We all choose what's over that horizon

Even as we wrestle with Covid, thoughts are turning to what happens next and how we recover. For those of us lucky enough to be working from home in financial services we can repay our debt to key workers on the front line by ensuring we each play our part in building back better.

How should we, working in financial services, play our part?

I’m sure many people reading this have friends or family working at the front line of Covid. Our thoughts are with those personally impacted by the disease, or who have suffered loss and our immense gratitude goes to key workers. Thank you.

I come from a medical family. My sister is an A&E consultant. I try not to feel inadequate! But at times like this there is such a stark contrast between the immediacy of her purpose and mine. 

So, in this challenging and difficult time I’ve been thinking about how those of us fortunate enough to be working from home in the financial sector might play a part in #buildbackbetter. How should we play our role in both the building back and also ensuring the wider financial system is supporting societal risk mitigation? How can we build a financial system that doesn’t facilitate activities like deforestation and habitat loss, activities which drive pandemics and climate change. What can we do as individuals here to deliver a better future for those key workers and our loved ones as well?

I think our duty is simple. It is to actively, passionately and vigorously add our influence, individually and collectively, to accelerate the evolution of the financial system to a sustainable financial system. A sustainable financial system that plots a course for both societal outcomes as well as economic outcomes. A system that delivers prosperity but also looks after people and planet.

In doing so we can also help to drive an approach to societal risk management that is forward looking, supported by science and that recognises the wide objectives of sustainable growth. Doing our bit to build a society whose future course avoids the perilous shoals of pandemic risk, climate change, biodiversity collapse, social injustice and other existential dangers.

Now we must flatten the curve – what happens next is up to us

Now, of course, the focus is on the global pandemic. Lockdown measures are in place to slow the spread of the virus to avoid over-whelming healthcare systems, alongside rapid ramp up of capacity in those systems to treat Covid sufferers and reduce the death rate as much as possible. Grim times.

Alongside the management of the physical risk are a raft of emergency measures designed to protect our global economy from the massive disruption caused by the abrupt cessation of economic activity in many sectors, with tens of millions now unemployed in a short space of time.  

Next will come a recovery phase. Exactly how we will come out of this crisis is unknown. What measures will be taken to try to stave off the worst physical and economic impacts and what lessons will be learnt? Will we be more aware of the array of risks that face our global society? Will our governments’ approach to risk management be more informed by science? Will we take this chance to challenge and change some of the great embedded injustices in the system? Quoting from Nico Aspinall’s concise summary of the situation:

“There are grounds to hope that we will look back on this as a blip, possibly a long one, in an otherwise uninterrupted journey of human progress.”

But it is by no means certain that we will build back better, we must consciously strive to ensure we do. Our planet, our future, your choice.

Governments can change rules but only individuals can make decisions

Traditionally financial services have focused on financial outcomes, with little heed being paid to how funds are lent or invested and what activities they are funding. For a pension scheme, for example, the logic goes that by maximising financial returns, the scheme fulfils its primary duty to provide a future income for its members. Similarly, as long as banks make loans to profitable businesses, the economy grows, the banks make money for shareholders. Nothing to see here, traditional financial services are fulfilling their purpose by facilitating economic growth, we’re all good.

There are many financial actors of course, all carrying out their roles in this activity. So collectively these banks, pension schemes, insurers and other financial institutions are literally building the future we will all live in by providing capital to companies and governments to create it.

But if all this lending and investing isn’t aligned to broader societal objectives then we have a problem.. All investments have real world impact. We are always funding something. Financial actors must now start to recognise and embed this into their objectives and governance, as some leading firms have been doing for a while.

By way of a simple example, climate risks and opportunities will impact a pension scheme’s investments but so too will a pension scheme’s investments impact climate change. What is your money up to – are you investing in a coal mine or a wind farm? Did you mean to invest in melting glaciers and modern slavery?

Things must change and quickly. But system change is notoriously difficult. As Nick Robins said in his excellent Earth Day speech:

“The problem is that the rules of the game and the market incentives, the conventional wisdoms and daily routines, make it easier and more profitable for these trillions to bet against the planet and ignore human development.”

So my ask of you is simple. Play your part in changing these conventional wisdoms and daily routines. Own your responsibility as part of the system to help it evolve. Be accountable. Governments can change rules but only individuals can make decisions – make your decision today to be part of the solution.

To be clear, I am absolutely not suggesting we starve businesses of capital. But I am suggesting that we should be supporting businesses to evolve if they are not aligned with societal objectives, as we have seen BP and Shell commit to do in recent weeks.

So what needs to change?

In order for financial services to support the delivery of that better future for all, we must have formal objectives for both short and long term investment and societal outcomes. To be clear, this doesn’t mean sacrificing returns, giving money away or starving businesses of capital – it means incorporating these objectives formally into strategy and governance and striving to achieve them, alongside our financial targets.

• Traditional financial service objectives - primarily financial - manage cost and realise returns
• Sustainable finance service objectives - financial and societal - positive outcomes for people and planet

So whatever your role in financial services, please play your part in accelerating this change. Ask the difficult questions, sponsor the papers, take a career risk, switch your pension investments, be part of the solution. Doing nothing is no longer acceptable now that we understand the risks that are driven by financial services activity focused only on economic outcomes.

Many I’m sure have read Novel Yuah Harari’s ‘Sapiens’, charting the arc of human progress. Leaving you with some of his words from his ’21 lessons for the 21st century’:

“If you really understand how an action causes unnecessary suffering to yourself or to others, you will naturally abstain from it.”

Let us all apply that wisdom to convert finance to sustainable finance. Let us all play our part in creating a better future for us all.