Following a century and a half of global development under industrial capitalism, the world today faces a number of increasingly critical challenges that risk undermining further progress. Many of these challenges are directly linked to the very system of enterprise that has delivered unprecedented prosperity to the world and cannot be resolved in isolation as a result. Given the finance industry's position as the primary allocator of global capital, it has a critical role to play in shaping the future of sustainable capitalism that addresses the world's challenges while continuing to deliver growth and prosperity.
During the past 5,000 years, finance – consisting of the financial markets, their participants and the instruments employed – has funded industrial development, technological advancement and human progress, as well as financing the conflicts of the rulers of the day, adapting and innovating as required along the way. The finance industry's self-conception is undergoing fundamental changes and is leading to new sustainable systems and processes with some launching ambitious new initiatives to address critical global and local issues.During this time however, the finance industry itself – comprising banks, capital allocators, intermediaries, brokers, investors and other financial services providers – has rarely coordinated as a whole unless required to do so by other powerful players, and even more rarely taken a coordinated or active approach to address pressing global issues. With rare exceptions, financial institutions throughout history have not seen themselves as a primary actor for social, political, environmental, or technological change, their primary role being the allocation of capital for the generation of risk adjusted returns.
However, the finance industry's self-conception of its role and responsibilities is undergoing fundamental changes. Global connectivity, supported by the internet and social media, is driving the increased awareness of critical global issues among people and institutions across the world. Governments and regulators are increasingly recognizing the need for policies to align stakeholders and address global challenges, and industry leaders across all industries have recognized that more responsible and sustainable models of business also lead to more successful businesses.
Driven by these factors, there are signs that the finance industry, with great variation across countries, sectors and companies, is embracing a more 'responsible' or sustainable form of capitalism, adopting new systems and processes and re-orienting itself towards a more responsible and sustainable business approach that drives global development. Some in the industry have also launched ambitious new initiatives directly as sole agents or as a collective that aim to address critical global and local issues. The leading institutions in the industry recognize the world is facing extreme challenges and the moment is now for them to act. How to do that and in what scale is also becoming clear to these leaders and their people at multiple levels in their organizations.
The World in Transition, Facing Existential Threats
Progress, freedom, and opportunity have become the watchwords of our global civilization. Peoples have demanded it and sacrificed themselves for these ideas in every corner of the world. Leaders at every level from family, community, nation to global institutions have strived and organized to overcome every major obstacle to seize the opportunities of a more globalized, democratic and free world. Technology and media have spread the awareness of the essential right to have these benefits to every individual in the world creating an urgency for their delivery.
In order to deliver these rights, much of the world has risen to the challenge and made major breakthroughs in science and technology, unleashed new enterprises ranging from the scale of an individual to a global corporation Progress, freedom, and opportunity have become the watchwords of our global civilization. The overwhelming success in delivering these has left the world with almost perfectly matching major challengesthat can reach the whole world with technology regardless of where things are made, formed regional political and economic unions and worked in collaboration across national boundaries as a set of united nations. Global economic output has increased fourfold between 1980 and 2019, from US$20tn to US$87tn1, while global trade expanded from c.US$2tn to c.US$18tn2. Over the same period average life expectancy has improved from 62 years to nearly 73 years3, war related deaths globally are down 80%4, child mortality is down by more than half, and conflicts overall are less deadly, often waged between domestic groups rather than states. There is compelling evidence that the world's long-term trajectory is one of increasing peace, prosperity and freedom globally.
However, the world is also facing a series of increasingly urgent threats that, if left unaddressed, threaten to derail or even undo much of the progress the world has made in the previous decades. It seems that the flip side of very major success is a major failure. So, overall global prosperity continues to rise even as the wealth gap increases between the rich and the poor, technology continues to provide both advancements in living standards and decimates traditional manufacturing jobs, income growth provides major advancements in living standards taking populations out of poverty while increasing the rate of depletion of the world’s natural resources, and economic growth and overall human activity comes at the cost of driving a crisis in the ecosystem of the planet itself.
These challenges fuel instability, give rise to isolationism and xenophobia, as well as a loss of trust in traditional political, social and economic institutions that have thus far underwritten the global order and civilization,The pandemic has revealed the vulnerability of public health systems, economies, trade, society, incomes and people and most importantly the state of political and international systems of governance and with rising national populism supporting factions within countries, national interests and generally transactional and anti-multilateral policies, threaten to slow or in some cases undo the world’s progress. Further, the world also faces a series of existential threats such as climate change and, once again, conflicts between great powers with weapons of mass destruction, alongside dislocations of an economic, social, environmental and technological nature, with potentially catastrophic consequences for global civilization. More recently, the global coronavirus pandemic has exposed a lack of resilience across major countries in the world and exacerbated many of its challenges, straining healthcare systems, decimating economies and disproportionately impacting socially and economically vulnerable populations.
