Greening the Financial System: Enhancing Competitiveness Through Economic Development

Policy Lever: Transforming Culture

Financial culture is the body of shared values, norms and biases that guide behaviour and decision-making at individual and organisational levels in financial institutions. Failures of this culture – in terms inappropriate risk-taking, ethical failures, and disregard for client obligations – were central to the global financial crisis. Encouraging a financial culture that supports sustainability is an essential complement to more specific policy, regulatory and fiscal measures.  In the wake of the financial crisis significant changes were made to market, sector,and firm-level systems and controls on behaviour, stemming from macro-level reform packages, actions on markets infrastructure, regulation and supervisory guidance. In general however sustainability has not been a core focus.

Examples

Key steps that could be taken to integrate sustainability into the culture of the financial sector include:
  • Consumer education: Extending financial literacy programmes to include sustainability.
  • Professional education: Building the skills and capabilities to assess sustainability risks and issues among financial professionals.
  • Regulator capacity building: Improving the sustainability capabilities of financial regulators and policymakers.
  • Remuneration regulation: Including sustainability in remuneration regulations – so that individual compensation relates to performance in terms of long-term sustainability.
  • Codes of conduct: Incorporating environmental and sustainability in policies to promote integrity in financial markets and the upholding of core values.
  • Non-financial guidance: Encouraging financial institutions to respect global standards of responsible conduct (such as Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises
  • Value-based financial institutions: Ensuring a level-playing field for values-based financial institutions (including cooperatives, impact investment etc.)
  • Market diversity: Promoting diversity of financial institutions in terms of size, geographical focus, ownership and business model.
  • Right sizing financial institutions: Taking action to “right size” financial institutions to deliver sustainability outcomes (e.g. consolidation and unbundling).

Impacts

To date most reforms focused on the culture of the financial sector have not explicitly focused on sustainability, but there is potential for wide application. A robust financial culture focused on the needs of the real economy is a criticalprecondition for other efforts to align the financial system with sustainable development.  

Inquiry Publications

  • The Financial System We Need: Aligning the Financial System with Sustainable Development

    Date: 08-Oct-2015

      Download the full report: [AR] [CH] [EN] [ES] [FR] [PT] [RU] Download the policy summary: [AR] [CH] [EN] [ES] [FR] [PT] [RU] This first edition of “The Financial System We Need” argues that there is now a historic opportunity to shape a financial system that can more effectively finance the development of an inclusive, green economy. This opportunity is based on a growing trend

  • The Financial System We Need: From Momentum to Transformation

    Date: 29-Sep-2016

    Download the policy summary: [AR] [CH] [EN] [ES] [FR] [PT] [RU] Download the individual chapters: Chapter 1: Mapping the momentum | Chapter 2: Harnessing financial technology for sustainable development | Chapter 3: Measuring performance | Chapter 4: Steps towards transformation Our follow-up annual report reveals a doubling in policy actions over the past five years to align the global financial system with sustainable

  • Fintech and Sustainable Development – Assessing the Implications

    Date: 14-Dec-2016

    The report, a companion to the second edition of “The Financial System We Need”, assesses how the financial system’s core functions are likely to be disrupted by financial technology (“fintech”) innovations and how they could help – or hinder – efforts to align financing with sustainable development. It considers ways to: Unlock greater financial inclusion by

  • A Review of International Financial Standards as They Relate to Sustainable Development

    Date: 22-Feb-2017

    The report, a companion to the second edition of “The Financial System We Need”, examines how the international financial standards currently relate to the goals of sustainable development and explores opportunities for better alignment as a way to promote greater stability, resilience and fairness to the financial system. The key messages are: Financial standards have

  • Bangladesh Country Report

    Date: 09-Oct-2015

    Bangladesh has been a leader in developing policies to shape a greener and more inclusive financial system. It has a suite of green banking regulations and policies including concessional green refinancing, credit quotas for green finance and guidance and requirements on environmental due diligence. Green finance is growing but it remains modest compared to the scale of Bangladesh’s

  • China Report

    Date: 06-Oct-2015

    The Inquiry collaborated in an 18-month project, Greening China’s Financial System, carried out by the International Institute for Sustainable Development (IISD) and the Finance Research Institute (FRI), Development Research Center (DRC) of the State Council. The aim was to develop specific proposals for greening China’s financial system, based on an analysis of current practice in China

  • Financing the Future

    Date: 06-Feb-2017

    Italy’s Ministry of Environment, Land and Sea, in partnership with UN Environment, launched the National Dialogue on Sustainable Finance in February 2016 to identify practical market and policy options to mobilize Italy’s financial system for sustainable development and climate action. The conclusions of the paper are: Italy faces a strategic opportunity to harness its financial

  • Roadmap for a Sustainable Financial System

    Date: 20-Apr-2017

    CALL FOR CONSULTATION UN Environment and the World Bank Group view the over-arching objective of a sound financial system as being to provide finance that meets the long-term needs of an inclusive, environmentally sustainable economy. While there is no single blueprint or unique pathway for creating such a “sustainable financial system”, it is possible to describe

  • The Experience of Governance Innovations in South Africa

    Date: 17-Jun-2016

    This paper explores whether the extent to which Regulation 28, CRISA and JSE Integrated Reporting Standards (referred to as governance policy innovations) have influenced the level of investment that integrates Environmental, Social and Governance (ESG) in its decision making process. It finds that while governance innovations have increased actors’ awareness about interrelationship between ESG factors and financial performance it

  • Lessons from Inclusive Banking Experiments in South Africa and Kenya

    Date: 23-Aug-2015

    This paper examines the experience of inclusive banking experiments in South Africa and Kenya. The Kenyan example revolves around the development of mobile money through market led innovation alongside evolutions in the legislative and regulatory process. In South Africa a different approach was taken, with the development of the multi-sector Financial Sector Charter and a National Bank Account (‘Mzansi’) Hawkins

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