How financial services can be a force for good

The global financial crisis, environmental degradation, poverty, inequality, corruption and health concerns are just some of the key global challenges society is currently facing.

These are challenges that have become far too complex for governments and the public sector to address alone. But businesses, as the primary drivers of globalization, can play a key part in tackling these important issues. The private sector plays a pivotal role in finding sustainable solutions for today’s and tomorrow’s societal and environmental problems.

In the financial services community, it is up to us to invest responsibly. Not only do we have a responsibility to deliver strong investment returns to our shareholders, but we must also ensure that the way we do business and who we do business with positively impacts the communities and the natural environment we operate in. It is possible to invest with the dual purpose of delivering a positive impact to communities as well as sustainable returns for shareholders over the long term.

Financial services can be a force for genuine good, and a far greater force for good in the future – but only if we have courageous leaders who lead by example, and embrace their true responsibilities.

Transforming the financial sector

To be part of the solution to the challenges we face as a society, it is going to take nothing short of a revolutionary change in our sector. We can’t wait for regulation to change behaviour; we must change ourselves, to instil the right culture and values within our businesses now. Leaders need to set the moral compass our organisations so desperately require to create a binding commitment to doing the right thing.

Asset management businesses invest in global companies, so we have a far-reaching impact – we can use our influence to help shape a better future through responsible and integrated investment strategies. Investing in companies that are seeking to make our lives healthier, happier and more fulfilled, developing innovative solutions to the environmental problems we face, and finding ways to do more with less of our finite resources. Challenging and engaging with businesses around the world, encouraging ethical business practices and taking action when basic human rights such as personal freedom and civil liberties are impacted.

Putting our money where our mouth is

This is not about words, we prefer to act. For example, my company, Alliance Trust, played an important role following the collapse of the Rana Plaza in Bangladesh in 2013. Many of those who died were employed in the garment industry, an industry that supplies the clothes that end up on our high street and brands whose shares end up in our pensions and savings accounts. The women who lost their lives were earning 11 cents a day. As investors, we believe this is an unacceptable way to operate. We want our investments in retail brands to deliver the highest investment returns possible and believe this is best achieved through safe and decent supply chains.

In response, we worked closely with other investors to champion the Bangladesh Accord on Fire and Building Safety, enlisting support from shareholders representing more than $1 trillion of assets to ensure that all garment factories in Bangladesh are safe working places.

Like many things in life, there is safety in numbers. The power of innovation and collaboration is a strong combination. This is most likely the start of a trend where you will see more companies working hand in glove with NGOs and governments to drive change at a national and global level. In essence, every part of society has a role in making it work better.

Our most precious resource

And what of nature: the natural ecosystems that surround us and on which our lives literally depend? The value of nature is too often underestimated and neglected. How to value and manage natural capital is a complex problem, still subject to debate. While many companies are tackling issues that directly confront their businesses, such as water and biodiversity, natural capital accounting is a significant issue that requires more coordinated work between companies, governments and NGOs.

We see the potential for the finance sector to help identify and ultimately value the contribution that natural ecosystems make to our businesses, economies and society. As an industry we need to shine a light on the “economic invisibility of nature”. It’s a move away from quarterly earnings reports, away from “sustainability screens”. It’s a move towards integrated valuation models, which place higher value on businesses with better integrated performance on their combined financial, natural and social capital. If our analysts pay attention to social and environmental externalities, all businesses will follow that path. The value of nature is likely to differ from business to business, so identifying the material risks and opportunities from nature to a particular business model, conducting a scenario analysis on these risks and opportunities, and engaging with companies to discuss these will be key for analysts to better gauge the value of nature. It’s this kind of sustainable solution that will make finance a force for good.

Actions speak louder than words

Ultimately, if you want to make a lasting impact, you have to do something – words are simply not enough. Far too many organisations rely on the safety net of a well-crafted corporate social responsibility report, but that stops well short of demonstrating true and long-lasting impact. To earn your right to a more prosperous future, you have to be socially useful today. This means less talking and more acting – because after all, actions speak louder than words. The perfect marriage of profit and purpose isn’t a relationship that can be built overnight and it certainly doesn’t happen by chance. It is the result of continuous hard work, a shared mission, together with collective and relentless effort.

Author: Katherine Garrett-Cox is Chief Executive Officer of Alliance Trust. She is a Co-Chair of the World Economic Forum Annual Meeting 2015.

Image: A businessman looks at a screen displaying a photo of U.S. 100 dollar bank notes in Tokyo April 8, 2013. REUTERS/Toru Hanai