By the end of 2020, the pandemic had infected over 70 million people, killed 1.5 million, decimated global economy economic growth down to a negative 4.3% (from a positive pre-pandemic projection of 3.4%),5 destroyed 495 million jobs, wiped out 10% or US$3.5 trillion of global labor income in the first three quarters of the year,6 pushed an additional 88 million people into extreme poverty this year7 and raised global indebtedness by US$19.3 trillion.8 This has happened without a ‘war room’ approach with world leaders coordinating the effort to contain and combat the deadly attack on the world’s economies, societies and healthcare systems. With the injection of stimulus packages of US$15 trillion9 and the rapid development of vaccines, the chances of turning this tide are now clearer, but the deeper vulnerabilities of the world’s political, economic and social systems have been exposed.
The pandemic has added to an already exposed situation. Stepping back from the multiple shocks of 2020 and the aftermath of these that will continue into 2021 and beyond, the challenges facing the world are the results of deeper and longer term trends, in particular the rise of an information and knowledge based era to replace the industrial one, the rise in the global population from 6.1 billion people at the beginning of this century to nearly 10 billion10 by 2050, the depletion or increasing full cost of accessing the natural resources required to satisfy demands, the cycle of rising great power rivalry between America and China, and the instant interlinking of all of humankind as a collective through technology for the first time in history. These are powerful forces, magnified by their concurrence, reshaping the world, and marking the end of the current civilization and setting the stage for the next one.
Widespread Recognition of the Need for Fundamental Change
There is widespread and growing recognition that the challenges facing the world are interconnected, and individually and together represent risks to the sustainability and further progress of hard won peace,Many of today’s challenges have their root causes in the core pillars of the global order that has delivered peace, prosperity, and freedom for the past 70 years prosperity and freedom, threatening lives and livelihoods across the world, with a majority of respondents across major countries surveyed identifying climate change (70%), infectious diseases (69%), terrorism (66%), cyber-attacks (65%), nuclear proliferation (61%), the condition of the global economy (58%) and global poverty (53%) as major threats.11 As such, they have become the critical areas of focus for international institutions, governments and the private sector to address. The coronavirus pandemic has only accentuated the problems and is threatening for some to undo much of the progress that was hard-won over decades
The United Nations Sustainable Development Goals (SDGs) are perhaps the most ambitious initiative globally in this regard. These 17 interdependent goals are designed to be a ’blueprint to achieve a better and more sustainable future for all‘, and include (1) No Poverty, (2) Zero Hunger, (3) Good Health and Well-being, (4) Quality Education, (5) Gender Equality, (6) Clean Water and Sanitation, (7) Affordable and Clean Energy, (8) Decent Work and Economic Growth, (9) Industry, Innovation and Infrastructure, (10) Reducing Inequality, (11) Sustainable Cities and Communities, (12) Responsible Consumption and Production, (13) Climate Action, (14) Life Below Water, (15) Life On Land, (16) Peace, Justice, and Strong Institutions, and (17) Partnerships for the Goals. Each of these goals is the result of decades of consensus building among UN member states, all 193 of which have adopted the goals and their development agenda, underpinned by a series of targets and relevant indicators to measure progress through to 2030, the target date for their final achievement. Within the broader SDG framework, the UN has launched or sponsored numerous international initiatives in pursuit of specific goals or to engage with particular stakeholders, such as the Paris Agreement on climate change, in which 189 countries have committed to CO2 emission reductions, or the United Nations Global Compact, an international sustainability initiative for the corporate sector with over 13,000 participants across 170 countries.
National, regional and municipal governments are also pursuing ambitious sustainability and development targets with an increasing number of countries pushing for an energy transition and setting dates for achieving carbon neutrality, passing gender equality legislation, reforming welfare, health and social security systems, and strengthening environmental protection, to name a few.
