Call to action

This report calls for urgent action to embed social issues into financial decision-making. It emphasises the importance of addressing socio-economic inequality as a systemic risk to financial stability. Governments, regulators, and financial institutions must adopt strategies that incorporate social risks into their frameworks, ensuring long-term market resilience and the interconnectedness of social and environmental goals.

Support research on the systemic risk of socio-economic inequality for financial stability

The following paragraphs highlight the importance of integration, starting with the need for research to understand how socio-economic inequality impacts financial stability. Inequality contributes to systemic risks globally, with over $8 trillion in debt identified as high-risk due to social factors, compared to $2 trillion for environmental risks. The report stresses how inequality can lead to debt traps, stifle economic growth, and exacerbate secular stagnation, which further threatens financial stability. Developing research capabilities will help address these systemic risks and support more resilient markets​.

Adopt and improve social disclosure standards and risk management tools

The report highlights the need for improved data and transparency around social risks. It stresses that social risks like labour exploitation and income inequality are often treated as externalities, but they are financially material and directly impact businesses. Investors are urged to integrate both climate and social analysis into their stewardship and capital allocation decisions, aligning investment strategies with long-term sustainability goals. This section also advocates for evolving audit and assurance practices to assess social-related financial risks, ensuring accountability across the corporate and financial sectors.

Rethink macroeconomic determinants of sustainable finance scenarios

The report calls for reforms to macroeconomic policies to address the dual threats of social and environmental risks. It highlights the need for central banks and regulators to recognise how inequality stifles growth and leads to social unrest, protectionism, and economic fragility. These risks not only affect vulnerable economies but also developed markets, creating broader financial instability. Mobilising finance for projects with positive social impacts, especially through multilateral development banks, is a key recommendation for achieving both economic and social sustainability. Addressing inequality is seen as critical to avoiding economic stagnation and achieving a Just Transition towards a low-carbon economy.