Creating a sustainable financial system

Creating a sustainable financial system

When the six Principles were first drafted 10 years ago, the primary concern was about the relationships between investors and investee companies, and the degree to which ESG issues informed those relationships. Within two years of the PRI’s launch, the financial sector was at the centre of a maelstrom that posed a risk to the entire global economy.

But the financial sector is also the source of less existential systemic risks. Few would argue that the financial system functions as effectively as it should – or as effectively as it could. It can fail to deliver the needs of the societies in which it operates. Conflicts of interest can emerge between actors within the investment chain. It can undermine sustainable development and damage the health of the natural environment.

The PRI has always recognised that implementing the six Principles takes place within a wider context. Our mission explicitly states our belief that “an economically efficient, sustainable global financial system is a necessity for long-term value creation”.

To address these exposures, we need to be clear about the type of financial system we want, understand how major social and technology trends will effect that system, and consider how resilient it is likely to be risks and sustainability challenges.

Our Sustainable Financial System programme will engage signatories in a discussion about these systemic risks, and what if any interventions the PRI could usefully make to help address them.

This process will draw up an action plan – a Blueprint for Responsible Investment – for the next decade. The aim is to draft a set of objectives that the whole responsible Investment industry can embrace, and which will determine the PRI’s strategic priorities over the next decade.

It is increasingly clear that the PRI’s mission of normalising responsible investment cannot be realised by signatories integrating responsible investment in isolation: the PRI will also have to engage in greater advocacy, seeking to influence governments, regulators, the media and other stakeholders.

We have to be realistic. This is a new direction for the PRI and for the responsible investment industry. The scale of change we seek means that it will not happen overnight – hence a 10-year Blueprint. But we believe it will help answer responsible investment’s critics, and provide irrefutable evidence of the benefits of investing responsibly.