Finance 2050: Greening Financial Regulation

Finance 2050: Greening Financial Regulation

by Nick Robins and Catherine Cameron

Nick Robins (British, born 1963) is a sustainable investor and business historian. He has worked on the policy, business, and financial dimensions o sustainable development for the past twenty years and is author of The Corporation That Changed the World: How the East India Company Shaped the Modern Multinational and coeditor of Sustainable Investing: The Art of Long-Term Performance.

Catherine Cameron (British and Guyanese, born 1963) was a member of the core team behind The Stern Review: The Economics of Climate Change. She is now director of Agulhas: Applied Knowledge, helping companies and organizations respond to the additional challenges to sustainability posed by climate change. She is a visiting fellow at the Smith School of Environment & Enterprise at the University of Oxford.

 To date, most of the focus of sustainability policy has been on reforming the ‘real economy’: agriculture, cities, energy, transport, waste and water, etc. Financial policy has remained largely untouched – something that needs to change urgently if capital is to flow at scale and speed away from damaging and towards sustainable activities. Our ‘big idea’ is to mobilise the expertise of the 2052 glimpse authors to accelerate, inspire and converge embryonic initiatives to green financial markets: a Finance 2050 initiative.

Over the past two decades, the sustainable finance movement has achieved considerable progress in terms of making environmental, social and governance issues a strategic priority for mainstream institutions. From a regulatory perspective, the movement has achieved greatest impact in the limited field of corporate sustainability disclosure.

What has pushed forward these largely soft, voluntary initiatives have been successive financial crises – notably the equity bubble of the late 1990s and the credit crunch of the 2000s – which revealed the structural flaws in the prevailing financial system, notably volatility, short-termism, excess remuneration and criminality. As the financial community gears up for the dual 2015 deadlines on climate change and sustainable development, there is growing awareness that fresh efforts are required to confront these systemic issues.

For example, there are rising concerns that well-intentioned financial regulation – such as Basel 3 and Solvency 2 – could place unintended barriers in the way of low-carbon infrastructure. Equally, investors are increasingly aware of the risk of stranded assets that could flow from Carbon Tracker’s ‘unburnable carbon’ analysis – and yet financial regulation provides no guidance on how institutions and markets can avoid or prevent capital destruction.

Currently a number of initiatives are beginning to touch on this agenda – notably Bloomberg’s Finance for Resilience, the Global Commission on the Economy & Climate, preparatory work by UNEP FI on Ban-ki Moon’s September 2014 Climate Summit, and Aviva’s project for a ‘capital raising plan’ for sustainable development. But none of these have an exclusive focus on financial regulation – and none bring the longer-term systems perspective of 2052 and its Glimpse authors, including Carlos Joly’s proposal to reform investment benchmarks.

We propose that we pull together a small group of 2052 Glimpse authors interested in financial regulation to develop proposals for 1-2 outcomes within the financial regulation arena, focusing on such areas as fiduciary duty, banking rules and benchmarks. We could also develop new ‘prospector’ messaging and produce a distinctive follow-up paper in 2014 as the first in a series of Finance 2050.

Some useful websites and resources include Finance for Resilience, EU Low-Carbon Investment and New Financial Sector Regulation, and Lenses and Clocks: Financial Stability and Systemic Risk.