‘Capital as a Force for Good’, Developments

The events of 2020 and 2021 have further highlighted the myriad of interconnected social, economic and environmental challenges facing the world today. With the global coronavirus pandemic appearing to recede in many key regions of the world, there is ever more urgent need for resilient, sustainable, inclusive growth and development to aid a global recovery effort. Further, with governments injecting record amounts of liquidity into national economies and financial markets, there is today more capital available than at any time in history to fund this effort. Creating a sustainable and inclusive world will require the participation of governments, businesses, citizens, producers and consumers, but the finance industry as the allocator of 90% of the world’s capital clear has an outsized role to play in this regard. 

The ‘Force for Good Initiative’ was launched with the idea that capital can be a catalyst that changes the world for good, and that leading financial institutions are leveraging their organization’s capital to do good in a myriad of ways already and this is a sound base. The initiative is designed to increase awareness of the finance industry’s engagement as a ‘force for good’ and to increase this and galvanize change in the broader financial sector and beyond for a sustainable future. While the gaps are clear and well reported, public perception and media coverage of the finance industry’s efforts has lagged behind its activity, with industry leaders playing an increasingly active role in driving potentially systemic change. Their actions can potentially mobilize leaders in other major global stakeholder groups including consumer interest groups, producers and distributors, governments and scientists to proactively drive change. 

The Force for Good Initiative has conducted extensive research and issued a series of reports that have examined the extent to which leading institutions in the finance industry, across geographies and asset classes, are a proactive ’force for good’ in the world. Its research has determined that there is a substantial ‘common ground’ within the industry across issues including ESG, sustainability and stakeholder engagement, and that industry leaders are seeking to break new ground by pushing the boundaries of how they can deploy their organisation’s capital to be a force for good. The most recent report, issued in June 2021 titled, ‘Sustainability and Inclusion Creating a Race to the Top Among Leading Financial Institutions’ found that the finance industry’s engagement on key topics of sustainability and inclusion is expanding rapidly, with an ambitious group of major financial institutions begin to compete for leadership across key areas of sustainable impact.

This has all the makings of a systemic change in the application of capital with geopolitical, economic, social and wider consequences. The Sign of the Times’ research team has supported the study and report and is pleased to be able to provide an edited version of the Capital as a Force for Good 2021 Interim Report reprinted in this month’s Sign of the Times.

 

Context: The Force for Good Initiative

The Force for Good initiative was launched with the idea that capital can be a catalyst that changes the world for good and that an increasng number of leading financial institutions are leveraging their organization’s capital to do good in a myriad of ways. Launched formally in 2020, during the surge of the pandemic, the Force for Good initiative sought to assess, establish and encourage the holders of capital to be a force for good. The endeavour engaged the world’s leading financial institutions to assume leadership in this regard, to set the bar for others in the finance industry to cross, and to demonstrate the financial and other benefits of doing so. 

The initiative was distinctive in establishing the contours of the agenda for leading financiers from across the globe in allocating material capital to make an impact on the issues facing humanity, in progressing the journey of the world’s transition away from a carbon economy and in stepping up as leaders beyond finance as they seek to address issues of inclusion, racial equity, climate change and more as reflected in the SDGs.

 

Inaugural Study, Report and Key Findings, December 2020.

For the inaugural ‘Capital as a Force for Good’ report, a total of 63 leading institutions in the global finance industry were analysed in depth, representing c.US$100 trillion in assets which is c.30% of the world’s financial assets, across asset management, banking and insurance and each region of the world. Of these, 30 became “active participants”, providing greater information and insights on their activities. The engagement included CEOs and Presidents, CIO and Heads of Sustainability or equivalent in these leading financial institutions. The framework for assessing them as a ”Force for Good” was based on their activities, in ESG, sustainability and stakeholders.

In recognition of the urgency and the call to action by the UN on the SDGs, the study and report was in support of the UN Secretary General’s strategy and roadmap for financing the 2030 Agenda for Sustainable Development and was carried out through 2020. The inaugural report, ‘Capital as a Force for Good, Global Finance Industry Leaders Transforming Capitalism for a Sustainable Future’, was launched in December 2020.

The report identified the substantial “common ground” of actions of these finance industry leaders in doing good, and how they are breaking new ground in an ever-increasing innovative and competitive spirit and the returns from doing so. In addition, the initiatives of the leading financial institutions provide foresights into a series of mega-trends, big ideas and themes, with the potential to reshape not just the finance industry, but the wider financial system, and even the shape of the world over the coming decades. They point to aligning the world to fund the UN SDGs, including fighting climate change, driving mass inclusion and funding future breakthroughs in key technologies to achieve the SDGs, potentially using radically different models of finance that will empower individuals and organizations to make conscious, informed, and effective choices that have a positive impact on the world.

 

Strong Continued Engagement with Finance Industry Leaders

Since the report issuance in December 2020, a series of engagements with active and other leading global financial institutions have been undertaken, across banking, insurance, asset management, pension and sovereign wealth and hedge funds. Given, the report generated strong interest from outside of private sector financial services, the outreach also included development banks and agencies, consultancies, and non-government organisations as well as smaller innovative sustainable investors, technology companies and platforms.

