Five things we’ve learnt about transforming finance

By jay

Are you interested in how we can transform the financial system? Watch this great video from The Finance Lab and read on to find out 5 things we’ve learnt about transforming finance.

As part of our new project on sustainable investment, we came across this great video from The Finance Lab (UK). It’s the culmination of two years’ work interviewing hundreds of finance professionals, policy makers, academics and advocacy groups and is a clear and comprehensive documentary putting the case for change.

You can also read our summary below, with five things we learnt about transforming finance from this video.

Five things we’ve learnt about Transforming Finance:

  1. The current financial system has lost its core function, which is to serve the real economy.

Increasingly, money is used to make profit on the movement of money, rather than investing in the real world itself. Making money out of money doesn’t help solve real world problems.

  1. Over the past 100 years, the biggest banks have got bigger through a cycle called the ‘Doom Loop’.

These banks are considered too big to fail; their failure would lead to huge losses to society and individuals. Therefore if a problem arises they are bailed out by governments at a cost to the taxpayer – which in turn maintains the status quo.

  1. This is a societal problem – not just a city problem. 

The preoccupation of fund managers with share prices and the pursuit of short term profit has undermined their relationship with their customers. Increasingly, the values of society and the values of the financial system are out of alignment. Failures of the current financial system arise not from individuals making poor choices but from the structure of the financial system itself – therefore the whole system needs reforming, to integrate societal values.

  1. We need more diversity in the financial system.

Before the economic crisis, the concept of diversification (spreading risk) was confused with diversity (having different types of businesses in the market place). We now know that we need more diversity to help spread risk. We need new players, innovation and new business models.

  1. Individuals and governments both have a role to play in transforming the financial system.

Civil society is now turning its eyes to the financial system, holding it to account and making it serve our interests. Individuals will be the key to transforming the financial system – by taking money out of unethical funds and putting it somewhere where it’s invested responsibly. However, although there is much that ordinary people can do, it will be down to governments to create a new financial landscape. There is a huge opportunity for policy makers to enable the way forward.

Read on to find out more about transforming finance:

New fossil-free index announced

A new index has just been launched overseas that will make it easier for investors to steer their investments away from fossil fuel companies. The new index, which was launched on 29 April 2014 by FTSE Group, BlackRock (the world’s biggest fund manager) and the Natural Resources Defense Council, will exclude companies linked to exploration, ownership or extraction of fossil fuel reserves.  According to many commentators, the new index is a sign that a global campaign against fossil fuels is entering the financial mainstream. Read more.

SBN project on sustainable investment

At the Sustainable Business Network we’re working on a new project to help identify demand and create a sustainable Kiwisaver fund for New Zealand. We’ll be announcing details of how you can have your say soon, so watch this space. If you’d like to find out more please contact office@sustainable.org.nz