10 years ago today, the world changed. The collapse of Lehman Brothers on 15 September 2008 was a critical moment in the financial crash: a trigger for global turmoil in an already-fragile financial system, but also a symptom of a deeper, systemic issue. Focused on short-term profit seeking, speculation and manipulation, the financial system had become inflated, unaccountable, self-serving and largely incomprehensible, even to those at the very top.
A decade on, and it’s clear that reform of the financial system has not gone far enough. Two thirds of British people think too little has changed and the same proportion don’t trust banks to work in their interests. The process of building a financial sector that serves the real economy for the long-term has ‘barely begun’.
Should we resign ourselves to the fact that finance doesn’t work in our interests and never will? It’s tempting. But it’s also dangerous: with rising investment in the dirtiest fossil fuels, house prices at the UK at an all-time high and inequality growing around the world, we can’t afford to do nothing. We won’t solve our biggest social and environmental problems if finance isn’t on our side.
This doesn’t mean transformation will happen quickly or neatly, and it certainly won’t happen if we don’t persevere. Change in complex, power-laden systems like finance is messy, takes a long time and doesn’t happen in a linear, predictable way. It starts in our hearts and minds, it builds through the work of individuals, communities and movements throughout the system, and it can bring leaps forward (and backward) when we least expect it.
Most importantly, transformation in finance is already happening. In the industry, in civil society, in government and in the public at large we’re seeing many signs that point to a better future for finance – and for all of us. Here are ten reasons for hope, ten years on:
1. People want change
Our outrage at the failings of finance may have cooled, but the demand for finance that serves people and planet is growing. 67% of people in the UK want their money to do good, with strongest demand among younger people – the future of the market. It’s no longer ok for any business to ignore its wider responsibilities: 57% of people worldwide are now buying or boycotting brands based on social and political issues. The pressure for financial institutions to return to their social purpose will only intensify.
2. Businesses are rediscovering purpose
The idea that social purpose is restricted to the charity sector is no longer viable. From social enterprises and B Corps to community-owned business and platform coops, models of purpose-led businesses abound. And those that focus on their environmental and social roles tend to outperform others on a range of financial measures, as well as their ability to retain talent. When the CEO of BlackRock argues that every company must make a positive contribution to society, it’s clear that focusing on profit alone is an outdated approach to business.
3. Citizen economists are on the rise
While businesses are rediscovering their role as corporate citizens, citizens are rediscovering their stake in economics. Rising from the ashes of the crash, Rethinking Economics is a global movement for pluralist economics education, while its cousin Economy is creating new, understandable ways for everyone to talk about economics, and the RSA is modelling how citizens’ councils can be used to shape economic policy. Meanwhile, renegade economist Kate Raworth is redrawing economics within the boundaries of societal need and planetary limits – a space in which finance serves the needs of a sustainable, fair economy.
4. Civil society is building momentum
Alongside the wider economic reform movement, a growing network of organisations are campaigning for a better future. Change Finance, a citizens’ movement across 11 countries and five continents, is calling for a financial system that is stable, democratically governed, and serves people and planet. In the UK, Positive Money is campaigning for a better money and banking system, Share Action is working to make the investment system a force for good, and Fair by Design aims to eliminate the poverty premium in the next ten years.
5. High-cost credit is feeling the squeeze
Harmful practices that once seemed entrenched are beginning to show signs of movement. Five years after the Archbishop of Canterbury’s ‘War on Wonga’ and four years after the Financial Conduct Authority introduced a price cap for payday lenders, Wonga went into administration on 30 August this year. The End High-Cost Credit Alliance is increasing the pressure and, along with industry body Responsible Finance, is supporting the growth of alternative, ethical providers, such as Fair Finance (offering fair loans and money advice), Fair For You (challenging high-cost credit for white goods), Moneyline (providing affordable loans) and the credit union movement. Together, these organisations are lifting some of the most financially vulnerable and excluded people out of exploitative debt traps.
6. Fossil fuels are out…
The divestment movement has also made a remarkable impact in the last decade. $6.24 trillion has already been divested, with a target of $10 trillion by 2020. Much of this has been driven by organisations that join the dots between finance and climate risk, such as Fossil Free UK, People and Planet, and 10:10 – and between climate and financial risk, such as Carbon Tracker and the Asset Owners Disclosure Project. Every pound moved out of fossil fuel production reduces the commercial viability and social acceptability of the industry, exemplifying the role of money as a tool to change the world.
7. … And sustainable investment is in
After divesting from the problems comes investing in the solutions. From innovative platforms such as Abundance and Ethex that democratise investing in renewables to major fund managers switching to clean power and green investments, the sustainable finance industry is growing at a rapid pace. The UK Sustainable Investment and Finance association now has 240 members with combined assets of £8tn, while the UN Principles for Responsible Investment now have more than 1,750 signatories from over 50 countries, collectively managing over $70tn assets.
8. Values-based banks are leading the way
As sustainability goes mainstream, the pioneers of ethical finance continue to lead the way. Across the world, over 50 members of the Global Alliance for Banking on Values demonstrate that finance can serve people and planet, serving over 50 million customers and in the process consistently demonstrating better and more stable financial returns. In the UK, GABV member Triodos has launched the country’s first ethical personal current account, Charity Bank is challenging individuals, charities and businesses to move their money to an ethical provider, and Ecology Building Society is showing that mortgage lending can encourage more sustainable and affordable housing. The growing values-based banking movement is supported by the Institute for Social Banking, which builds the skills of workforce and helps professionals transition into a purpose-driven career.
9. People are taking back control
Alongside the values-based banking movement, the UK is seeing the emergence of a new community banking sector, with start-ups such as Greater London Mutual, Avon Mutual and South West Mutual putting power back in the hands of ordinary people. Meanwhile the cooperative movement is being reinvented for the digital age and Community Shares are helping people save their local assets and build more vibrant, sustainable places to live. And people aren’t just taking control of financial institutions – they’re redefining what money itself means, using community currencies to support local economic development, both in the UK and across the world.
10. We’re only just getting started
Many of these sources of hope only appeared after the crash, while some have their roots far deeper in history. Regardless of our past, one thing unites the journey of all of these initiatives: we’re nowhere near done yet. The Lab itself didn’t exist before the crash, yet in the past two years alone, we’ve incubated 29 Fellows who are building new models of finance that put people and planet first. Many of these innovators have gone on to scale their impact significantly, supported by a growing community of over 200 advisors, mentors and investors. Along with our Senior Fellows, these pioneers are changing the story of what finance can and should do, inspiring others to do the same, and challenging incumbent organisations to reconnect with their social purpose.
Another thing unites all of our reasons for hope: whether in business or civil society, they are powered by people who refuse to accept the status quo. The Finance Innovation Lab’s work has a similar optimism, founded on a core belief that because people created the financial system, people can change it. There’s no blueprint for the scale of transformation we need – and it certainly won’t be quick – so our focus is on connecting and building the capacity of changemakers at all levels of the system. They are, without doubt, our greatest source of hope for the future.
Many thanks to the Lab team for their contributions to this blog and for the optimism and commitment they give to our work on a daily basis.