Top 10 Emerging Challenges for 2010: Issue 6

Improving non-financial risk measurement in the Financial Sector

The global financial crisis which began in 2008 has had a devastating impact on human rights. The World Bank predicts [26 pages, 522kb] that as a result of the crisis, 89 million more people will be living in extreme poverty by the end of 2010.

The International Labour Office forecasts an unprecedented increase in unemployment globally and points out that even if an economic recovery begins to take hold in the coming months, a global jobs crisis could linger for the next six to eight years.

The free flow of capital was supposed to eliminate inefficiencies and increase prosperity. Undoubtedly, that has happened in many countries and millions of people have been lifted out of poverty as a result. But those who are making rapid financial decisions continue to act without regard to human rights.

Efforts to address issues of financial stability and systemic risk under the auspices of bodies such as the Financial Stability Board and the Bank for International Settlements are important steps. Other initiatives aimed at addressing social responsibility in the financial sector include:

the Principles for Responsible Investment, developed to help investors integrate environmental, social and governance (ESG) issues into investment decision-making and ownership practices;
the Equator Principles, set up by major banks working in the project finance sector to provide a common set of environmental and social policies and guidelines to be applied globally and across all industry sectors for project finance;
the Wolfsberg Principles meant to assist major banks in implementing 'know-your-client' principles to ensure that they do not aid or abet money laundering or other unlawful activities;
The International Finance Corporation has a set of principles, policies, and safeguards for lending to help ensure investments do not undermine labour rights, social and environmental standards and human rights.

But are existing efforts sufficient to prevent future financial crises? It seems certain that the time ahead requires further proactive strategies to help put the global financial sector on a sounder economic and ethical footing.