Multi-dimensional Engagement as a ‘Force for Good’
It should be no surprise that the leaders of the finance industry are adapting to existential threats to the planet and its ecosystem, changes to the world’s political and economic structures and the pressures of inequality and inequity in society, with fundamental changes to their businesses. Given the critical role of finance, this is most likely to lead to capitalism itself being catalyzed for change.
As they have in history, the leading financing institutions are adapting to existential threats to the planet and its ecosystem, changes to the world’s political and economic structures and the pressures of inequality and inequity in society, with fundamental changes to their businesses Capitalism’s resilience throughout history is a function of both its efficiency in allocating capital through lesser and major cycles of change, from the changing of seasons to the rise and fall of civilizations, and major events. While the names may change, and the number of participants too, the leaders of finance have been those that understood the environment, their stakeholders and their rivals and were adaptive in changing their organizations to meet evolving needs.
Capitalism as a system, of course, does not stand outside of the world but is an integral part of it and will evolve too with society and the world at large, to maintain its relevance. This evolution will impact all of the system’s participants, producers and distributors, intermediaries and market makers, investors and financiers, and consumers themselves.
Finance industry’s leaders across the world have understood this and have launched a multitude of initiatives that are changing the way capital flows and these will dramatically change the system overall.
This section describes the initiatives of the 63 industry leaders examined, with summary and case studies provided for the 30 active participants. The initiatives they have launched and/or participated in impact finance, the broader allocation of capital and illustrate the nature of the changes underway.
The ‘force for good’ initiatives of finance industry leaders generally can be placed into three categories, differentiated by their objectives and aims. Overall, the engagement by finance industry leaders is both deep and broad, with each participant active in multiple initiatives across the various categories.
This section describes the breadth of the ‘force for good’ initiatives being undertaken by leaders and provides brief case studies of leaders’ specific initiatives in each of the categories. In the interests of brevity, cases for each participant in each category have not been used, although the leading financial institutions tend to span the full breadth of acting for the common good. Detailed versions of these case studies are provided in Annex II.
‘Being Good’, Internalizing the Lessons
The first category of ‘Being Good’ includes initiatives focused on good citizenship in society and of the global system. This category includes both any ‘inward looking’ initiatives focusing on companies’ own operations as well as participation in general initiatives and actions that may not be specific to the financial industry.
The 63 industry leaders examined have been highly proactive in this regard, driving and supporting a wide range of initiatives including:
pursuing climate change targets
Operational Climate Change Targets
97% of the industry leaders have put in place targets for reducing carbon emissions in their own operations, with a number setting target dates for achieving net carbon neutrality. These targets are underpinned by measurement and reporting using standardized metrics, with many companies disclosing performance according to international standards like that of the Carbon Disclosure Project.
have community outreach programs
Over 95%22 of financial companies run community outreach campaigns focusing on the broader wellbeing of the communities in which companies operate. These can include initiatives for specific objectives like education and employment, conservation, social equality and justice, community health and prosperity, among others, as well as region specific programs focusing on multiple objectives.
run employee training programs
More than 80% of the leading financial institutions run comprehensive employee training programs to build and diversify employee skills, improving employee productivity, satisfaction and retention and employee training.
reducing their organization’s environmental footprint
Operational Environmental Impact Initiatives
Approximately 81% of institutions have adopted initiatives to improve the environmental footprint of their organization by changing their operations. Initiatives targets include waste-to-landfill, energy, paper and water use reduction targets, the elimination of single use plastic, and sustainable buildings.
have supplier diversity programs
Stakeholder Diversity Programs
Approximately 90% of finance industry leaders have developed programs (that are publicly disclosed) focused on promoting the diversity of a company’s broader stakeholder group such as preferred supplier programs for enterprises with owners from diverse backgrounds
actively promote employee diversity
Employee Diversity Programs
In excess of 75% of financial institutions have adopted employee diversity programs focused on improving diversity in the workforce whether based on gender, race, sexual orientation, disability culture, religion, race or other criteria. Programs adopted by banks include outreach initiatives, employee training and hiring programs
have employee wellness programs
Employee Wellbeing Programs
Over 70% of financial institutions have publicly disclosed various initiatives implemented to improve the mental, physical and financial health of employees, including enhanced benefits program, and mentoring programs, among others.
have organized volunteering schemes
Approximately 70% of finance institutions have publicly disclosed employee volunteering schemes, including time-off work volunteering programs, organized volunteering initiatives, employee volunteering with company donation schemes.
engage in charitable giving
Philanthropy and Charity
Majority of the companies have publicly disclosed their donations to charities, with several of them making them through corporate foundations established specifically for this purpose.
‘Being Good’ initiatives enable companies to be a ‘force for good’ as participants in society who, when engaging with their stakeholders and the world at large, can credibly lead by example in terms of promoting good behaviors and pursuing good outcomes. This has the potential of changing the behaviors and outlook of other participants in the system, with their cumulative actions and efforts making a positive impact to improve the system as a whole.
