Time for a noisy revolution?

Our Lead Strategist Anna Laycock shares The Lab’s response to the United Nations Environment Programme Inquiry into the Design of a Sustainable Financial System.

Last month, the UN Environment Programme released the results of a two-year inquiry into the design of a sustainable financial system, drawing on policy developments across the world. The report argues that “a ‘quiet revolution’ is taking place as policy makers and financial regulators address the need to forge robust and sustainable financial systems” and identifies five types of measures that are being introduced by financial rule-makers:

  • Enhancing market practice through better reporting, analysis and management of social and environmental impacts
  • Harnessing the public balance sheet to drive sustainable investment – for example, through tax incentives or direct public investment
  • Directing finance through policy measures such as priority sectors for lending and associated incentives
  • Transforming financial culture through national compacts, professional education and values-based banking
  • Upgrading system governance (regulation and central banking) to promote sustainable approaches.

The report makes for fascinating reading, particularly on the leading role played by governments in developing and emerging economies. It recognises the importance of a systemic approach in bringing about lasting change – “measures identified by the Inquiry, taken one by one, are unlikely to protect society from other financial system weaknesses… However, the cumulative impacts of such measures can be more than the sum of their parts” – and acknowledges that there can be no blueprint for change.

Across national contexts, however, the role of social compacts is shown to be important. A social compact is a group that diagnoses the need for change within the financial system and agrees the steps to take, comprising representatives from public bodies, financial institutions and civil society. We’d argue that the involvement of the latter group is particularly important: the process of policy change must be as democratic as possible.

The Finance Innovation Lab contributed to the development of the report as part of the ‘Vienna Group of Citizens’, a diverse movement of participants from seven European countries working in social banking, civil society, business and academia. We wanted to ensure that the voices of ordinary people were heard as part of the enquiry, since they are so rarely heard by large financial institutions or the bodies that regulate them.

The Vienna Group call for four values to be placed at the heart of the finance system:

  • Sustainability – positive intergenerational impact for people and planet
  • Transparency – making finance activities understandable and evident to citizens
  • Diversity/fairness – fulfilling the needs of diverse groups and enabling distributive justice
  • Inclusion – going beyond accessibility to proactively seek input from society.

“An economy is not sustainable in the long term if it excludes people or communities” – Vienna Group of Citizens

As the Inquiry recognises, aligning the finance system with sustainable development is “essentially a matter of public choice” because “the system was formed by the evolution of societal needs and expectations” and the accompanying policy response. To use The Lab’s language, people created the financial system and people can change it. But the ‘quiet revolution’ described by the Inquiry has so far been led by “those governing the financial system, often in collaboration with market actors”. Top-down shifts in the regime are an important part of systems change, but we would argue that to be truly democratic, a sustainable finance system must be built by and for all groups in society.

We need a noisy revolution.

A noisy revolution means that the process of changing the financial system itself rebalances the relationships within the financial system. This is not a quick or easy task, not least because public engagement with the financial system is low. The Inquiry notes the “major knowledge deficiencies regarding the financial system, particularly for citizens’ groups, the environmental and broader sustainable development community”, but we would argue that this lack of knowledge is not a deficiency but a product of the opacity and information imbalances within the system itself. The hypercomplexity of the financial system and the elevation of financial ‘experts’ above ordinary people serves to maintain the current power structures within finance. So, in the values espoused by the Vienna Group, transparency and inclusion go hand in hand: finance must be understandable in order to be understood.

The need for capacity-building goes both ways, as the Inquiry notes. Finance professionals need to increase their understanding of “sometimes even the basics about the environment” – pointing to a need for professional education that situates the financial system in its correct place, as a subset of the economy, society and the environment. The Vienna Group argues that an awareness of these dimensions should be part of the regulatory requirements for bank directors.

A noisy revolution is two-way – bottom-up and top-down, requiring change in both citizens and financial professionals. It’s not just about responsibility in financial policy and practice but about power structures that define who decides what counts as responsible. A noisy revolution would be a lot messier than the quiet revolution that’s currently underway, but we’d agree with the Inquiry that building meaningful engagement between civil society, government and progressive forces in finance would be a good place to start.