What we need is another financial system, not green niches
Last November, Finance Watch launched a demo website of its Citizens’ Dashboard of Finance (see press release). The Dashboard is an important complement to our work on the EU’s financial regulation agenda, whose disappointing outcomes so far show that the balance of interests is still heavily skewed in favour of the financial industry. The challenge underlying our new project is quite simple: what if citizens were in the driving seat? Our response is equally simple: based on a broad stakeholder engagement, we would need to:
- define what society wants from the financial system (vision)
- measure how well the financial system is meeting those needs (indicators)
- change the financial system to make it serve society (solutions)
In this short blog we tell you the story of the ongoing pilot for the Dashboard project: applying its threefold methodology to the issue of financing climate objectives. At the core of our ambition is democratic legitimacy: as part of a public event we organized in Paris ahead of COP21, we gathered around 25 civil society organizations, including the big names on climate (Greenpeace, WWF, 350.org, CAN, Friends of the Earth, etc.) for a kick-off workshop.
Through discussions in small groups, we started to address these three Dashboard questions:
- how is the financial system interacting with climate objectives? (scope – landscape)
- can we measure these interactions – mainly: flows of capital? (data – indicators)
- how can we shift the current model into one that supports a climate-friendly economy? (actions – solutions)
We made extensive use of drawings on whiteboards as a support for the exercise and made the output of our initial discussions as visual and pedagogical as possible – in the form of two Prezis: How the financial system supports a high carbon economy and what civil society can do about it and How a transformed financial system could support a low carbon economy.
The key conclusion from the meeting is that making finance serve climate objectives would need a shift in model, not just a shift in billions. Seventeen civil society organizations from the workshop went on to sign a joint statement addressed at COP21 leaders, calling for a model shift.
The transition we need requires far more than disinvestment and niche green investments, as it concerns more widely how to design economic activities, the types of agriculture, transport, buildings, living conditions of communities, and so on. As a consequence, participants agreed that “climate finance” must be part of a broader “sustainable finance” agenda.
Designing a financial system supporting a sustainable economic development should start with an end-to-end view of the many components involved in creating and allocating capital, including central banks, government budgets, public banks, development banks, institutional investors, investments and commercial banks, equity, bond and derivatives markets, venture capital, etc. On the demand side, we have the existing mainstream economy on one side, largely dependent on fossil fuels and, on the other, growing alternatives based on renewables and energy efficiency – these alternatives often show a difference in design: smaller in scale, more decentralized, more local and relying on strong stakeholder engagement.
This analysis points to a need for more systemic change that goes beyond the indispensable movement for divestment: re-directing flows to support a transition will require challenging the current structure and design of capital channels. Basic issues about the offer side include the sheer amount of capital and liquidity available, who it belongs to (who benefits) and the risks of having too much of it for the stability of the system as a whole. The accountability and transparency of these institutions are high on the list of concerns if we want to see them contribute to climate objectives and monitor such contribution. Participants also agreed that the incentives that drive the choices of dominant actors and their influence on the entire system and its regulation (lobby power) are part of the problem and should be addressed.
All stakeholders involved were enthusiastic about pursuing the effort. This has taken the form of a Sustainability & Finance working group facilitated by Finance Watch, with two aims: developing further the Dashboard methodology based on the work reflected in the Prezis, and watching in a constructively critical way the G20 agenda on Green finance, both exercises feeding each other.
Those who claim that greening niches of the financial system is the way forward, leaving its current structure untouched, have a strong momentum in a context where politicians are looking for quick wins post-COP21 and financial intermediaries see major profit opportunities in climate finance. Developing a structural, holistic public interest perspective that can challenge mainstream proposals is key, as many civil society organizations are experts on climate and finance but have focused on more specific issues – e.g. divestment, green bonds, ESG criteria, etc.
Little has been done so far on the analysis of the financial system as a whole and how its very structure has an impact on climate. Our aim with the Sustainability and Finance working group is therefore to debunk flawed rationales and false solutions as part of the systematic and inclusive exercise of developing the Citizens’ Dashboard of Finance.
We hope many of you will join us and support our efforts.
Most recent activities:
Together with members of the working group and others, we co-organized an event that took place on 15 June at the European Parliament on how to integrate sustainability objectives into financial regulation. The EU is lagging behind on this issue and participants, including MEPs from the four major political groups, expressed their enthusiasm for a follow-up meeting to look at building a strategy and a concrete action plan.
Last but not least, Finance Watch is proud to announce that it has joined the Green Economy Coalition (GEC), as part of our commitment to make finance serve a sustainable economic development. We look forward to working with GEC members and others to achieve our common objectives!
This is only the beginning! We will keep you informed of our progress and how you can engage in the coming months.