Skip to Content

How financial services industries interact with the development of sustainability

In Sustainability: a fundamental introduction I referred to the book written by Klaus Gabriel regarding its wide-spread, in-depth fundamental explanations of sustainability in the light of social and business ethics. In the main part of this book, the author describes the typical business of capital markets and how capital market business can support development of economies or (even more) might determine directions and drive re-valuation of business models. Due to financial instruments, portfolio techniques, funds, etc. banks acting at capital markets are able to give sustainability a business meaning as well.

Under the assumption of market dynamics between short term profit (optimized performance) and long-term valuable market participants (a continuous deliverance of customer values) sustainability will play crucial roles (in one or another way). From that capital markets perspectives long-term investments might favour the sustainable business more than those of other market participants. To measure such a market segment banks use indices comparison reasons to evaluate with other sectors and/or the overall market. Along such indices other banks might build their focused investment portfolios. To build momentum for achieving more sustainable business in the markets such guided investments (either by ethic principles and/or performance and efficiency) have their impacts. We know this from bio-tech, dotcom, and other investment related market development.

Driven by this assumption of influencing market development the author examined 10 indices with a special sustainability focus. These were: Advanced Sustainable Performance Indices, Calvert Social Index, Dow Jones Sustainability Indexes, Domini 400 Social Index, Ethibel Sustainability Index, Ethical Index, Ethinvest Environment Index, FTSE4GOOD, Jantzi Social Index, Natur-Aktien-Index, Umweltbank-Aktienindex, Westpac-Monash Eco Index. The research describes the criteria of the index and the selection process to include a company in such an index; it explains also the organisational setup of the associated rating agency. Although these indices focus all on sustainability and companies, which operate in a sustainable way, the indices and corresponding agencies are very different. This might be less of a surprise, once we get closer to the typical capital market business. Current capital markets are built and determined by the performance of the associated financial instruments and products linked to a set of different shares of market participants. Once these representatives (Index) from those industries do well, the index will perform.

Sustainability is a three pillar model (ecology, economy, social) with only one quantifiable dimension (economy). Saying “sustainable business performs better than other business” implies a quantification of the two other dimensions. It’s called the “materialization of ecology and social” and builds the platform for some of current CSR messages. This might be supported once by consumption hypes (like bio-products) or another time by political protest actions (against price dumping) and others. The opposite aspect: “how to deal with negative impacts on business performance due to sustainable business operations” didn’t become clear here nor in the market (besides of the trivial competitive impact). Due to “best in class” dynamics as a competitive differentiator, it becomes evident that some sustainable practices are well appreciated nowadays. Overall the impact of sustainability indices on moving markets towards a considerable larger portion of sustainable business (in the sense of the 3 pillars) is very limited. Measuring and driving future markets with current metrics can be perceived as an anachronism.

Klaus Gabriel points to another important dimension of sustainability: education, knowledge and expertise. If the current generation expects more sustainable business in future, the younger generations (at school, in education) need to acquire more specific knowledge on and expertise with these specific subjects and social dynamics. These domains show already now areas of considerable future improvements: These lacks are indicated simply by a comparison in education strategies and content between Austria/Germany (only as an example). The author lists 7 competencies to build an education environment to achieve (future) sustainability expertise:

  1. the competence to think ahead and to manage implications and risks, which are hardly or not foreseeable
  2. the capability to work interdisciplinary
  3. the competency to plan and to implement within a changing environment in an intermediate phase transition with surprises
  4. to be open and to perform on global thinking independent of any geographical borders and constraints
  5. the capability for empathy, solidarity and commiseration to focus in on the human living conditions
  6. the capability to motivate himself/herself as well as others to change and to enable mental mobilisation
  7. the capability to reflect on individual and cultural idols/symbols and to correct outdated statements and positions

This book “Nachhaltigkeit am Finanzmarkt” ISBN 978-3865810830 is recommendable for everybody, who likes to reflect on sustainability and market dynamics.

The extension of the analysis and considerations outside of the rich countries, western business styles, and western ethics, is desirable.

Kind regards Paul

Be the first to leave a comment
You must be Logged on to comment or reply to a post.