The potential of finance to contribute to social justice and Decent Work
“Banks must choose a new path. They need to recognize that the health of their businesses is inextricably linked to the long-term prosperity of their clients and communities and to sustained local and global economic growth. They have to turn their tremendous capability for innovation to financing consumer, social and environmental solutions that benefit society while increasingly representing good investment opportunities for private capital.”
Michael Porter, Harvard Business School
Do Michael Porter’s words sound too good to be true?
Maybe, but they convey a compelling vision of how financial service providers — such as investment funds, banks and insurance companies — ought to use their resources; that is, not only to pursue higher returns for their shareholders, but also to contribute towards a greater good. That is certainly the aspiration of the Sustainable Development Goals, which seek to involve the private sector, including the financial sector, to accomplish a range of development outcomes.

The typical ILO stakeholders are determined by the organization’s tripartite structure of employers’ and workers’ organizations and government. However, these are not the only stakeholders interested in and capable of promoting Decent Work. In fact, to enhance the effectiveness of the organization, it is important for it to marshal additional contributors to help create more and better jobs. Few prospective contributors are as potentially powerful and influential, and have as much leverage, as the financial sector.
Of course, some stakeholders are sceptical about the potential of the financial sector to contribute to a development agenda, or at least their motives, and that scepticism is certainly deserved. Following the financial crisis a decade ago, the global economy remains in a precarious state, and financial institutions are not known for their largesse. But we are not asking for them to be kind-hearted (for the most part); instead, the ILO’s Social Finance Programme engages with the financial sector to explore how it can contribute to the Decent Work Agenda through a triple bottom-line approach that balances profitability with positive social and environmental outcomes.
For example, by incorporating the principle of Decent Work into their services for, and transactions with, small and medium enterprises, financial institutions can make a positive contribution to the world of work, by creating jobs, improving productivity and occupational safety and health, promoting the formalization of businesses, and reducing child labour. Similarly, investment funds can use due diligence assessments of potential investee companies not simply to trigger a go/ no-go decision, but to develop an action plan to improve working conditions. In both examples, the financial service providers can contribute positively to development objectives without jeopardizing financial returns. In fact, we believe that by adopting socially-oriented approaches, financial institutions will get better financial returns in the long run.

To achieve decent work outcomes, financial institutions may need to broaden their relationship with their clients, and offer a range of financial and non-financial services, such as entrepreneurship training or financial education. For investors, this might involve providing technical assistance alongside funding; for insurers, it could involve supplying value-added services that provide benefits to policyholders even if the insured event does not occur, such as weather reports or discounts on medicines.
The potential of the financial sector to contribute to better working conditions and to have a positive influence on the future of work, has grown significantly as a result of rapid digitilization. The emergence of mobile money and e-banking creates opportunities for the financial sector to reach under-served market segments. New payment platforms also link local entrepreneurs with customers around the world, facilitating the expansion of some segments of the gig economy. On the other hand, these exciting opportunities could also pose significant consumer protection challenges, and careful consideration is required to ensure that technology is indeed contributing to development objectives.

The potential of finance to catalyse economic development cannot be overstated, but the financial sector needs to be nudged to contribute more meaningfully to the development agenda. It also needs to be properly regulated to reduce the likelihood that another crisis will occur. To that end, the Social Finance Programme continues to engage with three sets of financial institutions — banks, investors and insurers — and with policy-makers, to expand the financial sector’s contribution to social justice and Decent Work. Our latest Annual Report offers an overview of our key activities, achievements and insights gained over the last year.

