Friday 1 March 2019 11:02 am

The magic of finance can help make the world a better place

When Hollywood created a sequel to the original Mary Poppins film, the producers introduced a new character: a villainous banker who could give everybody a good scare.

But why exactly is the banker the villain? After all, a healthy economy requires a healthy financial sector that is at the service of people as they pursue better lives for themselves and their children.

You might call it the “everyday magic” of finance: helping families buy a home or save for retirement, helping businesses raise capital to support growth and employment, and helping ordinary people manage risks and prepare for a rainy day.

That is what most financial professionals do every day, with dedication and a sense of pride.

And yet, across the political spectrum, there is a deeply felt sense of unease about the role of finance in today’s world.

It does not take magic to trace much of this current frustration back to the global financial crisis and the steady drip-drip of financial scandals and misconduct that have occurred all over the world.

The reality is that even the toughest legal sanctions and the smartest compensation and governance rules cannot be substitutes for a strong individual responsibility. For it is not just the “tone from the top” but the “response from the bottom” that creates a better and more trusted corporate culture.

That is why the financial industry needs what I call an “ethics upgrade”. For financial professionals, this simply means doing the right thing, even when nobody is watching. It sounds so simple, and yet it is perhaps the hardest thing to do.

The word “credit”, as we know, comes from the Latin word for “trust”, which is the lifeblood of the financial system. But trust itself cannot be manufactured or mandated. It must be earned through virtuous behaviour that is intrinsically motivated – again, done even when no one is watching.

For financial firms, the ethics upgrade means redefining a broader sense of purpose, a broader common responsibility for today’s stakeholders and future generations. A good example is the sustainable investing boom that is likely to gain further momentum.

Over the next 15 years, $24 trillion of wealth will be inherited by millennials, and they are more than twice as likely as other generations to invest in companies or funds that target social or environmental outcomes.

The financial industry has seized this opportunity, but more can be done to help invest for the global common good. This includes mobilising substantial private sector investments to help tackle climate change and to achieve the UN’s Sustainable Development Goals (SDGs).

These goals, endorsed by the global community, are aimed at eliminating poverty by 2030 and, more than this, making the planet a better place for our children and grandchildren.

Health, education, and low-carbon infrastructure are but a few of the sectors in which financial firms can play an essential role.

The key is for public and private investments to be complements, not substitutes. Think of so-called “blended finance”, which brings together grants, concessional financing, and commercial funding.

Another possibility is to launch new investment products that encourage companies to align their business models with the SDGs. Fund managers could also work with policymakers to create global standards for sustainability accounting and reporting.

This would boost transparency and strengthen the credibility of sustainable investing.

The stakes are high – climate change and high economic inequality are already affecting the livelihoods of too many individuals and communities, including in the UK. And there are growing economic debates over the likely effects of climate change on productivity, migration, financial stability, even monetary policy.

The bottom line is that a broader common responsibility is not only morally just; it is economically right. By fostering a financial sector that is ethically sound, we can help deliver on what our twenty-first century so badly needs: higher employment, greener growth, and good living standards for all.

That spirit could also help the financial industry attract the right kind of talent. The question is whether young people today should even consider joining the financial industry. For many of them, the answer comes down to finding a broader sense of purpose – much like Mary Poppins.

The genius of her character is that she is serving others, with dignity, with a kind heart, with honesty, and with a wicked sense of humour. I think that this is a good description of what the financial industry should be all about.

Serving others, not yourself – that is the real magic of finance.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.