The PRI’s mission statement calls for signatories to play a role in supporting a sustainable financial system, by “addressing obstacles to a sustainable financial system that lie within market practices, structures and regulation”. Responding to this, the PRI established the Sustainable Financial System programme to develop a framework for contributing to a sustainable financial system.
The financial system is an integral part of how modern economies develop – banking, savings, investment and insurance play a critical role in supporting and enabling economic growth and development. But the financial system can undermine sustainable economic development: it can damage the health of the natural environment and it can fail beneficiaries and savers. The financial system itself is also susceptible to sustainability challenges that can undermine the ability of fiduciaries and other institutional investors to fulfil their purpose, regardless of the investment decisions they make.
By understanding the linkages and interactions between different parts of the financial system, and how the financial system links with other parts of the economy and society, we can empower investors to understand the impact and operation of the financial system as a whole, including its purpose, its characteristics, its effectiveness, how the system may change over time and its resilience to risks and sustainability challenges, and enable them to support a more sustainable financial system.
- Collectively, financial actors including investors can have negative impacts on society and the environment, which risk undermining the purpose of the financial system.
- Risks in the financial system need to be addressed if it is to be resilient, as do many risks and sustainability challenges in society and the environment.
- A resilient financial system is necessary for investors to fulfill their duties.
- Individual responsible investment processes and decisions are insufficient for the financial system to be resilient or society sustainable.
“The financial system should support sustainable and equitable economic development. In doing so, it should enable everyone to access their income today and save for the future use. It should also provide capital to invest productively, innovate and provide for everyday needs”.
These are the outcomes we believe the financial system should be delivering, but the financial system does not always function in this way. It faces a number of risks and sustainability challenges that can undermine the ability of investors to meet their obligations to savers, undermine the ability of the system to operate efficiently and equitably and undermine sustainable economic development.