We have inherited a level of global prosperity greater than any time in human history, with the economies of the world generating wealth at a near unprecedented rate. Yet, this is unequally distributed across the world and these inequalities have been exacerbated by a devastating pandemic, unprecedented climate change and ecological degradation as well as increased inequalities and setbacks in our work towards equitable, inclusive and sustainable development, including gender equality and division and inequality within and among countries. The same economic and financial systems that drove human progress and prosperity threatens to derail or erase the progress achieved.
The current global coronavirus pandemic has brought many of these challenges into stark focus revealing critical differences in resilience, with 1.5 million dead, the global economy is expected to contract by a staggering 4.3 per cent in 2020 with lasting impacts in developing countries, 500 millions jobs already been lost, millions of livelihoods and micro, small and medium enterprises are at risk, and an estimated additional 130 million people will be living in extreme poverty if the crisis persists. This crisis reminds us of our interconnectedness and vulnerability. It is not enough to just manage this crisis., we need to do far more.
This pandemic and economic crisis offers a once in a generation opportunity to build the world we want. And we have the roadmap to get there. The 17 Sustainable Development Goals and their 169 targets adopted by all 193 member States of the UN provide the roadmap to rebuild better, rebuild a green, resilient, inclusive and connected world. We must seize the opportunities this pandemic offers to leverage current and emerging economic transformations, putting in place the right incentives and policies and institutions. But we also need financing. UNCTAD and the IMF estimate that achieving the SDGs by 2030 requires c.US$25-30 trillion dollars, while impact investment sits at c$245 billion/year and official development aid (ODA) at c$150 billion/year.
Going from billions to trillions requires strong alignment of both the business and financial sector. The question is thus, is the financial sector moving in that direction? Are its leaders establishing a set of practices that is or will become the de facto common ground for making a material positive impact on the world’s most important challenges? Is the financial sector using its catalytic power to rewrite the rules of finance, capital allocation, and perhaps capitalism itself, to be a “force for good” in helping us achieve the SDG?
This is the big question the report “Capital as a Force for Good: Global Finance Industry Leaders Transforming Capitalism for a Sustainable Future”, launched as part of the ‘Global Leadership in the 21st Century’ conference on Dec 15th 2020, organized by the United Nations, Geneva and the World Academy of Art and Science, in support of the United Nations’ 2030 Agenda for Sustainable Development. The report examines the initiatives of a geographically representative group of 63 of the world’s largest financial institutions representing over US$100 trillion in assets, half of which were ‘active participants’ providing quality assurance on their data and qualitative inputs too.
The mandate to develop this unprecedented study emerged from a “Future of Capital” conference that our office – United Nations Conference on Trade and Development (UNCTAD) and the UN Office of Partnerships – co-hosted at UNHQ in New York September 12 and 13 2019 with a diverse group of 50 participants from civil society, academia, private sector and government. These participants were curated by Lawrence Ford’s Future of Capital, which is a federation of creatives, in conjunction with the World Academy of Art and Science, with the goal to look at how the world might more consciously apply capital. Of the many great ideas for galvanising change that came out of it, the research behind the report is the most advanced of these ideas under the leadership of Ketan Patel, CEO and Founder of Greater Pacific Capital and formerly of Goldman Sachs, who was asked to lead the project. Less than a year later, the report just released finds that the idea of capital being a “force for good” is a tangible and growing one. To arrive at this conclusion, the authors of the report gathered information to assess policies, processes, and procedures that the 63 leaders have established categorized into three dimensions indicative of values and behaviors: “mindful conduct” which is measure through ESG activities, “Caring for the planet” as measured by environmental sustainability and SDGs activities, and “Compassion for all” measured by how these leaders are moving from shareholder to stakeholder values.
