How do we best speak and act to best help finance tackle climate change?
SIMON HOWARD, CHIEF EXECUTIVE, UK SUSTAINABLE INVESTMENT AND FINANCE ASSOCIATION
People in sustainability know finance is beginning to move to tackle climate change. It’s late and it’s slow but it is happening. So, I’m going to leave the mechanics alone and instead look at how individuals and the financial sector should engage and behave as we discuss the need for more of our work. I doubt any of this is original, it seems like common sense, but it can be said again.
My first suggestion is that in the context of climate change we should talk of “finance” not “sustainable finance”. We must talk such that we make climate (and other ESG issues) central to all finance. It must become impossible for any firm to be in finance and not contributing to tackling climate change. In terms of actions, let’s ban “sustainable finance” as a phrase and concept. In fact, let’s go further and call out the bad stuff, let’s talk not of low-carbon indices but high-carbon indices and let’s name the emitters; and let’s not talk of doing stewardship and engagement, but rather, let’s talk openly of people that run companies (and assets) badly, and let’s name those involved. We should set the terms of this debate- we own it and we’re right. Are we brave enough to frame finance this way with all the risk of coming up short? I hope so.
Communication is a tricky aspect in our work. We live in a world of hyperbole, where no product is anything but wonderful, and no opponent’s policy will be anything but catastrophic. Words are devalued even before we consider fake news. But given that climate is potentially catastrophic - how can finance talk to our fellow citizens about its true scale and implications without sounding so hyperbolic that we are dismissed on first hearing, especially when the message is unwelcome to many? It’s going to be very difficult. Sir David Attenborough and Greta Thunberg have probably done more for climate change in the last year than anything science and finance has done because of their integrity. We in finance will struggle to match that - finance is still tainted.
To state the obvious, we need to rebuild that trust: the sector and individuals have to play their part. Our approach has to be impeccably honest. We must always talk fact and legitimate extrapolation. We must always cite sources. We must never be a party to exaggeration. We should not pretend to know all the answers. We can and should discuss hope and aspiration, but we must get the tone and language right. When we sell, we mustn’t sell the next big thing like soap, we have to adopt a different tone. Let’s establish the centrality of our concerns before we sell our product. Part of the answer here could be for finance to use its substantial marketing budget to ask and answer the awkward questions in a product-neutral manner. Finance must not only talk truth to power, it must talk truth to the people, and it won’t be the stuff of advertising legend. We may well face a tragedy of the commons. If one firm does objective, quiet marketing on climate and what is needed it may not benefit, perhaps the solution is sector-wide marketing like the alcohol industry with its drink aware campaign. We need to build public awareness of finance’s ability to help fund the climate response and all should contribute.
I think these points on language matter since they should inform how we conduct ourselves. Given our past, finance should tackle climate change in part by being serious people, engaging on very serious subjects. We can and should celebrate ethical finance, impact investing, even “hippy-finance” as some critics term it, but let’s really push our concerns as fact-based and integral to all finance, and let’s further mainstream our thinking.
I also think we as individuals can do more. At the risk of contradicting myself about speaking calmly, it is clear we will win quicker if ambition spreads among our supporters. We win quicker if finance is all of the following: decisive, principled, ambitious and brave, and it must be the people who act this way first since the system will change more quickly if pushed from within. Yes, we need a top-down revolution in politics and society, and yes, we will push for the policy environment to help that money flow. But they won’t work fast enough without a matching bottom-up push by people in finance, people who must now also be decisive, principled, ambitious and brave.
What do I mean? I think we need to be decisive in choosing our career paths. We must choose the best employers, those that are making a demonstrable, firm-wide, culture-changing move to doing finance the right way. I can assure junior staff reading this that nothing shakes managers more than good people leaving, and conversely, they like nothing more than recruiting good people. If you have expertise in our areas, you will be in demand. Use that to choose the right employer and to demand what you want from them. This has clear links to principle. You don’t want to be the one on the Today programme defending charges of hypocrisy when your bank has lent to the wrong people or your firm’s voting record comes up short. You need to work out if you are prepared to defend the record of a defective employer in public or in private, because as we make further progress the laggards will be called out.
Ambition and bravery are easier. The next few years are going to be fantastic as finance starts to get it right at real scale. Unless you are very lucky, your employer’s current best-selling product is not going to be the sustainable fund, loan, index or voting service, but rather a climate-indifferent legacy version. This is a great opportunity for you. You can point to what is happening and say what the change in the product needs to be. Your ambition can be to shape the new core product for your firm, to mainstream our thinking at the firm level just as we mainstream it at the system level. And the bravery? Well, that’s up to you - but why not ask that it be you that runs it, or fronts it, or does the data, or whatever it may be. Since it is our skills that that will be increasingly core, let’s benefit from it.
So to conclude. We can see the tools and techniques appearing in finance to tackle climate change and I haven’t covered those. Instead, I have looked at how we talk as a sector and as individuals. We should define the terminology, let’s “own” finance; it’s time to stop being a sub-sector of an indifferent industry, from now on it should be the bad firms that are labelled. Let’s talk in a sensible, proportionate way as individuals and as a sector, for we need to bring society with us and the issues are complex. And as individuals let’s be ambitious and brave.
Read more from the Sustainable Finance Report here.