Finance & Sustainability

Finance & Sustainability

Relying on financial self-interest to engage the finance sector to address sustainability challenges clearly makes sense. The work of the Task Force on Climate-related Financial Disclosure does just that, for example, through greater disclosure of climate risk in the financial system. Disclosure makes business vulnerabilities more transparent, drives stronger risk management and helps to reveal which investments are really sustainable.

However, a broader set of aspirations is also at work in the sustainability discussion - aspirations based on core social values that are not solely financial but concern the wider wellbeing of people and planet. The United Nations Sustainable Development Goals capture this desire... to free the human race from the tyranny of poverty and want and to heal and secure our planet... to take the bold and transformative steps which are urgently needed to shift the world onto a sustainable … path.’
Unsurprisingly, some have criticised the Sustainable Development Goals, for their breadth. Nonetheless, businesses describing their sustainability aspirations frequently reference them and the closely associated Paris Agreement.

Clearly, people have powerful aspirations towards goals that go beyond what is economic, and it is questionable how far material and financial incentives will be sufficient alone to realise them. Although the legal duties of finance operators often leave scope for pursuing goals of this sort as ends in themselves, in practice they tend to result in financial return being prioritised. Given the likely impact of sustainability threats on the economic systems on which finance operators depend to generate wealth for shareholders, beneficiaries and clients, there is a compelling case for them to seek to tackle sustainability challenges in carrying on their core business activities, even where financial return is being prioritised (see further in A legal Framework for Impact). However, a way is needed to give the systemic economic necessity of achieving core sustainability goals greater salience across the ecosystem and it is questionable to what extent material and financial incentives will be sufficient alone to do that. A way is needed to embrace material and financial self-interest within, and draw more effectively on, wider aspirations reaching beyond financial goals. The framework of the social licence for financial markets provides a way of doing that, not just in theory but, critically, also in the weave of market practice.

UK’s Update to Green Finance Strategy Response

David unpacks the need for policy to take account of crucial connections between legal duties and 'green' focused activity, to establish clarity about the goals of 'green' activity, and to address the limits of the enabling environment for pursuing positive 'green' outcomes and the importance of collective action.