CE.20.010 – How can the financial sector contribute to a sustainable economy?

Route: Circular economy

Cluster question: 053 What are the features of a circular economy and how can we achieve it?

Climate science shows that we urgently need to transition to a sustainable economy to keep our planet habitable and limit the risk of climate disasters. This transition requires a system change; governments, companies, financial institutions, and individuals should all stop focusing solely on the economic outcomes of their decisions, and also incorporate environmental and social outcomes. The financial sector can play a vital role in this transition, in at least three ways. First, the financial sector controls the flow of capital in the economy. By directing more money towards sustainable companies and entrepreneurs, sustainable finance has the power to reshape the composition of economic activity. Second, the financial sector plays an important stewardship role through shareholder votes, credit oversight, and engagement with companies. Third, the financial sector can support individual citizens in making more sustainable choices. There is much uncertainty and debate on exactly how the financial sector can contribute to a sustainable economy, and its current role in the transition is limited. This research project aims to provide an impetus to this debate – and thereby the transition – in three key domains. First, sustainable finance requires a transition in the traditional mindset of the financial sector from focusing on shareholder value to societal value. We will examine how to accomplish this mindset transition. Second, it is far from clear how financial institutions (such as banks, pension funds, insurance companies) in their roles as shareholders and creditors can effectively impact the conduct and business models of companies through the flow of capital and/or stewardship. We will provide evidence on the efficacy and success of different impact and financing strategies. Third, we will investigate how the financial sector can help individual citizens’ choices, and how individuals, as customers of the financial sector, can in turn stimulate financial institutions to change (bottom up).

Keywords

citizens, Financial sector, investors, sustainable economy, sustainable finance, transition management

Other organisations

Netspar

Submitter

Organisation Erasmus University Rotterdam (EUR)
Name Prof. dr. M.A. (Mathijs) van Dijk
E-mail madijk@rsm.nl
Website http://www.mathijsavandijk.com/