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2018 | Buch

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Designing a Sustainable Financial System

Development Goals and Socio-Ecological Responsibility

herausgegeben von: Dr. Thomas Walker, Prof. Stéfanie D. Kibsey, Rohan Crichton

Verlag: Springer International Publishing

Buchreihe : Palgrave Studies in Sustainable Business In Association with Future Earth

Enthalten in: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft" , Springer Professional "Technik"

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Über dieses Buch

This edited collection brings together leading theoretical and applied research with the intent to design a sustainable global financial future. The contributors argue that our world cannot move toward sustainability, address climate change, reverse environmental degradation, and improve human well-being without aligning the financial system with sustainable development goals like those outlined by the United Nations. Such a system would: a) be environmentally and socially responsible; b) align with planetary boundaries; c) manage natural resources sustainably; d) avoid doing more harm than good; and e) be resilient and adaptable to changing conditions. The overarching theme in this collection of chapters is a response to the worldwide, supranational sustainable finance discussions about how we can transition to a new socio-ecological system where finance, human well-being, and planetary health are recognized as being highly intertwined.

Inhaltsverzeichnis

Frontmatter

Chapter 1. Introduction

Abstract

A transition toward a more sustainable financial system in order to support sustainable development goals is inevitable and is already in progress. We hope that readers will gain a deeper understanding of this important transition through the ideas, practices, policy recommendations, and first-hand experiences presented in the following chapters. Moreover, we hope this book will lead to further research, development, and implementation of new tools and methods—ultimately shaping a financial system aligned with sustainable development goals.

Thomas Walker, Stéfanie D. Kibsey, Rohan Crichton

System and Sector-Level Transitions Towards Sustainability

Frontmatter

Chapter 2. An Alternative Finance Approach for a More Sustainable Financial System

Abstract

Alternative finance represents a small but interesting field of research. Concepts such as “alternative financing instruments”, alternative financing channels and “alternative forms of finance” can be found in the recent literature with increasing frequency. Despite all this attention and activities in this field, extant knowledge is fragmented, and various deficiencies exist. Moving from these considerations, the main aims of this chapter are (i) to explore the domain of “alternative finance”; (ii) to map and to assess the intellectual territory of this research field; (iii) to provide a critical analysis of the current state of the art in this new finance approach through the analysis of the ontological, epistemological and methodological issues posed in academia and (iv) to identify and discuss the main emerging streams of research. This chapter also contributes to the ongoing debate on the role of alternative finance for a more sustainable financial system by exploring new concepts, instruments and dynamics of the alternative finance in the service of human welfare and dignity.

Rosella Carè, Annarita Trotta, Alessandro Rizzello

Chapter 3. Social and Environmental Responsibility in the Banking Industry: A Focus on Commercial Business

Abstract

The purpose of this chapter is to measure social and environmental responsibility in the commercial activities of banks (external CSR performance)—in contrast to other models based on internal stakeholders—and define to what extent it is influenced by a bank’s size, banking model or business specialization. The banking sector is composed of diverse entities, which is not usually considered when social and environmental responsibility is defined and measured. Business risks and impacts of small- and medium-sized entities oriented to the commercial retail market are different from those of universal banks—which are highly diversified—both in financial and sustainable terms. Thus, the way CSR is being addressed by the banking industry should be reviewed to determine if there are diverse intra-sectorial approaches. An empirical analysis of European banks suggests that the current homogenization of the banking industry is unfavorable in terms of sustainability and responsibility.

Beatriz Fernández-Olit, Marta de la Cuesta-González, Francisco Pablo Holgado

Chapter 4. Seeking Greener Pastures: Exploring the Impact for Investors of ESG Integration in the Infrastructure Asset Class

Abstract

In recent years the conditions for infrastructure investment, particularly sustainable infrastructure investments, have become especially favorable. Investors are becoming increasingly interested in sustainable infrastructure projects which promote positive social and environmental impact together with long-term, stable financial returns. In the public sector, governments are growing more interested in measuring the broader community objectives which infrastructure projects satisfy. Responsible investment has, over the past few decades, proven to be a fast-growing movement in the field of investment decision-making. Responsible investments tend to be long term in nature and seek to reduce risk and achieve positive financial returns by taking environmental, social, and governance (ESG) factors into account. In the past, such considerations were applied primarily to public equity investments, but increasingly investors are applying this lens to other asset classes. One of the asset classes which is new to ESG scrutiny is infrastructure. This chapter examines the recent shift to infrastructure investment and the ability for high ESG standards over the full life cycle of these assets to contribute to a more sustainable financial system.