‘Doing Good’, Deciding What to Support
The second category of ‘doing good’ is through the finance industry’s core business, wherein it prioritizes business selection and execution according to a set of commercial and broader societal objectives and goals. Deciding the criteria by which to allocate funding is a powerful mechanism for incentivizing certain behaviors given that nearly every participant in the modern world requires access to capital to survive and thrive.
In this critical area, the industry’s leaders have been driving and supporting a wide range of initiatives which have become flagships for many of them as to how they define their efforts for good for their stakeholders, including:
participate in sustainability organizations
Industry Participation in Associations.
98% of financial institutions surveyed participate in industry or thematic associations focused on standard setting and coordination on sustainability and ESG related issues.
have implemented ‘sustainable finance’
Sustainable Investing (and Financing).
97% of companies examined, representing US$101 trillion in assets apply screening criteria to all business selection to exclude projects and/or customers deemed to be harmful, with a smaller subset applying a series of positive screening metrics to proactively promote the funding of what they see as sustainable projects and enterprises.
have sustainable portfolio balance targets
Portfolio Balance Targets.
Over 80% of companies have established portfolio balance targets for their investment holdings or business mix, capping the percentages of their exposure to certain activities, for example by setting carbon caps or target dates for achieving carbon neutrality.
engage with clients and investees on ESG
More than 85% of finance companies have publicly available policies on how they engage with their clients and investee companies on ESG and broader sustainability issues, using their position and resources to work with these parties to implement sustainability measures.
offer ‘sustainable’ products
‘Green’ and Sustainability linked Products.
Approximately 73% of the financial institutions have extended their sustainable investing practices to the development, underwriting or distribution of sustainable products, like green, social, and sustainability linked bonds, mortgages, loans to fund sustainable opportunities.
publish ‘force for good’ research
In excess of 60% of institutions conduct and publish specific research and thought leadership on sustainability and ESG related topics, leveraging their internal expertise and resources to educate a broad set of stakeholders on important issues.
engage in impact investing
Impact Investing (and Financing).
More than 15% of financial companies, run programs for ‘impact investing’ with the intent to generate a measurable, beneficial social or environmental impact, sometimes alongside a financial return and sometimes just to make the impact.
have sustainability advisory services
Sustainability-related Advisory Services.
A small group (fewer than 10%) of financial institutions have also established capabilities to provide sustainability related advisory services, helping clients to plan, execute and ultimately finance their objectives in a sustainable fashion.
In this second category of engagement, the finance industry leaders focus on using their influential position in the economy to do good, using exclusion criteria to starve out activities by economic participants that they deem harmful, and promoting sustainable activities and actors by providing them with capital. The industry becomes a ‘force for good’ both directly through the promotion of sustainable outcomes and behaviors (and its reduction of harmful ones) as well as indirectly through the longer-term shift in activities that these interventions bring about, with these longer-term shifts in particular helping to change the system as a whole.
‘Leading for Good’, Breaking Boundaries
The emerging common ground among the leading financial institutions across the world sets a high bar for others in the industry. However, the common ground was never enough. Many of the organizations examined are already breaking new ground in terms of having a positive impact on key issues.
A number of bold and ambitious endeavors have been initiated by the leaders of the finance industry through international agreements, as an industry When organizations step up to drive progress directly in their countries or on the world stage, with they do so as leaders, the fact that they come from a particular industry not being the most important factor. Leaders of the finance industry have begun to do this to meet global objectives by mobilizing capital, their own organizations and the broader stakeholder community to drive initiatives with a direct impact on major issues and opportunities. These actions have a potentially substantial and direct impact on many major global issues. Managing 90%23 of the world’s net investible assets, the industry is in a position to drive change at scale and working with other stakeholders it can magnify its impact to make the most lasting impact to how the system works to make a positive impact on major issues and opportunities.
A number of ambitious endeavors have been initiated by the leaders of the finance industry examined during this study. Some of them are to join hands to make a global impact on issues as part of a compact (often initiated by the UN or another international institution), others are designed by a collective to together make an impact and still others are initiated as individual initiatives led by one organization that has then co-opted other stakeholders to address a major issue or the system as a whole. These are bold, imaginative and potentially society and world changing endeavors.
The initiatives that are evident among the global finance industry’s leaders have this kind of scale and reach, nationally or internationally, include the following:
have committed to major alliances
Outcome Driven Alliances to Address Major Systemic Issues.
35-40%24 of financial institutions have signed up to major global alliances to address systemic issues facing the world with significant commitments on their part. By virtue of their scale, it is important that the largest financial institutions act to provide the leadership. Examples of the significant goals currently being pursued at scale include managing the climate transition, reducing pollution, and mass inclusion.
of institutions realigning their core businesses
Addressing Major National Issues with Governments.
