A sustainable future

As governments are crippled by a sense of urgency and civil society is forced into action, companies are giving priority to their Corporate Social Responsibility (CSR). They are also expanding its original definition to make it a driving force in the economy.

After years of mistrust from the general public, the finance sector is playing a central role in ecological, social and societal transformation, and involving investors and savers in its commitments.

Animals are wonderful because they are still in touch with nature. I believe this is what could have saved mankind. Michel Simon

A look ahead to major trends for the years to come and their impact on the financial and economic sector. Prepared by Lonsdale’s strategic planning division, with the participation of Laura Giallombardo, who coordinates Banque de Luxembourg’s CSR initiatives.

While crises have been with us since the dawn of time, they are becoming more severe as “humankind becomes more complex, independent and social”.¹ The effects of climate change, megafires and the global pandemic highlight the interconnectedness of our societies and heighten public awareness.

At the individual level, the ‘lockdown’ shaped a new value system based on reflection and on acting responsibility. On a global level, a ‘green wave’ is surging through the ballot boxes in some countries, and institutions are announcing ambitious financial programmes to address the climate emergency. The European Union has set out a €750 billion recovery effort which will help national economies adapt to environmental challenges.² Meanwhile, major corporations are calling for international cooperation. Corporate Social Responsibility, a term so widely misused that it lost much of its meaning, is becoming a pillar of development and a differentiator for consumers. The recent growth in its importance is leading businesses to talk about ‘sustainable redirection’ – redirecting resources to ecological, social and societal activities that challenge current economic models.

Aware that grand claims are no longer enough, companies and banks are instead focusing on concrete activities that help bridge the gap between “big decisions and hard facts”.³ What are the financial forces at work today? How can the global economy become responsible and sustainable? Will hyper-capitalism be able to survive and adapt?

Falling empires

The global pandemic shines a spotlight on how the world will look ‘when this is all over’. The phrase is so widely used that it is fuelling the plans of numerous industry sectors. In the Anthropocene Epoch, converging crises are exposing the fragility of our contemporary lifestyles.⁴ In the words of Laura Giallombardo, who coordinates Banque de Luxembourg’s CSR initiatives, “It seems clear that the traditional capitalist model has exceeded its limits, and we can no longer ignore its impact on the entire value chain.”

Climate crises and economic crises are occurring alongside moral and identity crises. In the analysis of French geographer Jared Diamond, the combination of five defining factors (environmental damage, climate change, discord between societies, trade partnerships and inadequate government response) are precipitating societal collapse.⁵ With the OECD’s best-case scenario predicting that the world economy will contract by 6% in 2020, concerned nations are advocating a reversal of globalisation and a renewed focus on their own domestic interests. Against this background of falling empires, countries become increasingly inward-looking, relying on local trade and industry for their growth. It’s a vision backed by author and analyst Anatol Lieven, who predicts the return of a strain of protectionism to generate local innovation.⁶

Funding local entrepreneurship would thus become the backbone of the real economy. But in a globalised world, the illusion of the border is called into question. French geographer Anne-Laure Amilhat Szary muses, “What does a closed border mean if information and wealth flow freely across it?”⁷ Laura Giallombardo agrees: “With globalisation, it’s naive and impossible to only think locally when it comes to consumption, impact and responsibility. Rather, in our ultra-connected world, everyone has to consider the global impact of their actions.”

Better days

The apathy shown by the world’s major powers and the crushing of international debate have stirred civil society to increasingly frequent action, from protests to climate marches. Citizens are discovering that they have the power to influence organisations. As public opinion builds the dream of better days, governments and businesses are focusing on responsible projects with universal benefits, joining forces for a sustainable world. Companies are forced into action and are extending their reach beyond the purely economic. A brand’s purpose, which reflects the company’s social function in society, is becoming a key asset.