Roy R. Sengupta, Tessa Hebb, Hakan Mustafa

Chapter 5. Pricing Carbon: Integrating Promise, Practice and Lessons Learned from the Chicago Climate Exchange

Abstract

In 2003, the Chicago Climate Exchange (CCX), a feisty start-up, appeared on the climate change scene in the USA, the world’s first and only integrated cap-and-trade system covering all six greenhouse gases. In the absence of a national emissions reduction mandate, CCX established a voluntary but legally binding self-regulated membership system under basic US contract law and operated from 2003 to 2010, pioneering the carbon pricing field worldwide. CCX recruited large and small companies, cities, counties and universities, and through CCX there were more emissions covered by a cap-and-trade system in the USA than in any other country in the world at the time, even though the USA had turned its back on the Kyoto Protocol. What accounts for this achievement and what can be learned from the grit, passion and ups and downs of CCX? This chapter provides answers and bold suggestions for regaining momentum and capacity building so that the world can move more rapidly from theory to practice on carbon pricing.

Paula DiPerna

Innovations in Best Practices, Tools, and Financial Products

Frontmatter

Chapter 6. Designing Carbon-Neutral Investment Portfolios

Abstract

As climate change and global warming are addressed by tougher regulation, global investors are increasingly treating climate risks as a key aspect when pricing financial assets and deciding the allocation of their investment portfolios. However, the current approaches to embed the environmental profile in the investment process—exclusion lists, environmental ratings, active ownership, and carbon risk-adjusted valuation metrics—may not address effectively the concern that portfolios are exposed to growingly material risks associated to climate change. This chapter discusses to what extent financial hedging of institutional investment portfolios is feasible and how policy-making could shape markets and instruments to make the financial global system more resilient to possible climate-related regulatory shocks.

Gianfranco Gianfrate

Chapter 7. Sustainability Stress Testing the Financial System: Challenges and Approaches

Abstract

In addition to risks originating from the economic system, the stability of financial markets and institutions is exposed to adverse conditions in the surrounding social and ecological system. The exposure from unfavorable socio-ecological conditions (sustainability risks) affects the financial markets from multiple perspectives. A way to assess the financial system’s exposure to these risks and also to explore risk mitigation strategies is to incorporate sustainability risks into the framework of stress testing the financial system.

This contribution emphasizes directions for the design of sustainability stress test (SST) models for the financial system. The major challenges for conceptualizing an SST framework are related to modeling the sustainability stress factors, their propagation within the financial system and the system’s response. It is argued specifically that the structural pattern of the financial system and its behavioral dynamics have to be considered in a forward-looking way in order to adequately model the SST framework.

Dieter Gramlich

Chapter 8. Responsible Investment Requires a Proxy Voting System Responsive to Retail Investors

Abstract

There is growing awareness amongst retail investors of the importance of environmental, social, and governance (ESG) factors to the performance of their stocks. The same factors impact their lives from a broader societal and economic perspective. Institutional investors have incorporated ESG issues into their proxy voting and corporate engagement. Retail investors who invest in stocks directly have the same voting rights, and collectively a similar power, but data shows that their voting rates have declined precipitously over the past forty years. This chapter traces the history of property rights and proxy voting, examines them within the current regulatory context, and posits that economic rights have been well protected but ownership rights have been neglected. An established framework for stages of capitalism is re-imagined, situating retail investors’ disengagement from the proxy process and highlighting suggestions to regulators for addressing the proxy voting gap.

Ian Robertson

Chapter 9. The Creation of Social Impact Credits: Funding for Social Profit Organizations

Abstract

This chapter builds on the concept of social impact bonds to fund the nonprofit sector by developing a new financial funding instrument: social impact credits. We begin by reviewing how social impact bonds have been used and suggest possible ways to issue certificates that could be redeemable as tax credits. Using the public library system as a case for social profit credit candidates, we apply data to demonstrate the entire process of how a modified social impact bond framework can be created including the development of a trusted performance measurement and the actual selling of the instrument that act as credits. Potential outcomes and risks to individual libraries, the industry, investors, and the government are also discussed. Social impact credits as a way to fund social profit entities and provide tax incentives to investors introduces an environment of competition and has the potential to change the way the nonprofit sector operates.

Marcel C. Minutolo, Chloe Mills, John Stakeley, Kayla Marie Robertson

Chapter 10. Crowdfunding Sustainable Enterprises as a Form of Collective Action

Abstract

Crowdfunding is viewed as a promising source of finance for sustainable enterprises. We apply collective action theory to crowdfunding to better understand its expected potential for financing sustainable enterprises. By carrying out a rule classification analysis, we find three main mechanisms through which crowdfunding seems to facilitate collective action in funding, namely, through (1) use of social networks (2) heterogeneity of contributions and payoffs and (3) aggregation within thresholds. Our findings improve the conceptual understanding of sustainable entrepreneurial finance and provide guidance for sustainable enterprises looking to obtain funds as well as for sustainable crowdfunding platforms as intermediaries.

