Sustaining the Spirit of Cooperative Capitalism

A year ago this month, in the earliest and most uncertain days of the COVID-19 pandemic, I wrote in the pages of the Wall Street Journal that despite extraordinary volatility, the equities markets would drive capital to the companies that help us innovate and adapt our way through the crisis. I pointed to investor interest in an up-and-coming pharmaceutical company, Moderna, which even then had already shipped vials containing a first batch of coronavirus vaccine to the National Institute of Allergy and Infectious Diseases. The ascent of publicly-listed companies like Zoom and Peloton are other great examples of how capital can create a virtuous cycle, following and fueling innovation. The past year has undoubtedly been a year where many businesses proved their mettle and contribution to wider society, supported by capital markets.

We have also seen immense changes in the capital markets since last March. The rise of the individual investor, new models of public market capital raising to fuel innovation, and the multi-decade levels of volatility in equities, have all given a sense of rapid change in the ecosystem. And, of course, all of these dynamics emerged at a time when we were adapting to running the market remotely. For many, these trends seemed to pop out of nowhere. But markets and the broader financial system were ready for them due to many years of preparation focused on financial and structural resilience, scalability, and innovation. So what was different last year? In short, we were able to bring these trends together with a sense of urgency. This spirit of cooperative capitalism across the world was driven by a simple, unifying objective for society – battling and defeating COVID-19.

As we mark the one-year anniversary of the World Health Organization declaring COVID-19 a global pandemic, we are reflective of the lives we’ve lost, the pain our communities have suffered, and the endless ways that all of our lives have changed. We also ask ourselves – where to next? The answer depends on how well business, markets, and technology can come together and sustain the spirit of cooperation over the longer run. And, if they do, we can direct that energy into three areas to build a more resilient economy. 

• Bringing private capital and public will to bear on infrastructure projects: We have a great opportunity to start rebuilding the foundational infrastructure of the U.S. There is clearly a need for it, a political will for it, and capital can help get some of these much-needed projects off the ground. Improved roads and transportation networks, schools, power grids, and other major systems will improve commerce and quality of life. At the same time, network and information access will be a great leveler in the new economy, whether it is across different socio-economic groups or between small and big businesses. Next-generation connectivity infrastructure will allow us to work and learn from anywhere, provide first responders with better medical information and connectivity, and invest in better real-time monitoring of our food supply and other critical supply chains. We have a giant opportunity to marry the nimbleness and innovative spirit of the private sector with the social mandate of the public sector to make this happen, with public markets serving as one pool of capital that these large-scale projects require. Not only will infrastructure investments pay societal dividends for decades to come, they will also reinvigorate the job market today and enable a much faster recovery of the main street economy. 
• Accelerating innovation to scale a dynamic ESG marketplace: More than ever before, ESG is becoming central to corporate strategy. One of the primary factors is the realization that climate change and other social dynamics are now significant threats in a company’s overall risk management strategy. We’re also seeing skyrocketing inflows into ESG mandated funds – ESG-related AUM surpassed $1 trillion in 2Q last year. Yet companies are navigating through this massive transition with fragmented disclosure regimes and without the right tools, which is materially increasing risks for boards and muddying capital allocation strategies for investors. We can change that with a standardized, market-led and market-wide common disclosure standard. It would help create a clean line of sight for company boards to market expectations, rather than merely a patchwork of jurisdiction-based regulations, which only increase complexity and put certain companies at a disadvantage for no reason other than the location of their headquarters. Innovative data products can help facilitate better information flows alongside these standards. Data is the connective tissue that ensures capital is connecting with the right corporates and outcomes. We can also build on some of the progress we have seen in capital raising. We are starting to see some good momentum in debt financing, with the emergence of the sustainable bond market 2.0, and I can see us using that as a template for other markets – such as scaling some of the innovation we are seeing in the carbon reduction market. 
• Doubling-down on technological resilience: There are several areas where we can improve the resilience of the financial system, including modernizing post-trade technology to shorten settlement cycles, continued investment and vigilance focused on cybersecurity, and creating better incentives and technology to reduce crime. Markets proved unbelievably resilient during the early days of COVID-19 and performed against the backdrop of extreme volatility with all participants and operators working remotely. Yet there is always more to do as markets continuously evolve. We are constantly investing in our technological infrastructure and tools that allow more people to access the market safely and securely. There is more work to do in the wider global financial sector to ensure its resilience as more and more people migrate to transacting online, particularly when it comes to fraud and online crime. Today’s criminals have been following the wave of consumer growth in online banking and commerce as a result of the pandemic. Efforts to combat money laundering have been hamstrung by criminals staying just ahead of companies. The problem is massive: estimates from the United Nations suggest that more than $2 trillion in laundered money is flowing through the financial system annually. Technological solutions such as AI-driven surveillance tools and increasing connectivity between institutions on these issues can help reduce complexity and cost. While pan sector technological solutions already exist, regulations can evolve to make it easier to implement these solutions and reduce the labor intensity of monitoring and pursuing financial crime. In short, cooperation and innovation can help us close the gap on this illicit activity.

Markets are evolving fast and we need to foster and sustain greater participation in markets, bigger and more diverse pools of capital, and direct them toward the companies who can help build a more sustainable economy for all. Yet these changes also require systems that can evolve with the times. This past year, for all its tremendous burdens, gave us a sense of purpose and a common objective that fostered urgent action. Let’s use that framework of cooperation in some critical areas to drive the multiplier effect for decades to come.