For 83% of today’s consumers, a brand is only viable if it tries to make a positive contribution to society. As trust in governments crumbles, consumers are looking to businesses, and they expect to see action. During the Black Lives Matter protests in 2020, brands came under global pressure to make a stand. And the message is being heard: the B Corp Certification,⁹ awarded to private companies that incorporate sustainable goals in their economic model, is gaining ground and attracting a growing number of businesses.

In our ultra-connected world, everyone has to consider the global impact of their actions. Laura Giallombardo

Resilient economies

Meanwhile, in many schools of thought it is no longer enough for a company merely to take a stand; they must also take immediate action to limit collateral damage from their own production processes. Many scientists agree that significantly reduced production and economic restraint are essential conditions for ecological transition. French physicist Aurélien Barrau asks whether companies’ strategies of constant innovation are justified: “We are in a period where saving energy should be our only preoccupation. We need to balance the risks and benefits of every innovation.”¹⁰ ‘Build Back Better’ strategies¹¹ work towards a transition to models that are compatible with a global approach. Re-emerging as a result of the pandemic, they advocate resilient economies with policies that curb unrestricted growth.

The ‘impact’ culture

Formerly the scapegoat for crises, the finance sector is siding with public opinion and supporting companies whose business models are socially responsible. CSR is thus becoming an essential criterion for companies seeking to develop economically and secure assistance from banks. Laura Giallombardo explains: “Integrating sustainability comes naturally to us, as we have always taken a long-term approach. Sustainability is the Bank’s way of helping society to develop in a way that will not place future generations at a disadvantage.” Sustainable banking is becoming a cog in the wheel of transition, helping to lead society in a new direction by applying two strategic tools: education and transparency.

For Laura Giallombardo, “The Bank also has a role in providing financial education and helping companies become more aware of the extra-financial risks of their activities. So bankers have a duty to make companies aware of the significance of their activities, in a meaningful dialogue, to help them make informed decisions and progress in a consistent direction.” The smallest activity, from choosing a supplier to people management, will create an impact. Therefore, organisations need to develop an ‘impact’ culture and establish protocols to ensure resilience and self-regulation if there is too great a risk to the common good. Laura Giallombardo sums it up: “The more conscious we are of impacts right along the chain, the more we can reduce risks and increase the company’s sustainability.”

Sustainability is the Bank’s way of helping society to develop in a way that will not place future generations at a disadvantage. Laura Giallombardo

Based on the salient points presented above, which challenge businesses’ overriding purpose and banks’ responsibilities, we can derive two possible scenarios for a sustainable future. As in any exercise involving a fictitious scenario, these two proposals combine verified facts and subjective opinions and pit outlook against prediction.

Scenario 1: Brand-led democracy

The writing has been on the wall. Following economic and identity crises in most of the world’s nations, businesses have broken away from governments to pursue their own policies. In this scenario, neutral companies will be doomed to fail. In the United States, corporations will take control of the social and civic issues that divide the country. In Hong Kong, digital giants will lead the resistance by creating zones of freedom within its borders. European standards will be dictated by major retailers. Eventually, ethical and responsible principles, such as gender equality, will become prerequisites for earning the trust of investors. Brands will focus on tackling issues that are relevant to them and which they can control, and will do so within realistic timeframes. All companies will follow the example of Ben & Jerry’s¹² in recruiting ‘activism managers’ who can mobilise the masses and lead the way. It’s no longer surprising to see demonstrations led by coalitions of competing brands.

As in the imagination of French sci-fi writer Alain Damasio many years ago,¹³ countries will come under the control of dominant brands, which will even give their names to entire cities. Having completed its plan to create ‘smart’ neighbourhoods, Toronto will eventually change its name to Google City. For their part, banks will be the guarantors of corporate sustainability and will develop sophisticated regulatory tools to measure risk and pre-empt future crises.

