Background paper produced by GEC, GABV, ForUM: April 27 2012

Banking As if the future matters

Building a Financial System to Support a Green, Fair and Inclusive Economy

The Green Economy Coalition working with the Norwegian Forum for Environment and Development and the Global Alliance for Banking on Values will be running an initiative to develop policy recommendations to reform the current financial system so it supports a green, fair and inclusive economy. The results of this consultation will be used to raise critical public policy issues requiring changes with influential decision makers at the Earth Summit Rio+20. Commitments for implementation of these changes from key decision makers will be requested at that meeting. The financial system provides a critical role in the development and functioning of all economies. Therefore to create and sustain a green, fair and inclusive economy, it is critical that social and environmental responsibilities are embedded in the business models and cultures of participants in the financial system. The positive role that can be provided by financial institutions is proven by the environmental, social and financial results over several decades by sustainable financial institutions. At the same time recent experiences in the financial system highlight the need for fundamental change to ensure that all financial institutions proactively take an interest in building a green, fair and inclusive economy. Reforming the current financial system will require a range of enabling policies and cultural changes as well as additional capital to support the growth of sustainable financial institutions. The consultation is intended to develop specific ideas for actions that would lead to substantive reform in the current financial services environment. Ideas of enabling policies that are being sought by this consultation could cover various aspect of the current financial system as they relate to: 1. Ensuring financial institutions focus on products and services that build a green, fair and inclusive real economy while eliminating speculative activities with limited or no underlying economic justification 2. Ensuring diversity and limiting concentration in financial services to enhance innovation and reduce systemic risk 3. Including social and environmental risks in the assessment of bank assets relative to capital requirements 4. Developing and encouraging investment vehicles to build a green, fair and inclusive economy and the financial system to support that economy 5. Addressing shortcomings in current reporting processes that focus on short term financial accounting results, inadequately capture environmental and social impacts, and do not include long term costs, benefits and risks 6. Reforming investment limitations, especially for pension funds, that limit consideration of long term sustainability and inclusiveness within investment processes as well as create a focus on short term financial market results 7. Ensuring that compensation and incentive systems are transparent, stakeholder driven and deliver long term green, fair and inclusive investments

Background paper produced by GEC, GABV, ForUM: April 27 2012

This initiative will progress a global debate on the policies and investments required for a transition to a green, fair and inclusive economy. To achieve visibility and secure diverse input across a broad stakeholder base an online consultation be coordinated between May 1 and June 1. The results of the consultation will be collated and analysed by an advisory group made up of members from the GEC, GABV and FoRUM to identify the top five impactful enabling policies for building a reformed financial system. These findings and policies will be posted online (www.greeneconomycoalition.org) and presented to governments at Rio+20 at an official side event. Please see www.greeneconomycoalition.org For further information please contact: Green Economy Coalition: Emily Benson - emily.benson@greeneconomycoalition.org Global Alliance for Banking on Values: James Niven - james.niven@gabv.org