These initiatives are mirrored by an increasing number of initiatives by the private sector, both by corporations acting through industry associations, in small groups and unilaterally. Global private sector engagement on sustainability and sustainable development has evolved significantly during the past 20 years, starting with corporate social responsibility (CSR), which began to widen corporate self-conception of social responsibility, broadening to environmental, social and governance (ESG) initiatives and more recently expanding beyond prioritizing the needs of shareholders alone to wider stakeholders to expand corporate accountability and responsibility and aligning with the SDGs.
These cumulative efforts have set in motion a multitude of initiatives to address the challenges facing the world today and make significant progress across many of the specific 2030 targets associated with the SDGs. However, it is important to recognize that many of these challenges have their root causes in the core pillars of the global order that has delivered peace, prosperity and freedom for the past 70 years: free-market capitalism, globalization and democracy. And while the resulting challenges are unintended, they are inextricably linked with the systems at the core of the global order - Clearly, the world, as it is motivated today, wants all the benefits of capitalism without the costs.
Among the pillars of the current global order, capitalism as an economic and political system stands unrivalled in the delivery of global wealth creation,An increasing number of countries are targeting carbon neutrality, passing gender equality legislation, reforming welfare, health and social security systems, and strengthening environmental protection which will require crisis levels of financing how that wealth is distributed being a matter for governments to address. The Global Financial Crisis was a global phenomenon that brought home the risks inherent in the system, and the significant economic and social costs of it. There is growing awareness that the current global financial system is not accurately pricing the benefits of positive externalities and the costs of negative externalities, leading to capital allocation that is sub-optimal for society as a whole.12 Much of the popular angst and anger has focused on ‘Big Finance’, a proxy for the largest financial institutions, and its role in the crisis and its origins. This, in turn, has cast increasing doubt on capitalism itself.
However, a deeper examination reveals that it would be unfair, or at the least superficial, to assert that the finance industry is responsible for the challenges posed by the system of capitalism. The shortcomings of the system, just like its successes are an integral part of the system and how it works today. The starting point is the recognition that societies across the world have come to define progress as increasing consumption and the accumulation of material goods, with citizens everywhere demanding more, and better, of nearly everything, whether it be foods and clothes or roads, homes and schools. Indeed, mass media in all forms have created and reinforced a link between happiness and consumption, reinforced by the metrics that link consumption and progress, measured by the imperfect GDP metric. This has led to the phenomenon of mass consumerism, which has created a demand-driven global economy whose never-ending needs are met by global supply chains harvesting and extracting resources from across the world to meet the demand. Governments and political systems are judged on their ability to meet consumers’ demands, and either deliver on these or risk falling, whether at the ballot box or in coups and revolutions. Global corporations, similarly, deliver or fall in their markets if they fail to play their part, and the financial institutions who fund them rise and fall with them. This system inevitably leads to the harvesting of the planet and its resources with little accounting for the impact of that harvest. Scientific breakthroughs become dedicated to finding ways to do this more efficiently or effectively, which contributes to both the benefits and the damage as decoupling tend to increase absolute consumption.
Everyone is both a participant and a contributor to this system. Financiers are not the only ones responsible for a system where everybody – consumers, media companies, resource businesses, manufacturers, trade organizations, politicians, entrepreneurs, and scientists – plays their part. In the absence of interventions, the continuing success of this cycle however will exhaust the planet and its ecosystem and leave many of the world’s challenges unresolved.
The question of whether the capitalist system is aligned with the world’s needs and sustainable development requirements is in some ways moot. The system is a means for matching supply and demand, and for allocating resources based on the needs and desires of its participants. The success of the current system of capitalism is such that everybody - consumers, media companies, resource businesses, manufacturers, trade organizations, politicians, entrepreneurs, and scientists - plays their part in harvesting the planet and its resourcesThe system will automatically adapt to reflect the changing priorities of its stakeholders. However, given the interrelated nature of the system, fundamental and long-term change will require the alignment of all participants. An example of this would be a change in the values of participants across the system so that they no longer link consumerism with happiness, and the system ceases supplying that as a result. Such a change requires the simultaneous and collective buy-in of every participant and is therefore unlikely to happen without a massive change in global awareness. The other more likely path, for now, is that science and technology provide the innovations to enable the unsustainable demands for natural resources to be substituted by alternatives and thereby alleviate the most destructive elements of the system. While this continues to perpetuate the link between happiness and consumerism, it potentially saves the planet. For the alternatives to take root in the system requires the participants to insist on the adoption of the alternatives.