A small number of financial institutions are working to lead either directly or in partnership with governments in addressing major national issues, administering national programs that in the past would have been the remit of governments alone to executing and funding impact programs. Examples include affordable housing and slums rehabilitation, urban renewal and racial equity initiatives.
of institutions realigning their core businesses
Goal Oriented Business Realignment
Approximately 16% of institutions have realigned their businesses around the pursuit of broadly defined sustainability goals, setting highly ambitious targets with a meaningful potential global impact, and reorganizing their entire business around their pursuit. This includes changing business development and origination, building new domain expertise, developing new client and supplier relationships, innovating new products and services and of course selecting business differently. Major examples of goals currently being pursued at scale include managing the climate transition, reducing pollution, and mass inclusion.
of leaders creating new institutions
Creating New Institutions.
Some (fewer than 5%) of institutions are creating new institutions entirely to address a systemic failure to allocate capital to entrenched issues. The vehicle for doing so is often modelled on an existing institution, leveraging and supplementing existing organizational skills, but at a scale that is unprecedented in an effort to make a dramatic and lasting impact. A recent example of newly created organizations is a development finance institute within a major global bank.
of leaders developing new financial systems
Developing New Scalable Global Financial Systems.
All the leaders of the finance industry in this study are leveraging technology to transition to the emerging digital economy, investing in areas such as big data analytics, artificial intelligence, blockchain and mobile technologies. Among these companies, a small number (fewer than 5%) are placing more radical bets on technologies and business models that could revolutionize the current financial system if adopted at scale by disintermediating or changing the role of critical actors like central banks and market makers. Key examples include the development of global digital currencies and payments mechanisms using distributed ledger technologies
By the very nature of their scope and ambition, most ‘leading for good’ initiatives are limited to the industry’s largest participants, who have the financial, operational and reputational resources necessary to execute on large scale projects driving fundamental change. Given this scale, however, these initiatives have the potential to initiate major global changes.
A Cumulative Impact Creating a ‘Force for Good’ and Initiating Systemic Changes
There is a growing commitment to transform the financial system for increased sustainability, changing how capital is prioritized, priced and The initiatives outlined above, whether focused on being good, doing good or leading for good, contribute to the finance industry being a ’force for good’. The three categories of initiatives are not exclusive to one another, but increasingly interlinked and aligned around the core goals and ambitions of the institutions that are executing them. It is the cumulative impact of all these initiatives that, if they become widely adopted make the finance industry and its actors a 'force for good' in the world, both individually and collectively.
Industry leaders are in the process of changing how they operate, allocate capital, and more broadly lead in society. They are currently doing this while acting alone, in groups or as part of broad coalitions. Cumulatively these initiatives point to a growing commitment to a sustainable future, with industry leaders changing how capital is prioritized, priced, and allocated, materially shaping human activity around the world and transforming the financial system in the process
It is important to note, of course, that while the sustainability frameworks employed by finance industry’s leaders will undoubtedly continue to evolve and improve over time, they are far from perfect and will likely continue to remain so despite their best intentions. Just as major institutions are simultaneously engaging constructively with stakeholders on sustainability and sustainable development goals while in parallel lobbying governments for outcomes that may run counter to them, it is almost certain that many companies will for the foreseeable future continue to engage in activities (not captured by their existing ESG frameworks) that are harmful, contributing to issues like species extinction, habitat destruction, violent conflicts and human rights violations. In a complex and imperfect world, in which the definition of what constitutes ‘good’ is continuously evolving, the bar for being a ‘force for good’ cannot be perfection. Change will require an ongoing growth in awareness and continuous improvement on the issues and metrics that matter to the world.
The actions of the leaders in the industry demonstrate that the industry’s largest capital pool is moving in the right direction. ESG, in the past decade has moved from a niche initiative to being universally adopted, and leaders are now increasingly moving from passive policies on ESG, sustainability and stakeholder engagement to proactive engagement, leveraging their core businesses and committing considerable resources.
Moreover, the growth and absolute scale of the engagement by industry leaders is pointing to a tipping point for the establishment of market standards in sustainability that the rest of the industry will follow. For the finance industry as a whole to become a catalyst for global change, this emerging mode of action too will need to become ubiquitous in the industry, and this will be a gradual and evolving process. For this process to be self-sustainable however, the industry will need to demonstrate not only its benefits to stakeholders and the world in general, but to shareholders and investors specifically, too.
The leaders of the industry have taken an array of steps from putting their own businesses into a more sustainable footing, to deciding what they will fund and defund and then taking leadership in the wider industry, community and world at large to do good. How well this translates into performance has an important bearing on the sustainability of their initiatives too. This is the subject of the next section. The potential contours of the resulting system and the big ideas and themes that may shape the system is the subject of the concluding section.
- 22. All % in this section have been rounded to the nearest 5%
- 23. Calculated on global net liquid assets (see footnote 8 above)
- 24. All % in this section have been rounded to the nearest 5%