Their findings are encouraging (representing the 63 financial institutions in the sample):
- US$12.5 trillion of assets under management (12% of total assets) have ESG factors consciously integrated into their investment decisions to promote activities for good;
- 100% have adopted ESG and sustainable investing targets;
- 97% apply a series of ESG screening metrics to proactively promote the funding of what they see as sustainable projects and enterprises;
- 97% of the leading finance industry participants in this study have committed to actively reducing their own carbon footprint;
- 89% have publicly affirmed their commitment to serve the broader stakeholder community;
- 84% have prioritized climate action as an urgent organizational priority;
- 70% offer or invest in ESG or sustainable products, such as green bonds and sustainable loans;
. 30 leading financial institutions contributed actively to the report: Bank of America, Blackrock, Bridgewater Associates, CDPQ, Citi, Credit Suisse, Fidelity Investments, First Abu Dhabi Bank, GIC Singapore, Goldman Sachs, Great-West Lifeco, HDFC Ltd, HSBC, Investec Bank, Japan Post Holdings, JPMorgan Chase, Liberty Mutual Insurance Group, Lloyds Banking Group, Morgan Stanley, Ninety One, Nomura, Nordea, Northern Trust, OMERS, Putnam Investments, Schroders, SEB, State Street, UBS, and Wellington. These companies have disclosed a series of ambitious sustainable development initiatives including zero carbon financing porfolios, financial inclusion for the world’s poorest, and launch global development finance institutes, among others. Taken together, these initiatives point to a fundamental change in strategy and priorities for industry leaders.
The second part of the report uses inputs from these 30 active participants to document the impact of their myriad activities rolled out individually or in partnership. It then assesses the impact of these 30 leaders in the finance industry pushing the boundaries through initiatives that address the world challenges. The work also shows how leaders of the industry are redefining their purpose from shareholder capitalism to encompass a broader responsibility to stakeholders.
The report concludes that together all these pieces establish a de facto common ground on ESG, sustainability and stakeholders, which sets a bar for others seeking to be leaders in the finance industry, and so will galvanise others to follow. It sees these leaders emerging as a potential ‘force for good’ through increasingly tangible policies and practices. Interestingly, the report finds that financial institutions in the sample that are doing more across all the categories of initiatives analysed as a ‘force for good’ have up to 86% higher cumulative shareholder returns over the last decade vs. global financial services industry benchmarks. There is no doubt that the journey has begun and there is much more to do, not enough of these investments make it to developing countries, more funding is required to finance the SDGs, and divesting from fossil fuel and other sectors contributing to major challenges is still work in progress. But the direction documented in this report is clear and it is a positive one.
The common ground established in the paper could also help with the need identified in this year’s Finance for Sustainable Development report to agree on a definition of sustainable investments to bring more clarity to consumers, producers and investors, as well as a better understanding of investment impacts. For instance, if these financial leaders encourage reporting with a common set of sustainable metrics, regardless of their materiality, through measures such as the 33 core indicators being piloted by UNCTAD for the International Standard for Accounting and Reporting to measure private sector contribution to the SDGs. Ultimately, the leading financial institutions will need to make an immediate impact given time is short and the need to address issues cannot wait. This report shows how they are increasingly doing that.
We are hopeful that his report and this initiative will spur others to embrace change and set in motion a race to the top and the possibility offered by the SDGs of a more resilient, inclusive, and sustainable world.
The report is entitled ‘Capital as a Force for Good, Global Finance Industry Leaders Transforming Capitalism For A Sustainable Future – Future of Capital Report, in Support of UN Secretary General’s Strategy and Roadmap for Sustainable Development to 2030’ and will be released on Dec 18th 2020. It can then be downloaded at www.forcegood.org.
For the context of this report please visit Changing the way capital and finance are allocated | UNCTAD
*Chantal Line Carpentier is Chief UNCTAD New York Office, Will Kennedy is Senior Programme Officer, UN Office for Partnerships.
** The views expressed are the authors’ own and do not necessarily represent the views of UNCTAD, the UN or it’s member States.
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Chantal Line Carpentier 