Given the critical role of the financial system as the provider of capital that enables consumers to consume, manufacturers to manufacture, traders to trade, scientists to invent and politicians to have the economy (and other things) they need to govern, the finance industry is perhaps one of the key catalysts for the changes required to solve the stored-up problems of the last era and prepare the world for a more sustainable, peaceful and prosperous future. As the intermediary for 90%13 of the world’s net liquid assets, the finance industry has a disproportionate impact on the flow of global capital and therefore on the shape of the global financial system itself, resulting in an equally disproportionate ability to reshape the system as well.
Initiatives Driving Progress
Increasing awareness of the strains resulting from our current way of life and of the system that enables it has already driven a significant global effort to drive change. The United Nations has been at the forefront of many of these initiatives, as previously mentioned, and has helped coordinate with other international organizations and global stakeholders including non-government organizations and the private sector to drive various collaborative efforts that help drive progress in this regard.
Over the last three decades, starting with the Rio Earth Summit in 1992 which led to the adoption of Agenda 21 The SDGs have been embraced by the world and their importance is making its way into the priorities of private enterprises seeking to deliver the common good (an initial action plan on sustainable development) and culminating with the adoption of the 17 UN Sustainable Development Goals by the General Assembly in 2015, the UN has helped shape a broad global consensus between stakeholders on various sustainability related issues, establishing shared principles and objectives, along with the common standards needed to ensure widespread participation. The UN has used its convening power to partner through many initiatives with the private sector and the finance industry in particular, being cognizant that achieving the SDGs will require its support and participation. UN led initiatives like the Sustainable Stock Exchanges initiative, organized by UNCTAD, the UN Global Compact, UNEP FI and the PRI are reflections of the industry’s current tendency to be and do good in the world, and seek to address the challenges of scale, speed and direction of capital flows to the SDG sectors, especially in developing countries.
As a result of these initiatives and working with the international convening organizations, the finance industry has made collective progress rapidly in accepting and internalizing changes. These efforts have led to the formulation of common global goals, alignment around shared objectives, the establishment of principles and targets focuses action, the implementation of standards supporting efficient and consistent execution enabling the coalescing of a large enough and respected collective to encourage the broadening of participation across the industry (and with other industries)
A Framework for Analyzing the Financial Industry as a ‘Force for Good’
This report examines the progress being made by the leaders of the finance industry, how this might affect the system of capitalism and to determine the extent to which the industry is seeking to become a ‘force for good’. If most of the leaders of the finance industry examined are planning to go, or already are going, well beyond the mantra of ’doing no harm’ while pursuing the delivery of returns, seeking to proactively become a 'force for good', this holds the promise of catalyzing fundamental and positive changes in the system overall.
So, how does one assess whether the financial industry driven by its leaders is indeed adapting and evolving into a ‘force for good’? A simple idea lies behind the assessment of 'good' presented in this report, namely that, for a given environment, change can come from both actions and intentions, or values. The report’s assessment focuses primarily on the actions initiated, which can be clearly evidenced, while keeping an eye on the values that they might embody. The second aspect of the assessment looks at the impact of the actions initiated for evidence of the strength of the ‘force’ for good.
The Metrics Evidencing Actions and Values
The core of the assessment is based on the policies, processes, and procedures that leaders in the finance industry have established and are executing. This is used to find the emerging common ground among the industry leaders, which forms the basis for the industry acting as a ‘force for good.’ These processes and procedures can be grouped into three broad categories based on the direction of their engagement, recognizing that there is some natural overlap between them, namely:
- ESG – Mindful Conduct. The adoption of ESG policies and systems, and systematically monitoring the environmental, social and governance risks and impact of activities, represents a process by which organizations become more mindful of how they allocate capital and conduct themselves.
- Sustainability – Caring for the Planet. Driven by concerns over the environment in which one operates and the impact of climate change and resource sustainability, leading to the adoption of more sustainable approaches to their own business and making choices on what to finance and when to provide or withhold financial products and services with the aim of sustainable development and environmental preservation demonstrates and engenders values of caring for the planet as a whole.
- Stakeholders – Compassion for All. Adopting a multi-stakeholder approach by leveraging their position and resources to engage, support and care for a wider interest group including employees, local communities, customers, and other organizations, orienting their business around delivering a positive impact in addressing broader issues, raises the level of compassion of the organization and allows it to operate as a broader citizenship in the world at large.
The findings are presented in Chapter 3 of this report.
