The sustainable financial system (SFS) programme focuses on nine key risks and challenges that could undermine a sustainable financial system.
By addressing these we believe we can support a more sustainable financial system:
- short-termism: short-term investment objectives;
- beneficiaries: attention to beneficiary interests;
- policy makers: policy maker influence of markets;
- lobbying: capture of policy by vested interests;
- service providers: brokers, rating agencies and advisors;
- principal-agent: relationships in the investment chain;
- culture: financialisation and rent-seeking;
- misaligned incentives: with sustainable economic development;
- investor practice: practices, capacities and competencies.
We are delivering a series of projects that will address key risks and challenges in the financial system. Our focus in the first phase work is addressing key blockages in the system and aspects of the system that will enable responsible investment. We will start with four priority projects, followed by four more:
|PRIORITY PROJECTS||Asset consulting services||Trustee readiness for a sustainable system||Macro risks - investor response to threats and instability||Sustainable system linkages and the role of actors|
|OTHER PHASE 1 PROJECTS||Sustainable financial instruments and incentives||Governments linking financial and sustainability policy||Banking sector sustainability review||ESG investment/modern portfolio theory|
To measure success, we need to understand our impact against sustainability, system characteristics and economic well-being measures:
- sustainability: the financial sectors contribution toward the SDGs;
- characteristics: the system displaying the characteristics of a sustainable financial system;
- well-being: investment that supports wider economic well-being.
One of the key challenges for our work on a sustainable financial system is ensuring that our projects are relevant to the financial system of the future. This means being forward-looking in design and implementation. We are identifying and monitoring a short-list of driving forces that we expect to have a significant impact on the financial system. Our work will include examining each of the drivers, their potential impacts on the financial system, the UN’s Sustainable Development Goals (SDGs) and the reaction from investors.
Drivers of change within the financial system: demographics; technology; rise of emerging markets; structural changes of design of pensions; mistrust towards financial industry; regulation after the global financial crisis; financial inclusion.
Drivers of change external to the financial system: rising inequality; environmental degradation; natural resource depletion; the erosion of multilateralism; the rise of nationalism; protectionism; systemic corruption; conflict.
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Sustainable financial system: Nine priority conditions to address