We live in an era of global prosperity unrivalled in human history, with the economies of the world generating wealth at a near unprecedented rate. While economic activity has driven progress in human development and the quality of life globally, the world is today facing a series of increasingly urgent challenges that, if left unaddressed, threaten to derail or potentially undo the progress the world has made in the previous decades. Many of these challenges have been inadvertently fueled by the same mechanisms that have driven global growth and prosperity, and so comprehensively addressing these challenges will require systemic changes to the underlying economic system that gave rise to them. The current global coronavirus pandemic has brought many of these challenges into stark focus revealing critical differences in resilience in the world, including its ability to act together, and to be unified within countries.
There is widespread and growing recognition of both the urgency and the interconnected nature of the challenges facing the world, many of which are deeply entrenched in its system of enterprise and will require the efforts of all global stakeholders to address. Accordingly, they have become increasingly critical areas of focus for international institutions, governments, and the private sector to address. The United Nations formulation of the 17 Sustainable Development Goals (SDGs) has been a landmark in the development of global awareness and action, signed by 193 countries, and they have led to increasing numbers of government and private sector initiatives seeking to drive tangible action for their achievement, including by the finance industry.
The finance industry, by nature of its privileged position in the allocation of global capital, can make a potentially disproportionate impact on addressing the world’s challenges and ensure the long-term sustainability of the capitalist system that has driven the world’s development and prosperity. Moreover, the industry, and its leaders in particular, is taking an increasingly proactive position in addressing many of these challenges for the common good, aligning its objectives with the need for greater sustainable development and the SDGs in particular, by embracing a broader responsibility to stakeholders, thereby becoming an increasing ‘force for good’ in the world.
Fundamentally, the industry’s impact as a ‘force for good’ rests upon its actions across three areas: mindful conduct promoting environmental, social and governance (ESG) goals, caring for the planet through sustainability, and through demonstrating compassion for all stakeholders, with the ability to allocate capital being the most powerful tool available to it, alongside other direct actions and initiatives that make an impact on major issues and opportunities.
The finance industry’s leading organizations, with a growing awareness of the extreme challenges facing the world, are taking an increasingly proactive position in addressing these challenges, redefining their purpose to act for in the common interests of all stakeholders This report examines the initiatives of a group of 63 leaders of the finance industry drawn across geographies and asset classes, representing approximately US$102 trillion of assets, utilizing multiple frameworks to determine the extent to which they are emerging as a potential ‘force for good’, with two primary objectives in mind: (i) understanding the ‘common ground’ i.e. the emerging set of initiatives that is establishing a de facto market standard of behaviors and initiatives, and (ii) identifying the initiatives by industry leaders which break new ground and have the potential to make a disproportionate systemic change for good in the world.
All of the companies examined have active programs for ESG, sustainability, stakeholders and making an overall impact, and this report outlines the extent of these, with all companies having adopted ESG policies in their investing processes and in their organizations, and the overwhelming majority proactively promoting ESG, sustainability and stakeholder management through client and customer engagement and proactive investing activities.
Their specific programs they have launched reveal a change in strategy and priorities that the leaders of the industry have set and share in common, which have been translated by each of them to realign their organization’s core activities. Taken as a whole, the group have highly ambitious plans to impact the world across a range of global, national, and local issues, driven by a rising awareness of their role in the world.
US$12 trillion being consciously allocated to activities to promote good, from over US$100 trillion of AuM following ESG policies and practices The leaders of the finance industry’s engagement as a ‘force for good’ is substantial and multipronged and has been analyzed in three categories of activities: (i) ‘being good’ initiatives that internalize the goals the organization is trying to promote or see it engaging with stakeholders as a good citizen, (ii) ‘doing good’ initiatives in which the finance industry aligns it business with its goals to change the world by impacting capital flows, and (iii) ‘leading for good’ initiatives where leaders align their own organizations, their capital and the broader stakeholder community to make direct impacts on major issues and opportunities. It is the cumulative impact of all these initiatives that potentially makes the finance industry and its actors a potent “force for good” in the world, both individually and collectively. Major indicators include:
- US$12.5 trillion of AuM (12% of total assets) consciously incorporate ESG factors into their investment decisions to promote activities for good
- 100% have adopted ESG and sustainable investing targets, representing US$102 trillion.
- 98% apply a series of ESG screening metrics to proactively promote the funding of what they see as sustainable projects and enterprises
- 90% have publicly affirmed their commitment to serve the broader stakeholder community
- 97% of the leading finance industry participants in this study, with combined total assets of US$101 trillion, have committed to actively reducing their own carbon footprint
- 84% have prioritized climate action as an urgent organizational priority
- 73% offer or invest in ESG or sustainable products (e.g. green bonds, sustainable loans, etc.
- Industry leaders are setting goals to address global challenges and reorganizing their businesses to achieve them, including working with governments to solve national challenges and creating new global institutions to solve international ones.
The finance industry is recognizing the need to make a material impact on the UN SDGs, with 75% of the SDGs specifically targeted thus farAll ‘force for good’ activities broadly support the SDGs, with the finance industry increasingly focusing on the SDGs explicitly as a framework for focusing and communicating their broader citizenship, sustainability, and governance initiatives, with 13 (out of 17) SDGs having been specifically highlighted as areas of focus by the 63 financial institutions examined.
The common ground among industry leaders is substantial and provides a strong base from which they can collectively act as a ‘force for good’. The absolute scale of their collective actions is reaching a tipping point that will enshrine an increasing number of sustainable behaviors and policies as market standards for the wider finance industry and form a strong base for even greater engagement by leaders. This remains critical given that current industry commitments, while significant, remain insufficient to preserve the rainforest, avert climate change, or solve for mass inclusion.
It is increasingly clear that doing good translates into superior returns and doing more good delivers even greater returns, for those that do it well For their actions to be sustainable, industry leaders will need to demonstrate the benefits of their actions in terms of improved performance to their stakeholders. There is an increasing body of empirical evidence that makes the business case for sustainability and sustainable investing strategies in terms of returns, risk and diversification. Moreover, the (listed) finance industry leaders analyzed in this study acting as a ‘force for good’ have delivered a 24% premium over industry benchmarks in terms of total shareholder returns over a 10-year period, showing a strong correlation between the level of engagement and the returns premium generated. Among this group, the companies engaging in the most significant activities generated the highest returns and a premium of 86% over benchmarks.
The initiatives of the leading financial institutions provide foresights into a series of mega-trends, big ideas and themes, with the potential to reshape not just the finance industry, but the wider financial system, and even the shape of the world over the coming decades. They point to aligning the world to fund the UN SDGs, fight climate change, drive mass inclusion and funding future breakthroughs in key technologies that enable inclusion, potentially using radically different models of finance that will empower individuals and organizations to make conscious, informed and effective choices that have a positive impact on the world.
This report looks at the direction of travel of the leaders of the finance industry and at its potential long-term trajectory as a positive force for change in the world. Historically, the finance industry has been critical to funding virtually every undertaking of any significance in the world, funding not just innovation, our economies and progress, but also wars, and the exploitation of natural resources and even people. This study finds that finance industry leaders are clearly aware of the industry’s powerful role in the world and are increasingly choosing to be a ‘force for good’. The resulting transformation of the industry to actively address global challenges will be a gradual process as companies evolve, learn, and adapt. During this process of change, there will undoubtedly be setbacks, with some institutions lagging and others faltering along the way. The long-term direction of travel however is becoming increasingly clear and it is positive.