For investors with an environmental, social and governance (ESG) focus, these SDGs can serve as a roadmap to identifying financial companies whose products and services support sustainable development. Then, by researching their businesses and corporate behavior, we can identify SDG–aligned companies with competitive advantages that underpin attractive return potential. We believe equity investors can access attractive companies that support the SDGs in the following parts of the financial sector.
Financial Exchanges: Leveling the Playing Field
Beneath the surface of every economy and society, financial markets ensure that capital flows freely to and from businesses and people. Academic research has long established the importance of well-developed stock markets in fostering economic growth via improved resource allocation, competition and innovation. Exchanges also help manage risks by reducing volatility of asset price movements that could undermine monetary stability or employment.
When markets are destabilized, everyone pays the price. Banks scale back lending, first to individuals with lower credit health and to small and medium-sized enterprises. Asset prices collapse and payments are delayed. Stock market instability shatters confidence in the financial and economic system, with devastating consequences for people’s savings and pensions. Those with less of a financial cushion to fall back on often suffer most in a financial crisis.
Transparency and liquidity are the foundation of stable markets, creating a level playing field for all market participants, including people who are traditionally underserved or excluded from the financial system. To promote transparency and liquidity, exchanges collect a vast array of data from companies and market participants. In some cases, this information is provided to regulators to help them oversee markets. As an enforcer of rules and regulations, exchanges aim to ensure that market participants behave fairly and ethically, protecting all investors.
Critics might argue that exchanges only serve wealthy investors. We disagree. From individuals seeking a loan to buy a house or car, to a business seeking to access capital for growth, a functioning financial market and economic stability benefit everyone.
Financial Data Providers: Information Supports Inclusion
If transparency and liquidity are the heart of a healthy, functioning financial market for all of society, data are its lifeblood. Better financial data is an essential ingredient to promote financial inclusion.
About 1.4 billion people worldwide still lack access to basic financial services and almost 850 million don’t have official proof of identity according to Experian, the Ireland-based consumer credit reporting company. In Brazil, 63 million people have unmanageable debts that affect their credit ratings. And About 28 million people in the US and 4–5 million in the UK are “credit invisible” because their financial profiles are too limited for lenders to assess them, according to Experian. Without access to affordable finance, people can’t buy homes, secure healthcare, pursue an education or start a business.
Credit bureaus provide information on a borrower’s creditworthiness that enables banks to lend and set appropriate interest rates. Lower-income customers and small businesses often struggle to gain a credit profile because they lack a credit history and are invisible to the system. Yet today, credit bureaus have new ways to help people strengthen their credit profiles using utility bill payments and mobile phone data. Credit bureaus have started to allow individuals to opt in to sharing information about the payments they’re making on time to help build or boost their credit score. This enables individuals to connect to the financial system, access cheaper sources of financing and tap additional services.
Payment Technology: Expanding Access to Financial Services
Using data to improve credit profiles is a step in the right direction toward expanding financial inclusion, but too many people are still left out of the traditional financial system entirely.
Worldwide bank account ownership has improved over the last decade from 51% of adults over the age of 15 in 2011 to 76% in 2021, according to the World Bank. But in lower-income regions and countries, many people still lack access to the system (Display).