Capitalism v Environment: Can Greed Ever Be GreenPublished by Tony Juniper on Wed, 26/11/2014 - 12:00am
Is it possible to run an expanding capitalist economy while keeping its impacts within safe ecological boundaries, or is the greed-driven system effectively a suicide machine that is doomed to destroy itself?
The fact that the now dominant capitalist economic system is unsustainable is not in doubt. It has contributed to the breaching of several ecological boundaries, in relation to climate change, biodiversity loss and nutrient enrichment. At the same time as damaging the natural systems that sustain it, capitalism is also leading to increasing inequality, in turn creating social tensions that make it still more exposed.
As the negative consequences of current growth strategies escalate, what to do in response becomes an ever more vital and urgent question. It was one of the themes addressed at the Slow Life Symposium recently concluded on the island of Soneva Fushi in the Maldives. The low-lying nation is one of the most vulnerable on Earth and a place where the effects of past economic choices are already exacting a heavy toll. The dead corals and rising seas reveal how global change can bring big costs for, among other things, tourism and infrastructure.
In diagnosing where the main blockage to more benign practices might lie, symposium participant Jamie Arbib, an investor and founder of the philanthropic foundation Tellus Mater, highlighted what is perhaps the most basic problem of all. “People who own the system are not active, other than to increase shareholder value,” he said. “Companies quoted on stock exchanges are worth about $70tn with about half that owned by pension companies”.
His foundation is funding efforts to put pressure on asset managers, especially in the pension funds, so that they adopt strategies that lead toward more positive impacts. Arbib reflected on how it might be possible to get traction to create change. “Is it through divestment, more active engagement with companies, or should the focus be on particular projects?” he asked.
Peter Wheeler, former managing director in Goldman Sachs’ London office is now an executive vice president at The Nature Conservancy where he advises an impact investment unit run in partnership with JPMorgan. Following more than two decades experience in finance he described why the kind of pressure being supported by Arbib’s foundation is necessary, in shifting managers from being “slaves to only the bottom line”. He added how changing that would depend not only on investor pressure, however, but also official policies.
When it came to what those policies might consist of the Symposium focused on the measurement, reporting and management of “externalities”. These are the off-balance-sheet impacts caused by economic activity, including increasingly well-documented environmental stresses.
Pavan Sukhdev is another leading finance sector professional who has turned his attention to the question of how best to align capitalism with ecological capacities. The former Deutsche Bank managing director and now founding director of Corporation 2020, told the symposium how “negative externalities are basically the public costs that come from the pursuit of private profit”.
He takes the view that the measurement of these thus far hidden costs is vital for their effective management, even if the numbers are, to start with, quite ballpark. “It’s hard to quantify the value of externalities but we know the cost is not nothing. We need metrics to reflect that fact – to show which companies are actually adding value to society and to reveal those that are not.”
Sukhdev pointed out how externalities represent massive risks, including in relation to stranded assets that could be impacted by ecological change or policies to limit damage, with fossil fuel reserves being a case in point.
He added: “Banks don’t measure the externalities even though they have whole teams devoted to risk. Externalities need to be under the risk lens and central banks need to demand that.”
He reminded participants how all recent recessions arose from the mis-allocation of risks. For example, in relation to excessive mortgage lending or sovereign loans. That this new set of risks is not being managed should be a cause for grave concern.
The conclusion was that companies needed to move on from seeing private profit as their sole purpose and for policy-based tools to move them in that direction. This should embrace a range of approaches including the tax system. For example, shifting levies from income to waste and pollution.
Why such obvious steps are not being taken is an important question and was largely considered to be down to resistance from vested interests. This is made worse by how even the progressive investors and companies who see the need for change remain largely silent. Not rocking the boat, they mainly go with the flow, even as they drift toward collective disaster. Remedying this situation through coalitions of investors and corporations implementing divestment strategies while calling for policies that identify and price externalities is clearly a key element of what is needed.
Senior figures who once worked at the heart of the finance world lay out an increasingly clear view of what is needed to fix a failing system. Those still working there must understand that if their lead is not followed soon, then capitalism in its present form will cease to exist. The big questions are really about when and how it will happen. In relation to the first, and on the basis of the best ecological science, the answer is “in the not too distant future”. On the second point, we have a choice. We either create an ecologically sustainable version of capitalism, or we wait for the consequences to precipitate collapse of the old one.
The financial and business organisations so focused on their bottom lines must respond to what the science says. If in pursuit of their individual vested interests the entire system upon which they depend is undermined, then the short-term strategies they’ve adopted will not be just externalities picked up by society, but will pave a road toward the end of their demise too. If they allow that to happen then the only conclusion to be reached is that the captains of finance and industry have indeed constructed a suicide machine.
This article was first published by The Guardian 26th November 2014.