Assessing the Impact
The force of the impact that the industry is having in doing good is a function of the specific actions and initiatives they are executing, which have been examined under three categories, namely:
- Being Good. The first category includes initiatives focused on being good citizens ‘at home ‘. This category includes both internal and external activities related to how the organization conducts itself. Examples of the former include workforce diversity and hiring programs or employee wellness initiatives, among others. Examples of the latter include waste and resource reduction commitments, and charity and volunteering initiatives. These initiatives impact the system since role-modelling encourages others and the cumulative actions of many agents ultimately changes the status quo creating a multiplier effect in the impact
- Doing Good. The second category of engagement is the indirect method, wherein the finance industry, acting as individual agents or a collective, decides for what purpose and activity they will supply finance. Deciding the criteria by which to allocate capital, beyond profit alone, is a powerful mechanism which, at the inception of a transaction, determines the chances of achieving a positive or negative end-effect, for example not investing in projects that emit toxic wastes into rivers. In this second category of engagement, the finance industry focuses on doing good by using exclusion criteria to starve out economic actors that are harmful, thereby pushing the system to become clean.
- Leading for Good. The third category of engagement is the direct method, wherein the finance industry is ‘leading for good,’ directly in the world at large. At this level, either as a single agent or collaborating with external stakeholders (particularly government, business, civil society and citizens), the finance industry acts as an agent for achieving global objectives by mobilizing both capital and the broader stakeholder community to drive initiatives that are designed to make a direct impact on major issues and opportunities. By rising to become leaders for the common good, the finance industry can transmit changes directly into the world and impact it for good. Either as an organized collective, or through competitive dynamics, the finance industry is in a unique position to drive global action to create a more sustainable future for the world.
The findings are presented in Chapter 4 of this report. This analysis does not seek to propose a judgement on individual financial institutions or on how best they should act in order to deliver good and so any comparisons and analysis is undertaken to identify the common ground, and to examine their cumulative impact potential as a ‘force for good’. See Annex V – Important Notices.
Measuring Performance for Being a ‘Force for Good’
There is an oft heard assumption that ‘being or doing good’ comes at the cost of traditional financial returns performance. This report presents some of the evidence from external sources as well as indications from this work to shed light on the implications for performance of doing good.
While one of the findings of this report is that the industry’s conception of performance is increasingly widening beyond financial returns to include broader social and environmental externalities, both positive and negative, until capital markets more broadly align with these broader considerations, the term ‘performance’, for the time being, still refers to achievement across financial returns related metrics. The key aspects therefore that are examined are as follows:
- Performance Across Industries. This draws on the body of evidence examining the correlation between ESG policies and financial performance, including the revenue growth, productivity, and costs, among others.
- Performance in Investments based on Adoption of ESG. This draws on work to date on the operational performance benefits of adopting ESG and other sustainable practices as they related to the value delivered to investors.
- Performance Based on Being a ‘Force for Good,’ Beyond ESG. This examines the differences in performance between the financial institutions examined as part of this work based on the relative differences between their initiatives that define their being a ‘force for good’.
The findings are presented in Chapter 5 of this report.
The growing awareness of the extreme challenges facing the world has been a call to action for change across countries and industries, with the interrelated nature of the global economy implying a coordinated and system-wide effort is needed to address them. As the primary allocator of the world’s capital, the finance industry is in a privileged position to catalyze holistic change and inspire others to create sustainable prosperity for the world.
- 1. Source: IMF World Economic Outlook Database, April 2020
- 2. Source: The World Bank Database
- 3. Source: The World Bank Database
- 4. Source: The World Bank Database
- 5. Sources: IMF World Economic Outlook, Jan 2020 and Oct 2020
- 6. Souce: Internaional Labour Organisation, Sept 2020,
- 7. Source: World Bank: ‘Poverty and Shared Prosperity 2020, Reversals of Fortune’
- 8. Source: S&P Global Market Intelligence 19 November 2020
- 9. Source: Reuters estimate, 12 May 2020
- 10. Source: The World Bank Database
- 11. Source: Pew Research Centre, “Spring 2020 Global Attitudes Survey”
- 12. Source: See IMF for multiple references on the subject
- 13. Calculated on global net liquid assets held by individuals, governments, endowments, and foundations of US$242tn; Source: Credit Suisse, “Global wealth report 2019”, IMF World Economic Outlook Database, April 2020, Data from individual countries Central Bank Reports, Sovereign Wealth Fund Institute Database, Harvard Kennedy School’s Hauser Institute for Civil Society, “Global Global Philanthropy Report”