Jan 2023
From the pivot to the swerve: two decades working in financial services
In the UK between 1990 and 2021 the contribution of financial services to economic output increased from 6.1% to 8.6% of the total economy according to parliamentary records. After Chile and Luxembourg, the UK has one of the next largest percentages of financial services globally, with the majority of institutions based in London. This represents an increasing ‘financialisation’ of the UK economy. Investopedia defines ‘financialisation’ as
“an increase in size and importance of a country’s financial sector relative to its overall economy. Financialisation has occurred as countries have shifted away from industrial capitalism. The term also describes not just the increase of the market and financial sector's presence in our lives but the increasing diversity of transactions and market players as well as their intersection with all parts of the economy and society.”
There are open debates about the relative pros and cons of increasing financialisation. Criticisms include the prioritisation of short-term financial returns and increasing wealth inequality due to inflation in asset prices, such as property.
There are other more indirect impacts. Such as graduates (particularly in science and maths) being attracted to high wages in the financial sector, leaving them unavailable for productive jobs in the real, rather than financial, economy. Some critics argue the dominance of large international financial firms and the multinational corporations they serve is a consequence of financialisation. This can leave smaller domestic businesses with a lack of funding and unable to complete with multinationals.
On the contrary, its proponents argue financialisation has led to increased economic growth and new well paid jobs in the ever-growing financial services sector or people connected to it. However as ‘trickle down economics’ supporter Liz Truss discovered in 2022, this theory is routinely disputed by many economics experts. After the ‘mini budget’ in 2022 she became the shortest serving UK prime minister in history and many of her economic policies were reversed.
But, what does it feel like working inside financial services and can things be learnt about the industry from the inside?
My entire early life, bar one month, was spent growing up in Thatcher’s Britain. My parents both worked in the public sector, for London Underground and the local council. We lived in one of England’s home counties, Hertfordshire, which is in London’s orbit and where lots of people who work in financial services also live.
I secured my first full-time role at Barclays Capital in Canary Wharf, after graduating from my degree in Economics and Politics in the millennium year, 2000. I soon became part of a rapidly growing location filled with shiny glass offices, sparkling clean restaurants and shops. Some older colleagues thought Canary Wharf was sterile. I preferred being close to the dockside water and connected with the industrious nautical feeling from centuries past on the Isle of Dogs. Indeed, Canary Wharf got its name in 1937 as a result of its historical global trading links with the Canary Islands in the Atlantic Ocean.
Financial markets are also international in nature. Throughout my two decades working in the sector, I had colleagues all over the world and travelled to twenty countries on business. I met my long-term partner while seconded in Zurich; he is a different nationality to me. I am grateful for these opportunities which expanded my world, often literally.
It was a buzzy global environment to be part of. During my first eight years in banking, I witnessed many breathless presentations about innovative financial products, new asset classes for investment and yet to be explored financial markets. These included former Enron energy traders joining an investment bank to open a new front office desk, new derivative products nicknamed “death swaps” and lots more. I distinctly remember the enthusiasm related to acronyms like ABS, MBS, CDO, CLO and the squared varieties.
Financial services can feel like an intellectual puzzle to be solved. It has a unique language of its own with lots of technical terms. Sometimes I wonder if this way of communicating in financial markets is on purpose. It can easily exclude some people and create a fear of asking questions in case you are perceived as stupid.
“You are the one! Let's get married by Alan Sugar and live off all-butter croissants in Canary Wharf!” Mark Corrigan (played by actor David Mitchell) in Peep Show talking to a prospective date
A postcard from 2008
By 2007 it was very obvious something was going terribly wrong in financial markets – mostly related to the acronyms I referenced earlier. HSBC had started to write down its subprime mortgage business. Other financial institutions followed and soon the crisis was global, requiring extensive government measures. Many banks were ultimately bailed out by taxpayers.
Around this time on a personal level, I had my first experience of being called unexpectedly into a room with HR and my line manager. A scripted message was read aloud about my job being put ‘at risk’ of redundancy - I was in my late twenties. This style of organisational restructuring, usually as part of a strategic cost efficiency/reduction programme, would happen at least another seven times in my banking career over the following decade.
The majority of myself and my colleagues' roles were “offshored” from the UK to India. Over the years, I trained new finance colleagues in Bangalore, Delhi, Kolkata and Pune. The people I met in India were welcoming and eager to learn about international finance. I am thankful for how much they shared with me, including my first dosa and joining an Indian wedding. Each time roles were moved abroad I found a new internal role, but some colleagues did not.
I had lots of internal questions around this time about the financial sector’s role in the economy, who it was serving and what the future of it could hold. Being humble and acknowledging my own and the financial industry's flaws post-crisis was a lesson in itself. It was a formative time in my life, it shaped my career and beliefs to this day.
Here are a few anecdotal learnings which I still keep in mind today:
- Often a lack of liquidity breaks organisations, not a lack of capital.
