Financial system change
Transforming capitalism to make it fit
for a sustainable
Beth Knight, Head of Corporate Sustainability for EMEIA Financial
Our modern system of capitalism is no longer fit for purpose.
Faced with a growing series of economic, social and environmental challenges
the time has come to reboot the way capitalism is conducted and to recalibrate
the way we value resources, people and the services they provide.
One hundred and fifty years after 19th century thinkers coined
the term capitalism, this free market system of private investment and
ownership in the pursuit of economic growth has more than proven its worth. It has made nations great, turned fledging
companies into corporate powerhouses and delivered social development and an
unprecedented standard of living to millions of people all over the world.
Yet these achievements have come at a high cost for the
planet we inhabit and at a rate that threatens the physical wellbeing of many
more millions of its inhabitants. At the same time, despite facilitating the
growth of a global middle class, capitalism has exacerbated the divide between
very rich and very poor — a phenomenon that is only increasing. Today, industries
and economies are being shaken up by technological change, the world’s
population is consuming more natural resources and they are rushing to settle
in cities at a faster rate than ever before.
Increasingly, as United Nations (UN) Secretary General Ban
Ki-moon has described it, our economic mindset and models look like “a global
suicide pact,” adding: “We mined our way to growth. We burned our way to
prosperity. We believe in consumption without consequences.”
Traditional capitalism proved itself incredibly successful at
delivering growth in an age of abundant land, natural resources and
biodiversity. That age is over.
We need to shift the debate from traditional change approaches, which risk leaving problematic system dynamics untouched,
to bold and innovative strategies.
Such strategies would significantly shift our capitalist model
towards a more resilient, equitable and sustainable economic order.
In short, we need to create nothing less than a new, sustainable
form of capitalism that accurately values opportunities and risks in a global
economy that is being reshaped by a changing climate, finite natural resources,
dwindling biodiversity and an increasingly urbanized and connected population.
What will be the driver of this bold, innovative form of capitalism?
The answer lies with our financial system.
Yes, the same financial system that is seen by many as the cause of
inequality, unsustainable growth and a myopic focus on short-term profit while
ignoring long-term stewardship of society and planet.
The financial system is a fundamental component of capitalism.
By managing large pools of capital and assets, the industry has the ability to
shift economies onto a more sustainable footing. Some financial institutions
already are working to improve their transparency, simplify their products and
increasingly engage with their stakeholders. When investing and advising on
capital expenditure, some are starting to review their investment to ensure
that environmental and social risks are managed properly. For example, Citigroup
holds annual events for investors to discuss equity research and financing
challenges related to climate change and water. JPMorgan Chase and BNY Mellon
each hold meetings with investors on relevant sustainability issues including
climate change, consumer lending and business ethics. Regulation and industry
standards are slowly gaining pace to accelerate this change. Yet this is just a
As a global society, we need the financial system to reassess
how it judges and rewards business success; it needs to revalue companies and
entire industries based on a world of finite resources and it needs to replace
its own much-maligned culture with a new value system based on transparency,
integrity and trust.
Here is how financial system change will deliver capitalism
fit for this century and beyond.
This paper was originally published as a submission to the
Robin Cosgrove Prize in Ethics in Finance 2015. http://www.ey.com/Publication/vwLUAssets/EY-Financial-system-change/$FILE/EY-Financial-system-change.pdf
"Ultimately, changing corporate culture in the financial services sector might seem a tall order but, when the business potential and rewards of realizing long-term value become more compelling than the foolhardy pursuit of short-term profit, it becomes clear there's no better sector to embrace the opportunity and make the gains."