Responsible finance: All banks dictate outcomes – and other Davos news

My favourite announcement at January’s Davos World Economic Forum 2020 was the launch of the Future of Sustainability Data Alliance with the likes of Refinitiv, the Climate Bonds Initiative, the Global Financial Markets Association and many others spanning academia, policy-setting, NGOs and fintech around the world. 

Its goal is to consolidate social and environmental data for the capital markets, to highlight gaps in the data and understand what will be needed as standards are set.

It’s a huge relief because we have reached a point where data has become fractured. It’s also refreshing to have such an early commitment to develop data in a way that will be useful. Sherry Madera, global head of industry and government affairs at Refinitiv, points out that 90% of the data in use now has only been around for the last two years. 

As it develops, “we need to think about what will be needed to satisfy regulators and investors in the years ahead,” she says. 

It is this quest for standardization that the financial and regulatory communities are all longing for in sustainability. 

That quest has also obviously been playing on the mind of Bank of America chief executive Brian Moynihan. In his role as chairman of the World Economic Forum’s International Business Council (IBC), he spearheaded a campaign to standardize how companies measure their contributions to the UN’s sustainable development goals. 

The big four accounting firms have collaborated with the IBC to create core metrics and disclosures aligned with “planet, governance, people and prosperity”, drawing from current standards such as the Sustainability Accounting Standards Board and the Task Force on Climate-related Financial Disclosures. Some 140 companies at Davos pledged their support. 

It seems that the private sector has finally recognized its collective responsibility and the power of collaboration and support. That there is also some leadership being shown from a US bank is something to celebrate. 

Outcomes

It was somewhat odd then to hear Mike Corbat’s “sharp end of the spear” comments among the many discussions on better embedding sustainability within finance. 

Citigroup chief executive Mike Corbat

The full quote from the Citigroup chief executive is: “I don’t want to be the sharp end of the spear, meaning I don’t want to have to be the one telling [companies] or enforcing standards in an industry or business. We don’t want to find ourselves being the person that dictates winners and losers. A bank’s job is to support the communities in which it operates. It is not to dictate outcomes.”

I don’t like singling out Corbat. Citi has made some bold decisions: stopping funding on a pipeline, signing up to the Principles for Responsible Banking, changing its weapons financing policies and being first to disclose its pay gap. 

And it is fair to say here that Corbat is voicing what many of his peers might feel. However, it’s worth examining this statement because it reveals that, beneath all the commitments on sustainability, there is a lingering confusion that risks slowing progress. 

And this is the apparent confusion: is it a bank’s job to dictate outcomes? 

The industry needs to stop deflecting responsibility with discussions of ‘what the role of an institution is’ and rather be transparent about the challenges it faces 

It’s time we got this question out of the way. While I would agree with Corbat in saying: ‘No, that is not banks’ job,’ I would add that the reality is that we all know banks are dictating outcomes every day through what and where they invest and finance. 

Even chief executive Larry Fink has finally admitted that BlackRock has been dictating some large fossil fuel outcomes. Indeed, if these chief executives thought they weren’t in the business of dictating outcomes, what are they doing in Davos every year?

Banks and asset managers are dictators of outcomes – especially at a global level. And we are living the consequences of those outcomes right now. The good news is that there is collective agreement on the outcomes that the planet needs – the SDGs. 

So, the industry needs to stop deflecting responsibility with discussions of ‘what the role of an institution is’ and rather be transparent about the challenges it faces. 

Is it financing deals that are in direct opposition to the SDGs for political reasons? Is it pressure for profits? Is it investing in them because they are part of an index? 

In which case, are standards the answer to keeping politicians, shareholders and investors at bay? Probably; in which case, let’s get those done.

Or is there a lack of data to help determine the relative impact of defunding coal versus the loss of coal jobs? Is more localized data needed? Probably; so can efforts be made there? 

I believe that this is will be a year of increasing collaboration, but I also hope it will be a year of bolder statements and more candid debate.