The Social Market Foundation was established in the summer of 1989 and began work with the publication of Paper No 1: The Social Market Economy, by Robert Skidelsky.
In that essay, Skidelsky set out the view that the market economy, where goods and services are owned by people and companies and traded between them, is the best way to deliver wealth and happiness:
“The most hopeful political development of recent years is revival of belief in the market system. It has become worldwide, uniting rich and poor, capitalist and socialist countries in a common language and the beginnings of a common practice. In Russia, China, and Eastern Europe, the monoliths of state socialism have started to crumble; in the West the army of officials is in retreat. New Vistas of freedom and peace have opened up as the world starts to converge on the ideals of political and economic liberty.”
However, Skidelsky was clear that support for the market does not mean the market alone was sufficient: “there remains a substantial role for government. Adding the word “social” to “market economy” is not just a political flourish. Its object is to draw attention to the elements of statesmanship and design necessary to sustain a market order.”
I cite that 1989 essay here not because this collection happens to coincide with the 30th anniversary of its publication, but because I think it is directly relevant to the issues raised in this publication. Changes in the earth’s climate, the warming of the planet, have at least some of their origins in the failures of the market system to properly recognise in good time the environmental costs of economic activity. Those changes also pose a fundamental threat to that market economy, both by physically disrupting human activity, and by undermining confidence in the market system to address such challenges. Unless the market system can prove its ability to allocate the resources that will be needed to decarbonise economic activity and address the climate challenge, it is unlikely to remain, in Skidelsky’s phrase, “politically acceptable”; demands for direct state intervention, control and ownership would follow.
So the essential principle that underlies green finance – private capital allocated by market exchanges and delivering wider benefit – is central to the work of the Social Market Foundation. We have always worked to understand how a sensible partnership between market participants and policymakers can ensure that capital and other resources are allocated so as to deliver social as well as economic returns.
The SMF’s 30-year history is short when compared to that of our partners at the Chartered Banker Institute. Founded in 1875, the Institute has always worked to put ethical professionalism at the heart of the banking sector. Long before modern narratives about the “crisis of capitalism” that Skidelsky feared, long before the global financial crisis that raised public and political questions about the conduct of some parts of the financial services industry, the Institute was making an argument that is still utterly vital today: that bankers and others in financial services, working professionally and to shared standards, promote the public good. The Institute’s approach to green finance is just the latest example of how it puts that principle into practice. At the 2018 Green Finance Summit, the Institute launched the Green Finance Certificate, the world’s first benchmark qualification for practitioners.
A market economy that maintains its legitimacy by delivering fair outcomes and meeting social needs. A banking sector that upholds high standards and serves the public good. The SMF and the Chartered Banker Institute are natural partners, and green finance is just one area where our interests align. When Robert Skidelsky wrote that essay 30 years ago, the world stood on the brink of a new era with new challenges: the end of the Cold War brought new opportunities but also posed new threats to the market system and the people it served. The same is true today: the market economy must once again prove its worth in the face of the global climate emergency, and the financial services industry will be in the vanguard of the battle to come. We hope that the ideas and analysis assembled here will help in that task of meeting that challenge.