By Martin Buttle, Head of Good Work and Peter Uhlenbruch, Joint Head – Financial Sector Research and Standards, ShareAction
It’s almost the end of the first month of the new decade. And January 2020 is a big one.
We are in the decade of action to deliver the Sustainable Development Goals, five years have passed since the Paris Climate Agreement was adopted and the year started with an important reminder about the urgency with which we need to tackle the climate crisis, as Australia saw its worst ever bushfires on record.
But January is also the time of year when world leaders from business and politics gather in Davos for the World Economic Forum (WEF).
The urgency of climate change dominates this year’s Global Risks Report, with all five top risks by likelihood and three by impact related to the environment – the first time in the 15 years of the report that all risks have been linked to one topic.
Yet while environmental risks overshadowed others, the interconnectedness of the global challenges we face mean that social and economic risks should not be overlooked.
The annual meeting in the Swiss ski resort, Davos, is often scoffed at as a talking shop for the global elite, but it has the potential in its fiftieth year to contribute to solutions that address the crises of the next decade. The adoption of the Davos Manifesto 2020, which outlines an important set of ethical principles to guide companies in the age of the Fourth Industrial Revolution, was an important start.
But environmental meltdown, stagnating economies and growing inequality demand more.
That’s why we are calling for a financial system where all finance powers social progress. At ShareAction, we believe our money can change everything and the global investment sector needs to step up to achieve this. Here’s how it can start:
Take responsibility for impact on people and planet
The world needs to re-evaluate how it thinks about profit. For too long the shareholder first principle has dominated the financial system, which has led to a system that exacerbates global inequality, the climate crisis and chronic issues like childhood obesity.
But it doesn’t have to be this way. Investors must harness the capital they have to incentivise social and ecological value alongside financial returns. Through their investments, they have a crucial role to play in transitioning to a low-carbon economy, protecting the rights of workers, and tackling global social and health challenges.
The regulatory landscape on responsible investment can also go much further. At the policy level, mandatory reporting to the Taskforce on Climate-related Financial Disclosure (TCFD), revisions to the Pension Scheme Bill and legislation that instills responsible investment at the heart of the financial system are all good places to start.
Individuals have a role to play when it comes to thinking about money too. If you have a pension, you are not a bystander in the financial system. Our pension power platform explains how our pensions build the world around us and how you can get involved with yours.
Act within safe ecological limits
Companies have been active agents of driving the climate crisis, and can and must do more to tackle the climate emergency and risks to biodiversity.
Investors will be vital in this, and while we are seeing strong words from big players in the sector, this is not translating into action, with many of the largest investors failing to use their voting power to drive positive action.
Investors must take a more robust approach to engagement. The first edition of our 2020 global ranking of asset managers on responsible investment (including critical issues of climate change, biodiversity, and human rights), to be released next month will set out clear recommendations for action across voting practices, transparency around company engagement and governance.
Banks will also play an essential role in financing the low-carbon transition, yet continue to pump billions of dollars into fueling the climate crisis.
This month, we co-filed a resolution at Barclays – the sixth largest financer of fossil fuels globally – asking it to bring its energy financing in line with the goals of the Paris Agreement.
The first of its kind at a European bank, we hope this resolution will send warning signals across the sector that it must better wield the huge power at its disposal, and to the wider investment community that the bar needs to be set higher when it comes to alleviating the threat to our planet and the future of the people who live on it.
Sustain a fair, just, healthy society
Social risks often take a back seat in the investment world when it comes to Environment, Social and Governance (ESG) principles. But with Oxfam’s Time to Care report highlighting yet another rise in global inequality in 2020 (doubling in the last ten years) the coming decade will be critical to address the risks associated with inequality.
From childhood obesity to precarious work, cheap unhealthy food and living wages, inequality impacts those at the bottom of the ladder the most. We believe harnessing the power of investors to do good in these areas will be crucial if we are to change the system in the long-term.
We have seen positive signs of change. In 2013, just two FTSE 100 companies were committed to paying a real Living Wage. This number now stands at 37, partly thanks to pressure from investor engagement.
But we must go further, and at the heart of this will be redefining the idea of shared value creation and how this relates to the workforce. Clear, comparable and meaningful data on a range of workplace issues, such as on contract types, the median pay-gap, and commitments on worker’s rights is a good place to start.
ShareAction’s Workforce Disclosure Initiative (WDI) sees more than 135 global investors with $15 trillion of assets under management leading the way here, urging companies to disclose this information.
But investor power reaches beyond the workplace and we are working with investors through our Healthy Markets campaign to disincentivise the making and marketing of healthy food to tackle one of the biggest global health challenges: childhood obesity.
Be diverse and inclusive at all levels
Increased diversity is relevant in all walks of life, but can be felt acutely in the finance sector. As ShareAction CEO Catherine Howarth wrote in Responsible Investor, “If the sector is to advance both private and public interests, it needs a workforce that reflects the societies it serves.”
In 2019, we asked 29 questions at AGMs on the gender pay gap. We’ve met with companies since then to gain a better understanding of their approach to diversity and inclusion and hope to meet with many more as the year unfolds.
For now though, we will be happy if the politicians, chief executives, thought-leaders and celebrities at the World Economic Forum in Davos think practically about how their money can change everything – and take note of our steps for getting there.