I know when you create a safe space for disclosure the conversations are much more constructive. The most productive conversations we’ve had off the back of our Financial Benchmark launch happen when financial institutions realise civil society wants to help and there is value in the work and expertise we have. In these open conversations, everyone realises that ultimately there is an agreement from both sides on what needs to be done. We are both building from the same foundations. What we need to now agree on is the ‘how’.
We need to create a domino effect throughout the financial system. If we can align financial stakeholders in the right order, understanding the hierarchy and flow of money, we can trigger the amplifying effects of the finance system positively. Going with gravity in finance and not against it is crucial.