The engagement reveals that the report was well received for many reasons, of which two in particular stand out. Firstly, and perhaps most importantly, the “Force for Good” is iconic and aspirational, and can encourage a “race to the top” among those institutions that hold and manage the largest pools of capital in the worldreport is unique in defining an iconic and aspirational identity to financiers to spur a race to the top instead of shaming, in using the label ‘force for good’ in its application to those dealing with capital for good, while pointing out the gaps. 

Secondly, the study is differentiated in taking a detailed, quantitative, and organic approach to measuring the extent to which institutions are doing good (instead of sending a form to be filled). 
Importantly, discussions with the senior leadership of the institutions engaged demonstrated significant appetite for the bar to be raised in the industry in terms of the positive impact for the world from capital, as well as the demand for a continued effort on the part of the ‘Force for Good’ study and report to measure, report and galvanise these developments.

 

2021 Interim Report: A Race to the Top Emerging Among Industry Participants

The 2021 Interim Report, issued in June 2021, based on extensive follow-up with executives in the leading global financial institutions finds a positive cycle of competition to address major global issues, key headlines of which include: 

  • The emergence of a race to the top with trillion-dollar commitments
  • The next wave is ‘social commitments’ where financial institutions are stepping up to fill the gaps in government’s agendas
  • Leading financial institutions are aligning behind the SDGs
  • The broadening of investments to encompass development as a profitable endeavour is underway (to take advantage of SDG business opportunities) 
  • Leaders are moving beyond ESG, which is embedded in the most advanced institutions already, and are focused on measurable impacts 
  • Some geographies and asset classes are left far behind in this race


Growing Ownership of Shared Challenges 

The steady stream of initiatives and commitments announced in the first few months of 2021 demonstrate a ‘race to the top’ and accelerated responses of the finance industry to the world’s largest challenges. 

They are indicative of rising confidence, ambition and commitment of the most active participants, and include: 

Merging Science and Finance to Manage Climate Risk. The physical risks of climate change are both immediate and significant. For Wellington Management, the global investment management firm with over US$1 trillion in assets under management, solving for this challenge is something they believe in and is a key opportunity for their business (Interview).

Capturing Hearts and Minds to Change the Flow of Capital. While the finance industry has increasingly embraced the SDGs as a framework for sustainability initiatives, Goal 14, Life Under Water, has ranked near the bottom of the finance industry's stated development priorities. Credit Suisse talks about how their SDG impact strategy and its focus on both climate change and the sustainability of the world's oceans (Interview).

JPMorgan Chase Commits US$30 Billion to Support Racial Equity. JPMorgan Chase has announced an additional commitment of US$30bn in loans, equity, and direct funding over the next five years, and harnessing the bank’s expertise in business, policy and philanthropy to provide economic opportunities to underserved communities, especially the Black and Latino communities (Public).

Goldman Sachs Announces US$10 Billion investment to One Million Black Women initiative. In partnership with black women-led organisations and other partners, Goldman Sachs’ new investment initiative is committing US$10bn in direct investment capital and $100m in philanthropic support across healthcare, education, housing and small business support to address the dual gender and racial biases that black women have faced for generations (Public). 

Morgan Stanley Commits US$1 Trillion in Sustainability Solutions by 2030 to Support the UN SDGs. Morgan Stanley announced an enhanced commitment to mobilize an additional $750 billion, on top of its existing commitment of US$250bn, to support low-carbon solutions by 2030, to be deployed across the firm’s sustainable investing capacity and product offerings (Public). 

Credit Suisse Aligns Investment Supertrends to UN SDGs. Credit Suisse has updated its long-term investment trends drawing the connection to the United Nations’ SDGs. This will help investors prioritize their investments according to their purpose be it climate action (SDG 13), reduced inequalities (SDG 10), decent work and economic growth (SDG 8) or good health and well-being (SDG 3) among others. (Public).

Goldman Sachs Achieves US$156 Billion in Sustainable-Finance Activity in 2020. A record of US$732 billion in sustainable debt was issued in 2020, and for its part, Goldman Sachs achieved $156 billion in sustainable-finance activity during the year, as reported in a newly issued annual sustainability report. The company had committed to $750 billion in financing, investing, and advisory activity to accelerate climate transition and advance inclusive growth by 2030 (Public).

Citi launched US$1 Billion ‘Action for Racial Equity’. Citi and the Citi Foundation have announced more than $1 billion in strategic initiatives to help close the racial wealth gap and increase economic mobility in the United States, providing greater access to banking in communities of color, increasing investment in black-owned businesses, expanding homeownership among black Americans, and advancing anti-racist practices in the financial services industry (Public).

Bank of America Increases Environmental Business Initiative Target to $1 Trillion by 2030. Bank of America announced a goal of deploying and mobilizing $1 trillion by 2030 to accelerate the transition to a low-carbon, sustainable economy, anchoring a broader $1.5 trillion sustainable finance goal by both environmental transition and social inclusive development purposes, spanning business activities across the globe in support of the UN SDGs (Public). 

JPMorgan Chase Targets More Than $2.5 Trillion over 10 Years to Advance Climate Action and Sustainable Development. JPMorgan Chase aims to finance and facilitate more than $2.5 trillion over 10 years – beginning this year through the end of 2030 - to advance long-term solutions that address climate change and contribute to sustainable development, bringing together its capital and expertise to help clients, customers and communities address these vital issues (Public).&