Twenty years ago, the idea that you might go into finance to make the world a better place would have felt like the start of a comedy routine. As a mainstream proposition, the notion of financiers saving the world would have seemed absurd given that they were widely viewed as part of the problem.
Plus ça change. Over the past decade, investing as a force for good has gained some very serious backers. Finance is seen as something that can make a positive impact in areas ranging from tackling the climate crisis to improving diversity and equality. The global transition to clean energy and a low carbon economy requires a massive reallocation of resources, while the widespread embrace of so-called ESG (environment, social, and governance) factors has proved to be a genuine paradigm shift – giving investors and businesses new tools and mechanisms for reallocating capital to tackle pressing problems, while still seeking to generate profits.
In 2017, BlackRock, the largest asset manager in the world, came out as an enthusiastic advocate of ESG and, in 2020, Mark Carney, the former governor of the Bank of England, wrote in The Economist that financial markets must change: “The traditional drivers of value have been shaken, new ones will gain prominence, and there’s a possibility that the gulf between what markets value and what people value will close.”
But what does all this mean in practice for those considering whether or not a qualification and career in finance will help them make a positive impact on the world?
Firstly, it’s now about more than just making money for shareholders. “For many investors, investing is no longer just about maximising shareholder value. There is a clear recognition that other stakeholders are equally important,” says Chris Wiese, managing director for education at CFA Institute, the global association of investment professionals that provides the CFA charter – widely recognised as the gold standard for finance professionals. For instance, these other stakeholders could include the local communities affected by a business’s supply chain, a company’s employees and contractors, and also future generations who will be affected by pollution and the climate crisis.
Rhodri Preece, senior head, research at CFA Institute, adds that another key aspect of this shift in the role of finance is the way that investors and businesses have become part of a wider concerted global effort. “If you look at initiatives such as the net zero transition, I think there will be greater focus towards collective action to solve these issues. These are systemic issues and firms are realising that acting alone in terms of managing risks and returns is not going to solve the broader climate and sustainability challenges.”
Wiese notes that the evolving role of finance and the complex nature of the urgent problems faced by humanity has made expertise all the more important – hence the growing demand for people who properly understand ESG investing and have the necessary skills to work in this area. Climate finance and carbon accounting, for instance, are relatively new fields and the world is still working out best practice when it comes to methodologies, disclosure standards and regulatory frameworks. “It’s a dynamic and complicated area that is changing rapidly,” says Wiese.
As these new roles for finance have grown, people have become more aware of the many complex ethical trade-offs it can entail. For instance, companies that are celebrated for their positive impact on the environment might have issues in other areas – such as employee welfare. There is also the danger of misstating or misrepresenting sustainability claims, and the reputational damage and regulatory penalties that can result from greenwashing. Wiese points out that well-trained professionals are more likely to spot these potential problems that arise from trade-offs and grey areas. Moreover, he adds that “it’s not an area where everyone agrees – and navigating this environment requires people who understand it”.
Working in finance to improve the world is not just about straightforward investment roles either. “Another key issue is the continued focus on better data and reporting frameworks,” says Preece. This is particularly pertinent given that best practice in these fields is still a work in progress. “If you look back at how corporate governance has evolved, once the frameworks were established, we saw successive improvements in the quality of reporting. That has led to a maturity in how governance is incorporated into the investment process.”
There are also opportunities for those who work in tech. AI and machine learning are particularly good at taking huge quantities of what is sometimes referred to as “unstructured data” and making sense of it. These approaches can be invaluable when it comes to monitoring the full impact of complex supply chains on the environment and societies. “The machine learning techniques that we see being used in the investment industry are likely to play a big role in ESG reporting,” says Preece.
However, he adds: “as with all AI applications, there are a number of ethical considerations that need to be taken into account. Even in the case of ESG reporting, sufficient human oversight, governance, and accountability must be in place to ensure accurate and appropriate outcomes and to manage risk.”
Ultimately, there is a sort of virtuous circle at work here. Financial companies that do good in the world are likely to have the pick of job candidates. Today’s graduates increasingly want to work in companies whose values align with their own. Unsurprisingly these values tend to centre around areas such as the climate crisis and social justice. If people who want to change the world are joining investment firms, they will change the firms too.
The CFA Program provides expertise and real-world skills in ESG investment analysis, preparing candidates for successful careers as investment professionals. If you’re interested in a career in finance visit cfainstitute.org/en/programs