Financial Statesmanship for a New Economy

Financial Statesmanship for a New Economy
by John Fullerton

Reactions to departing Goldman derivatives salesman Greg Smith’s “Why I Am Leaving Goldman Sachs,” which appeared as an op-ed in the NY Times last week, have ranged from the hyperbolic — Robert Reich’s “If you took the greed out of Wall Street, all you’d have left is the pavement” — to the addicted — Mayor Michael Bloomberg’s “we need their taxes” (my paraphrase).

Both views are problematic, as I will address. But first, some historical context:

Wall Street has always been rife with conflicts of interest. Avoiding all conflicts of interest would destroy the lucrative integrated banking business model, so Wall Street has long proclaimed “we don’t avoid conflicts, we manage them.” Clearly, that no longer works.

Read more in The Future of Finance blog.

A New Standard: the Sustainability Accounting Standards Board

One of the Capital Institute’s eight over-arching goals is a transition to new metrics of social and environmental wellbeing. Much great work has already been done on the private sector component of this issue by groups like the Global Reporting Initiative, the Initiative for Responsible Investment, the International Integrated Reporting Committee, the United Nations Principles for Responsible Investment, Global Initiative for Sustainable Ratings, and many others. These efforts all contribute to the public recognition that our current economic indicators are an insufficient compass for navigating the problems of critical resource scarcity and growing social disparities. But none of these projects has been able to build a coalition and model large enough to solve the problem in total.

Into this vacuum, the Sustainability Accounting Standards Board (SASB) will be born. SASB’s stated mission, upon launch in the coming months, is the creation and dissemination of sustainability accounting standards for use by publicly-listed US corporations in disclosing material sustainability issues for the benefit of investors and the public. By partnering with the leading thinkers and institutions in social and environmental accounting and integrated reporting, and building relationships with the Securities and Exchange Commission and the Financial Accounting Standards Board (FASB), SASB is building the coalition to make a single sustainability accounting process the default for all companies and investors in the United States. This should make integrated sustainability accounting more meaningful and more widely accepted in the mainstream.

In alignment with our vision, we have joined SASB’s Advisory Board.

Keep an eye on SASB’s website for updates on their progress.

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Values Banking Pays Off According to Recent Study

A report commissioned by the Global Alliance for Banking on Values and funded by the Rockefeller Foundation, published in March, shows that over the 2007-2010 period, the 17 values-based banks outperformed 29 leading mainstream banks by a number of key measures, including loan and deposit growth, capital strength, and return on assets. The values-based banks, which include Triodos, VanCity, New Resource Bank, and OnePacificCoast Bank, were compared with traditional banks, including Bank of America, JP Morgan, Barclays, Citicorp, and Deutsche Bank.

While the strategy of the GABV members has always been to extend loans to the real economy with a goal of earning sustainable long-term returns for shareholders, the network is now seeking to step up its game to meet the challenge of better serving the needs of communities traditionally unserved or underserved by the big banks.

Read how values banking has outperformed mainstream banking in This Week at Capital Institute.
What We’re Reading

Swarthmore psychologist Barry Schwartz explains that some economic inefficiency, what he calls “friction,” makes society work better.

Economics Made Easy: Think Friction

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Quote of the Week

“A people that values its privileges above its principles soon loses both.”

-Dwight Eisenhower