Helen Toxopeus, Karen Maas

Chapter 11. Palm Oil: Mitigating Material Financial Risks via Sustainability

Abstract

Palm oil is an inexpensive and highly versatile oil found in half of all consumer goods on the shelves today in Western grocery stores. Due to its high yields and many uses, palm oil is the most actively traded oil crop in the world. Palm oil has been identified as a driver of both tropical deforestation and climate change. Material financial risks often accompany the environmental impacts and human rights abuses associated with palm oil expansion. This chapter starts with palm oil uses, cultivation, and refining and then moves on to case studies highlighting topical risk management themes, discussed in readily understood, non-financial terms. Specifically, the discussion explores both direct operational risks and indirect business, credit, reputation, liquidity, strategic, market, and regulatory/legal risks caused by deforestation in palm oil supply chains. Risks are described through recent case studies with commentary. The chapter concludes by summarizing some of these themes and their implications.

Gabriel Thoumi

The Role of Regulation, Standards, and Policy

Frontmatter

Chapter 12. Toward a Theory of Sustainable Finance

Abstract

There is currently a growing consensus that the financial system falls short of fulfilling its social purpose. This not only poses a practical challenge for the world leaders but also poses a theoretical challenge for contemporary research: to rethink the role of financial markets in society. According to the dominant view of finance, rooted in neoclassical economic theorizing, financial agents should always adopt the practices which maximize the value of the firm. This chapter draws out the reasoning behind this view, which in part consists in an idea of a “division of moral labor”: social responsibility should be a task for the social services and civil society, whereas the financial system should focus only on raising and maintaining capital. Clarifying this reasoning draws out some flaws of the dominant view, for example, the inherent conflicts between private and public interests and the lack of attention to all-encompassing challenges such as climate change. To address these flaws, a new theory is proposed for a more sustainable role of finance in society. The theory represents an attempt to strike a balance between opposing camps in contemporary business ethics research. Moreover, the chapter discusses implications of the new theory for both public policies and the governance of financial institutions.

Joakim Sandberg

Chapter 13. Mobilizing Early-Stage Investments for an Innovation-Led Sustainability Transition

Abstract

To achieve the transition toward a green economy, policy makers are required to redirect abundant financial resources into green tech innovations. Theoretically, policy makers have a menu of options ranging from technology-push support in the invention stage to market-pull mechanisms supporting the commercialization and diffusion of green technologies. This chapter proposes a mix of policies to mobilize early-stage finance for green technologies. To develop this policy package, we considered the menu of available policies from an investor’s and entrepreneur’s point of view. Based on a series of interviews and a survey with entrepreneurs and investors in Sweden and the Netherlands, we conclude that their preferred policy mix would include measures that fit the nature of innovation and overcome the disadvantages of green tech while also addressing barriers to the early-stage investment process in general, such as labor-market rules, intellectual property policy and tax treatment of early-stage investments.

Friedemann Polzin, Mark Sanders, Ulrika Stavlöt

Chapter 14. Financial Sector Sustainability Regulations and Voluntary Codes of Conduct: Do They Help to Create a More Sustainable Financial System?

Abstract

This contribution discusses the role of voluntary sustainability codes of conduct and sustainability regulation in helping to create a more sustainable financial system. The analyzed voluntary codes of conducts are UNEPFI, UNPRI, the Equator Principles, GABV, and IRIS. Furthermore, financial sector sustainability regulations, such as the Chinese Green Credit Policy, the Nigerian Sustainable Banking Principles, and the Environmental Risk Management Guidelines for Banks and Financial Institutions in Bangladesh, will be discussed. Additionally, newer developments, such as the FSB Task Force on Climate-Related Disclosures and climate risk-related reporting regulations for institutional investors, will be presented. We conclude that both voluntary codes of conduct and regulations can help to create a more sustainable financial system, particularly if they work in tandem.

Olaf Weber

Chapter 15. Why Self-Commitment Is Not Enough: On a Regulated Minimum Standard for Ecologically and Socially Responsible Financial Products and Services

Abstract

A broad variety of financial products and services is advertised as being ecologically and socially responsible. The market for these products and services, however, is characterized by a number of shortcomings. First, financial service providers largely make their own very general definitions of what is ecologically and socially responsible. Therefore, it is largely impossible to fully understand these products and services and to compare among them and with “traditional” products and services. Second, there is no level playing field for providers of responsible financial products and services, which hampers competition in the market. To tackle these problems, we suggest a regulated minimum standard for ecologically and socially responsible financial products and services which addresses clear and unambiguous criteria and how information about their fulfillment should be presented. This standard would allow consumers to understand and compare financial products and services, and it would provide a level playing field for intermediaries and strengthen competition.

Andreas Oehler, Matthias Horn, Stefan Wendt

Backmatter

Titel: Designing a Sustainable Financial System
herausgegeben von: Dr. Thomas Walker
Prof. Stéfanie D. Kibsey
Rohan Crichton
Verlag: Springer International Publishing
Electronic ISBN: 978-3-319-66387-6
Print ISBN: 978-3-319-66386-9
DOI: https://doi.org/10.1007/978-3-319-66387-6