Scenario 2: Back to nature

In 2050, the air will be cleaner than it was before the industrial revolution. In line with principles set out in previous climate agreements,¹⁴ organisations will work side by side to eliminate carbon emissions and turn the dream of ecological transition into reality. Cities will reconnect with nature, urban life will be governed by sustainable strategies and businesses will work for the common good. In an age when democracies have been weakened by crises, principles of joint ownership and sharing will have emerged as new, alternative aspirations.¹⁵ Taking their lead from a number of innovative districts, many towns will have switched to smart grid systems, managing power costs and resources on a local level. Vehicle ownership will be a thing of the past and car manufacturers will curtail their production. Companies will operate through cooperative models and will produce in bulk, locally, through 3D printing. Naturally, banks will assist these companies in choosing the right suppliers so that benefits will be ensured throughout the value chain.

In this world of community-based sharing, banks will promote domestic economies with local currencies that can be traded on the stock markets. This local money will allow citizens to support companies they deem to be sustainable and will be transferred directly to producers. Banks will have succeeded in harmonising national principles with consumer behaviour.

Both scenarios contain elements that could be considered utopian, but which are already taken seriously by a large section of the public. They are similar in positioning finance not as an enemy but as a beacon of change. Numerous green finance initiatives and the positive perspectives they create show that the market economy is not a dead end. Rather than creating inevitable recessions that must be absorbed, the global pandemic could lead to positive side-effects. A third scenario could imagine societies slowing down their activity to make space for nature, introspection and measured decisions. Safe, regular, voluntary lockdowns would allow nature and humankind to rest once in a while, giving us a well-earned break from economic activity.

Don't forget!

As public awareness grows, clients are taking a greater interest in the environmental, social and societal implications of their investments. These have also become factors in their choice of bank, with preference being given to ethical governance and business practices.

Within the context of the trust-based relationships they build with their clients, banks can play an educational role in businesses financing, helping companies to develop their ‘impact’ culture and minimise risks.

A company’s sustainability is measured not only by its economic stability, but also by its resilience and its contribution to society and the environment. CSR is becoming an essential element in strategies to win over clients and investors.

A dedicated website

www.banquedeluxembourg100ans.com/en/ has been specially created to mark the Bank’s centenary. The website uncovers 100 years of economic and social history, going back in time and analysing the implications for the future.

¹ Alain Grandjean, Sciences, Consciences et Environnements, PUF, 2016.

² Pourquoi le Plan de Relance Européen est une Petite Révolution, Le Monde, 2020.

³ Stéphane Foucart, Un Schisme de Réalité, interview with Amy Dahan, Le Monde, 9 June 2015.

⁴ The Anthropocene Epoch, or the Age of Man, is a new geological era defined by the irreversible impact of human activity on the environment.

⁵ Jared Diamond, Effrondrement, Folio Essais, 2004.

⁶ Anatol Lieven, Climate Change and the Nation State: The Realist Case, Penguin, 2020.

⁷ “Nous Sommes Loin d’un Repli à l’Intérieur des Frontières Nationales”, interview with Anne-Laure Amilhat Szary, Usbek & Rica, 9 May 2020.

⁸ The 2020 Zeno Strength of Purpose Study, an international study by Zeno Groups, 2020.

⁹ B Corp differs from other CSR labels in that it first verifies the company’s purpose and then requires ongoing proof of its application, with evidence and tangible commitments.

¹⁰ Aurélien Barrau on the environmental impact of 5, Clique (TV programme), Canal +, 11 July 2020.

¹¹ Concept introduced in 2015 by the United Nations as an approach to disaster recovery.

¹² In 2020, Ben & Jerry’s took a radical stance in support of Black Lives Matter, leading the way with concrete steps spearheaded by an ‘activist manager’.

¹³ Alain Damasio, Les Furtifs, La Volte, 2019.

¹⁴ Christiana Figueres and Tom Rivett Carnac, The Future We Choose, Knopf, 2020.

¹⁵ Patrick Pharo, Eloge des Communs, PUF, 2020.