- Modelling can easily become too clever for its own good. Look at underlying data, inputs and modelling assumptions carefully; often text (or lack of it) tells us much more than the quantitative output.
- The financial industry is a bit like a game of ‘musical chairs’. Someone will be left standing when the music stops and they lose the game. Finance has many interdependent players who wish to keep the music playing for as long as possible so they are not the ones who lose out. Sadly the losers who are left standing are often the people on Main Street rather than Wall Street.
- The financial industry cannot be expected to fully regulate itself or respond to negative externalities voluntarily. As a rule of thumb, if a financial product looks too good to be true, it probably is. There is significant potential for mis-selling and ultimately litigation claims. Financial markets can be very efficient ways of allocating resources. However, legal policies and formal frameworks are required to govern them.
My career pivot
While working in America on banking reforms after 2009, I met a Dad with two young daughters working as a taxi driver who drove me to a hotel. He asked where I worked and became emotional and upset about the foreclosure, or home repossession by a bank, which his family had experienced. I witnessed large communities of empty dilapidated homes. The experience hit me hard.
I privately worried some of the banking reforms had become far removed from their initial objective to protect Main Street customers and taxpayers. Instead the reforms started to feel like a set of numbers on a spreadsheet to be optimised in a financial institutions favour. In the UK today, some reforms introduced at the time, such as ring fencing retail, have now been rolled back (to some extent).
This led to a growing personal interest in SRI or Socially Responsible Investing - later my interest included the different field of ESG or Environmental, Social and Governance. These topics became a larger parts of my role over time and I volunteered on other sustainability initiatives internally. I completed an online business sustainability course at University of Cambridge Institute of Sustainability Leadership, where I would later complete a part-time Masters. In 2017 I became the financial industry’s first - and as far as I know only - CFO of Sustainable Finance.
Practically this meant tasks such as ESG investor engagement, sharing sustainability-related stakeholder feedback internally and responding to ESG surveys/questionnaires/regulations. Extra-financial reporting, processes and governance were developed from scratch. I dealt with even more acronyms, TCFD, CDP, SASB and SDGs to name a few. Underpinning many of the initiatives is scientific research. For example, related to the importance of keeping the climate within 1.5 degrees by 2100 globally. I learnt something new every day and continue to do so, particularly from academia.
Unsurprisingly the business-as-usual financial services approach to implementing new initiatives was often adopted. The typical frequently asked questions for new internal initiatives popped up; What’s the scope? What’s the budget/cost? Which department/individual is responsible? Where’s the data? Where are the international standards?
These are all good operational questions; but at times fundamentally miss the big picture around sustainability and the importance of a habitable planet. It may save immediate time and effort to push back on sustainable business transformation. However, this approach can hurt both the wider economy and the prospects of future generations.
My career swerve
Soon I asked myself questions about my own role as a sustainable finance professional; Is it to make incremental positive ESG-related changes (or more radical business model change)? To seek win-wins for the bank (i.e. sustainability initiatives which are profitable and are positive for stakeholders)?, To improve sustainability standards so they are more ambitious? To relay information from external stakeholders internally? Or is the role to make the organisation look as “good” as possible? In reality as you would say in Dutch the role meant being a ““een schaap met vijf poten”, a “sheep with five legs”. i.e. relentless multitasking!
After a slow decade-long pivot from traditional to sustainable finance, I swerved. Following consulting for two years with an environmental firm, in 2022 I set up my own sustainability consultancy – Seawolf Sustainability Consulting. I aim to create a positive impact by giving advice to organisations, including translating between finance and sustainability. Looking beyond carbon emissions alone is critical for sustainability. I cover a wide range of areas such as clean energy, ocean conversation and social topics. Moving from a tactical incremental approach to a strategic system-wide approach is also critical for sustainable planetary outcomes.
Time for change?
Not a lot stays still forever. Financial institutions and markets are typically designed by humans for humans. The financial sector is a growing part of our economy and it impacts society, including how resources are allocated and which companies are successful. At times decisions feel concentrated within one sector and mostly led by short-term financial considerations, with limited guardrails to prevent negative externalities.
Increasingly, I am interested where economic and political decisions of this sort come together. In other words, investment decisions taken by financial institutions, business, policy-makers and communities in combination. For example, blended finance policies, donut economics, decentralised finance, degrowth, the well-being economy and new grassroots ways of sustainably living and working. This also helps create a purpose for humans beyond creating data for algorithms and making money.
The pandemic showed how quickly business-as-usual systems can change. We need to work together and sow less division for our collective sustainable future. Returning to the musical chairs game analogy and climate change specifically - I hope humanity isn’t left standing if the music stops.
Rebecca Self is the Founder and Managing Director of Seawolf Sustainability Consulting, more information is available via www.seawolfsustain.com and Rebecca can be contacted directly via seawolfsustain@gmail.com.
Photo credit (Wolf) 869552 © Luckynick | Dreamstime.com