Challenge

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The financial system is unstable, ineffectively regulated, and subject to boom-and-bust cycles with severe negative social impacts. Banks have become "too big to fail" - their size and complexity contribute to the sense that they will always be rescued. This reduces their incentive to avoid the dangerous risk-taking that permeates the financial system.

Yet paying for the activities to prevent breaching of planetary boundaries will cost a lot of money. Delivering this finance is likely to require significant reform of financial regulations as well as public sector involvement. 

Public and political understanding of the finance system is very limited and this creates fear of substantial change.

Lobbying from the financial sector is strongly against significant reform. We can count on active resistance to efforts to transform the sector into a more robust banking system based on a community of interest. Other parts of the financial sector such as pension and insurance funds have been slow to adopt responsible investment. 

The challenge is to identify short-term transformational actions - ones that will start money flowing to key responsible investments now while facilitating larger interventions required for more fundamental change to the system over time.

Research questions

• How can we ensure a stable financial system that invests in socially useful activities?
• What's the role of the public sector in achieving this?
• What barriers are there?
• What interventions are likely to have a long-lasting influence on the financial system?

Use of the research

Friends of the Earth is campaigning with others to increase flows of money towards renewable energy and energy efficiency. So far our campaigns have tended to focus on short-term political opportunities such as electricity market reform and the use of receipts from emissions-trading auctioning. This research will identify campaign opportunities for the coming years.