A look at the UN and World Bank’s ‘Roadmap For a Sustainable Financial System’

Swedish finance and sustainability expert Sasja Beslik knows that things need to change: the status quo with the current construction of the global economy and the rate and means by which we are using the planet’s resources is not sustainable.

Beslik, one of his country’s foremost experts on finance and sustainability, feels an awakening and a global recognition of the need to reshape how financial challenges are looked at is necessary to effect meaningful change and bring long-term solutions.

At the end of last year, the UN’s top environmental body and the World Bank Group released a roadmap “to help governments and the private sector design a global financial system that is fit-for-purpose”.

The research found that climate action has opened up an initial investment opportunity of $22.6trn from 2016 to 2030 and stressed how the next two years will be crucial to build on existing initiatives and finance sustainable development globally.

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Beslik is pleased to see a progressive move towards recognizing the issues we are facing, but is adamant that this can only afford to be the mere beginnings of any real progress.

“The roadmap is a very good first step, but the devil is in the implementation side,” he says. “The challenge is not about what to do any more, the challenge is how to do it and how quickly.

“When I started working 10 or 15 years ago, sustainability was not on the agenda in the financial sector, but now it is. We all agree that we have responsibility but now we need to figure out how to meet it.”

The UN and World Bank research backs Beslik’s assertion, showing that policy and regulatory measures targeting sustainability have grown 20% year on year since 2010.

“I think it's a very ambitious road map,” Beslik continues, “but a good first step. The magnitude of this transition that we need to happen in the financial sector is huge, but it’s so needed. And it needs to happen much more quickly, because while you and I can do things on a personal level to, say, reduce our private impact, we are digging a hole beneath ourselves if we don't get financial systems to act much more swiftly on this.”

But is Beslik, who works as Head of Group Sustainable Finance at Nordea Bank, surprised at how often these challenges are ignored by vast swathes of the market?

“Saying we a long way to go is an understatement, but all of us have seen more focus on sustainability within the financial sector over the last three years, purely because more players are understanding the market opportunity in this from the product side. Also I think some are feeling more pressure, both from regulators and from customers, and they think they need to take a stance on this.”

Carine Girard, Finance Professor at Audencia Business School in Nantes, France, believes the report has provided clarity.

“The UN and World Bank roadmap for a sustainable financial system includes three major insights: a definition of sustainable finance, clear mapping and certain actions,” she says.

“These proposals were developed from a multi-level analysis that was international, national and market-based.  This analysis integrates not only the stakes in terms of governance, but also environmental, social and governance risks as well as impact investing. Such an approach is designed to ensure effectiveness, efficiency and resilience.

“This type of financial system makes sense because it is built on traditional and local logics using high-impact drivers that are linked to alternative and innovative finance.”

Technology investor Jeff Stollman has an MA in economics and many years spent as an environmental economist, and he takes a different stance.

“The concept addresses currently popular trends, but is, itself, unsustainable for a number of reasons,” claims Stollman, who currently manages Rocky Mountain Technical Marketing, Inc.

“A key element of the program is redirecting negative externalities, especially environmental externalities, so that they are accounted for in the cost of production. 

“Problems with that could include businesses resisting adding cost to their products because it will make them less marketable, or because the redirection of externalities will be uneven across industry sectors and across pollutants and other deleterious impacts, there will be ongoing crises moving from industry to industry as products that have grown costly are displaced with alternatives. 

“This will upset the employment market and create a significant downward shift in the value of capital assets used to produce goods and services that are impacted. In turn, this will cause bankruptcies of industries which are no longer sustainable. And while this will be beneficial to the environment, it will have an uneven impact on those displaced by the shrinking or closing of their employers' businesses.”

It is perhaps a change in consumer attitudes that will be necessary to effect real change, but even then Stollman points out this could be problematic. “Another issue is that one of the biggest impacts on the global environment arises from wanton consumerism:  people buying "stuff" because advertising makes them want things that they don't need. Environmentally, much could be gained by merely reducing this surplus consumption, but doing so would cause a massive contraction of global markets. How will we keep people employed if we stop producing this surplus?” he asks.

“I could go on endlessly about the deficiencies of the program, but I don't mean to suggest that it is not worth pursuing.  I just expect that the results will be mixed and the benefits will remain hard to justify.”

Beslik understands Stollman’s concerns but is adamant that the release of the report was a ‘crucial’ step in the hope of any meaningful move towards a sustainable global financial model. He wants to see more guidance given to politicians to help lobby for legislative change and feels there is certainly an appetite for this.

“The entire financial sector since 2008 has been facing a cultural revolution needed within the industry,” he says.  “I think it now demands awareness from the top. The leaders of the big financial institutions really need to step up and show what to go for with regards to sustainability within the role of the financial sector.

“Still, the majority of the financial institutions in the world do not educate financial analysts and professionals with a full understanding of sustainability aspects related to their future jobs, and how the investment or lending of banking decisions will impact the societies they live in.

“We need to reform the educational system, because then you get people that are educated about this in the financial system. They will embrace the change and make that change happen.

“I think we are at the beginning of a very big shift, with big players getting engaged, and we see a lot of interest from customers and clients.”

For Beslik, it comes down to a triumvirate of issues. “I call it a triangle,” he explains. “You have an income inequality or income distribution on one hand.  Then you have climate change as one of the sort of risks that are not related to any particular society, it's more of a global issue.  I think income inequality is also.

“The third one I think is related to transparency and participation – how transparent are you about your business and the way you run it, and also how do you participate in solutions that we need as a society going forward?

“I think these three things interact with each other in a very interesting way going forward, and they all demand a quite big mental shift.”