■ central bank finance and
■ offshore finance.
High street finance is money created by regulated private banks, mostly for property. Purpose: financial gain and shareholder value maximisation.
Socially purposeful finance is created by credit unions, community banks and public banks. Purpose: social, ecological and financial gain. Socially responsible investment has made vast leaps since the 1980s; by 2019 $20 trillion was being screened globally for negative ethical or socially responsible concerns.
“Socially responsible investment has made vast leaps since the 1980s.”
By 2019 $8.73 trillion had been divested from fossil fuels by 1,000 institutional investors which had realised the urgency of the climate crisis and the vulnerability of their investments, pushed by the global divestment movement. A 2017 study of 10,000 mutual funds found that most sustainable equity funds had equal or higher median returns and equal or lower volatility than traditional funds. Another study found a positive relationship between sustainability and the financial performance of stock prices for 80% of 41 studies reviewed.
Speculative finance comes from regulated private banks. Purpose: speculative financial gain and shareholder value maximisation. Institutional investors have $70 trillion under management, including Blackrock ($6 trillion), Vanguard ($5.3 trillion) and UBS ($3.2 trillion).
Shadow finance is money created by unregulated shadow banks and financial int The entities, including securitisation vehicles, asset-backed commercial paper conduits, money market funds, markets for repurchase agreements, investment banks and mortgage companies. Also known as non-bank financial intermediation. Purpose: speculative financial gain and shareholder value maximization. Shadow banks carry around 13% of the total financial system according to the Financial Stability Board. In 2018 they were worth some $45 trillion.9
Central bank finance is created by central banks for the purposes embraced by each central bank.
Offshore finance comes from unregulated offshore banks. Purpose: unregulated and untaxed speculative gain. In 2017 they harboured at least $7.6 trillion, half from families with more than $50 million net wealth.
These are vast numbers. At an optimistic best, somewhere between 1% and 8% of global finance may be consciously committed to socially and ecologically responsible values and practices while the rest is chasing selfish financial returns. Some of these investments are harmless; others are contributing (wittingly or not) to ecological collapse, climate disaster, inequality, personal debt, unaffordable housing and resentful populism. How then can we embark on a transition to ecologically sustainable finance? Here are five suggestions.
The restoration of purpose Governments could embark on a legislated, ten-year transition for all financial institutions, by the end of which each would have been encouraged to do the following:
■ adopt a new corporate charter which includes a commitment to social and ecological purpose;
■ report annually on progress to purpose