The need for the world's financial systems to move towards a more sustainable model is clearly attracting high-profile attention. However, such a transition is an enormous task: the WEF estimates that $6tn (pounds 3.6tn) will need to be invested globally in infrastructure, every year, up to 2030 to deliver a low-carbon economy.
So how can we encourage financial institutions to make that level of investment and move towards a sustainable economy? What are the current problems and where do the solutions lie? These questions formed the basis of a recent roundtable debate, which was hosted by the Guardian in association with EY,
To begin with, participants discussed how and why the economy has become unsustainable.
"When you have a system driven by financial returns, rather than looking at a social return or greater wider good," said
Restrict market entry
Many other participants agreed that listing rules were a problem.
But if the capitalist system caused the problem of short-term profiteering at the expense of natural resources and civil society, surely the very same powerful system could also be used to create a more sustainable economy? "Capitalism is an incredible system, it can do huge things really quickly, it can engage incredible powers of innovation, they're just not really pointed in the right direction," said Clemens.
"We own the banks, we own these companies and the economic system. We're not slaves to it - it is supposed to serve us," he added. "We need to redesign that system."
For many contributors, finding leverage points within the existing capitalist structure was the most effective way of reshaping it. But where should the focus be?
Waygood said education is key. In particular, he felt that a redesign of the Chartered Financial Analyst (CFA) course could have a huge impact on the way professionals in the financial services industry operate. The CFA is "the most important investment course any analyst or fund manager takes", he said. However, the CFA exam is at "the heart of the problem" of unsustainable markets because it ignores environmental, social and corporate governance (ESG) issues, he added.
The CFA "should be under a lot of external pressure to rethink what they teach their guys," agreed Saker Nusseibeh, chief executive officer, Hermes Asset Management.
Educating civil society was seen as another step towards creating a more sustainable finance system. "If we want to see a vision of an alternative economy . . . we have to build ordinary citizen momentum into supporting and financing social businesses and social ventures," said Campanale.
He pointed out that when people buy an Isa or a pension, they rarely "dig underneath" that product to find out where it is invested. "The public has yet to identify the household name institutions that are the biggest financiers of the fossil fuel industry that are culpable for the problems we are facing with climate change," he said.
So how can the general public become more engaged and demand change from the financial institutions that serve them? "Transparency will be the thing that gets the next generation," said
Increased transparency is already having a positive effect, said
Waygood thought this information should be open sourced. "Why is it only accessible to those people who can pay for it privately. If it's accessible to civil society, you start to create a whole new democracy," he said.
But corporate governance and sustainability expert
For Litvack and many other contributors, the drive for change has to come from fund managers - in particular, those who control pension funds. Last year, according to the
It was therefore important to bring clarity to the investment arena. "It is easy to make a case that, over the long-run, profit and protecting long-term wellbeing will coincide," said
Schemes such as Carbon Tracker were held up by participants as an example of how pension fund managers could be shown the true value of their portfolios and the risk of continuing to invest in "stranded assets". Put simply, Carbon Tracker has shown listed companies already hold more coal, oil and gas reserves than can possibly be used if we are to stay within internationally agreed targets for reducing C02 emissions.
If the supposed value of a company is based on these carbon "assets" that can never actually be used, the true value of the company - and of any pension funds invested in it - will be greatly below market assumptions.
This "carbon bubble" exposes capital markets to a systemic risk, the roundtable heard. Once pension fund managers and central bankers realise they are exposed to such enormous risks, the business case for investing in a greener economy becomes abundantly clear.
"The question we need to keep on asking is: 'What has value?' We need to turn it around from a risk point of view and from an evidence point of view," said Manwaring. "That is the question that draws people in and forces them to rethink."
Finally, the roundtable heard how many new business models were already emerging to take advantage of this new financial landscape. Campanale pointed to the work of
"There is a huge momentum for raising capital for green [enterprises]; the economic system will shift," said
Perhaps innovations in the capitalist system itself, which win over investors swayed by the business case, offer the best hope of making the economy more sustainable. After all, it's an argument supported by market ideology. As Campanale said: "It goes to the idea of creating competitive institutions to take market share from institutions you don't like - you don't change the system, you compete with other institutions."
At the table:
Executive editor, the Guardian
Content manager, Guardian Sustainable Business
Head of financial services, EMEIA,
Carbon Tracker Initiative;
founder and managing director,
Head of finance and business,
Head of climate change centre of excellence,
Corporate governance and sustainability expert
Hermes Asset Management
Chief responsible investment officer,
Key discussion points:
* High-level political figures and organisations are now calling for the financial system to become more sustainable.
* There is clearly a business case for doing so. Carbon assets already pose a systemic risk to the financial system: 60-80% of coal, oil and gas reserves of publicly listed companies are "unburnable" if the world is to have a chance of not exceeding global warming of 2C, yet capital markets continue to invest billions in these stranded assets.
* Pension funds, education and improving transparency are key leverage points within the system that should be targeted to speed up the transition to a more sustainable economy.
* Innovative business models already exist that can harness capitalism's ability to drive change in a positive way.
Listed companies with carbon 'assets' are exposing markets to systemic risk; investment in green technology is needed Getty Images
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