Insight: What kind of banking system is fit for a just and regenerative economy?
As part of the publication of the brand new Catalysing Bank Climate Action: Lessons from the Inside report, we share key insights, lessons and anonymised case studies in this blog series.
This excerpt from the report explores what kind of a banking system is fit for a just and regenerative economy. To read in full, download the report using the button at the bottom of the page.
People are planet
Many in the Western world are just now remembering what indigenous cultures have known all along – that people are planet. The problem is (particularly in Western culture) we’ve developed an assumption of ourselves as separate from nature, and have structured societies and economies accordingly. This mindset has led us to shortsightedly use our creative human faculties to serve our own species at the expense of the living and non-living world we depend on to sustain us.
If we can agree that, at its most fundamental, a healthy planetary ecosystem that can sustain life indefinitely is necessary for human existence; and if we can agree that individuals and communities meeting their own needs ultimately benefits our ability to meet our own – then we can begin to explore why we have banks and what we need them to do.
Why do we have banks?
Today, we can identify five immediate functions served by the banking system: creating money, channelling money, looking after other people’s money, sharing risk, and maintaining transaction and settlement systems.
But in the end, what do we need these functions for? Ultimately, banking as a system should create, deploy and facilitate the use of money for the purpose of enabling us to meet our needs as individuals, communities and societies. The banking system should be judged not only on how efficient it is at turning money into more money, but also on how well it plays its unique part in enabling a thriving planetary ecosystem and the human societies within it.
How well are banks meeting this purpose?
Zooming in on the challenge of human-induced climate breakdown, it is clear that banks on the whole are not delivering on this ultimate purpose. The finance that a bank makes available determines the kinds of activities that take place in our economies. Despite a wave of net-zero commitments from banks, their financing for carbon emitting activities has grown over the past five years: In 2021 alone, the world’s 60 largest private sector banks provided $742 billion in finance to fossil fuels.
Yet carbon emissions do not sit in isolation from other ways the planetary ecosystem (human and non-human) is in trouble – and bank finance influences them all. Focusing only on net-zero emissions is short-sighted. We and our Fellows see what is commonly named the ‘climate agenda’ as part of a wider shift away from a paradigm where bank finance contributes to a range of intersecting threats to our shared planetary ecosystem, toward a paradigm of financing a just and regenerative economy with ecological and social wellbeing as its core purpose. Moving toward this intersectional approach is the next frontier for banks.
Systems within systems in banking: Finance Innovation Lab, 2022
Total system transformation
The kind of transformation that is needed can feel overwhelming to undertake. Banking can seem like a giant machine – locked in place, impossible to shift. But this is not the case. Bringing about this deep change becomes possible when we recognise that banking is a complex human system, the product of a network of relationships within and between organisations.
From this network of relationships, emerges a set of structures and activities that yield certain results in the world. Focusing on the technical aspects of the change, such as setting targets, risk and impact methodologies, products and policies, is crucial – but insufficient on its own. What is needed alongside instrumental interventions is for banks to transform their sense of purpose and how they organise themselves as complex human systems.
Who can create this change?
Who is in a better position to effect this transformation inside banking, if not those individuals who work within banks themselves? Yes, a range of stakeholders in the banking system at large have important roles to play too, but it is ultimately up to bank employees to enact the changes needed – within themselves and within their organisations.
Intrapreneurs are the flag bearers for transformational change – using storytelling and visioneering to inspire their bank to go beyond incremental adjustments to business as usual, toward deep transformation of its purpose and function. To do this, intrapreneurs need to find clarity for themselves on the big picture of what they are working for, and they most often find this outside their bank.
Inspiring this broader perspective throughout a bank is far from easy. There is a perception within banks that expanding attention onto broader issues will dilute focus, when in reality there is an opportunity to make more substantial progress toward net-zero through an integrated approach as it addresses systemic risks to the bank, strengthening the institution over the long term. But how do we get there? Download Catalysing Bank Climate Action: Lessons from the Inside to find out what we’ve learned about how banking institutions might close the gap between their goals and commitments and where they are today.