Many in the finance industry will be glad to see the back of 2018.
As the industry takes stock following the revelations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, talk is now turning to how the sector can work towards restoring the trust of Australians.
A strong starting point is for the world of finance to reconnect with the real economy. This means demonstrating that the services it delivers are all about serving customers and, even more importantly, showing the integral role finance plays in building the kind of Australia clients want to inhabit.
While the Hayne royal commission has cast a light on the egregious behaviour within the sector, for which there can be no tolerance, there is a shift emerging that offers an opportunity to demonstrate the social utility of the industry and its role in supporting a more prosperous, fair and sustainable Australia.
Responsible investment hits critical mass
This year, responsible investment reached an important milestone as it tipped into the majority of all professionally managed investments in this country. Half of the institutionally invested dollars in Australia now lie in a responsible investment – where social, environmental, corporate governance and/or ethical issues are considered alongside financial performance in selecting the asset.
This critical mass is starting to create positive waves across corporate Australia and in financial markets, promising to deliver better outcomes for Australians. We are now at a stage where issues such as climate change, human rights, corporate culture, diversity and a whole range of other important sustainability issues are at the forefront of consideration by Australia’s finance community.
Most Australians expect nothing less. Consumer research shows that 92 per cent of Australians expect their superannuation and other investments to be made responsibly and ethically, and 4 in 5 people would consider moving their investments to another provider if their money was managed inconsistent with their values.
But despite this milestone and growing consumer demand, the real work is just beginning as far as demonstrating the impact of our investments and how the capital allocation decisions being made today are building a better Australia.
We are increasingly being called to account for what has been delivered through investment and banking activities, including how we are contributing to a reduction in greenhouse-gas emissions, directing capital to support the United Nations Sustainable Development Goals, working for gender equality, respecting animal rights, tackling corruption and improving corporate conduct, to name a few.
A global push
This push to reconnect finance with a sustainable society and environment is not just a result of the royal commission, it’s a global phenomenon.
A growing chorus of countries and regions has identified the great opportunity of aligning banking, insurance and investments in a way that ensures capital markets are directed towards the types of assets and infrastructure needed to address the global challenges we face.
Earlier this year, the European Commission published its Action Plan on Sustainable Finance and has since published legislative proposals to identify sustainable investments. Canada is moving to establish an expert panel on sustainable finance, while the UK’s Green Finance Taskforce has delivered recommendations to the UK Government to clarify and strengthen the duties of pension fund trustees in considering sustainability, consumer preferences and social impact.
In April, leaders from 20 of the world’s top financial centres gathered in Milan and established a network to accelerate green and sustainable finance. China has been surging ahead as well. The People’s Bank of China, along with six government agencies, has released guidelines for establishing a green finance system.
Many jurisdictions – including Australia and New Zealand – are developing sustainable finance roadmaps that provide pathways and policy signals and set frameworks to enable the financial sector to deliver a more resilient and sustainable economy and help achieve goals in sustainable development.
It’s encouraging that within the Australian responsible investment community, we are seeing increased confidence and appetite from investors to allocate capital to low-carbon assets, divest where risks are too high, vote in alignment with important sustainability issues, engage strongly with companies and, where necessary, advocate on policy.
Just this week, Deloitte’s Trust Index – Banking 2018 has shown that only 1 in 5 Australians believes that banks are behaving ethically and only a quarter believe they will keep their promises.
It’s clear that those financial organisations that position themselves with a true triple-bottom-line approach will reap the rewards in growth of their customer base, so long as they deliver on their promises. If the sector is truly to regain the trust of the Australian people, however, there must be more than a few stand-out, purpose-driven leaders. We require a whole-of-industry examination and effort.
Many of Australia’s biggest financial institutions were established to service and benefit the community. It’s time to reflect upon their original purpose, return to those roots and demonstrate the relevance of our sector in delivering a better, stronger and more prosperous Australia.
Simon O’Connor is chief executive of the Responsible Investment Association Australasia.
“Rediscovering Purpose in Finance” is the theme of the Responsible Investment Association Australasia’s RI Australia 2018 conference, taking place in Melbourne on October 31 and November 1. For more information, visit https://responsibleinvestment.org/ri-australia-2018