Seize the sus­tain­able fu­ture

Financial Mirror (Cyprus) - - FRONT PAGE -

For the first time in years, a healthy dose of op­ti­mism seems to be in or­der. The global econ­omy – a few trou­ble spots aside – is fi­nally mov­ing be­yond the fi­nan­cial cri­sis. Tech­no­log­i­cal break­throughs have put re­new­able en­ergy on a com­pet­i­tive foot­ing with fos­sil fu­els. And the in­ter­na­tional com­mu­nity seems poised to forge crit­i­cal agree­ments on sus­tain­able devel­op­ment and the fight against cli­mate change.

And yet the risk re­mains that th­ese gains will be frit­tered away, as pol­i­cy­mak­ers, busi­ness lead­ers, and in­vestors fo­cus on short-term con­cerns at the ex­pense of loom­ing threats to the global econ­omy. If we are to lock in our progress, we will need to ad­dress the fail­ures of our fi­nan­cial sys­tem at their roots, putting in place stan­dards, reg­u­la­tions, and prac­tices that make it com­pat­i­ble with the long-term needs of a more in­clu­sive, sus­tain­able econ­omy.

This year, the world has the po­ten­tial to do just that. The tran­si­tion to a green econ­omy now seems to be a cer­tainty, rather than a hope­ful as­pi­ra­tion, as grow­ing public ac­cep­tance and tech­no­log­i­cal ad­vances make in­vest­ments in clean en­ergy in­creas­ingly prac­ti­cal. In 2014, global in­vest­ment in re­new­able en­ergy in­creased by 17%, even as oil prices plum­meted, ac­cord­ing to a re­cent re­port by the United Na­tions En­vi­ron­ment Pro­gramme (UNEP). The trend was driven by a boom in so­lar en­ergy in China and Ja­pan and in­creas­ing Euro­pean in­vest­ment in off-shore wind power.

Stock ex­changes from Shang­hai to Sao Paulo have es­tab­lished re­port­ing re­quire­ments to in­form in­vestors about how com­pa­nies are weav­ing sus­tain­abil­ity into their strate­gies. Green bonds have taken off, with up­wards of $40 bln is­sued in 2014, and they are likely to be­come only more popular as clearer stan­dards and reg­u­la­tions are es­tab­lished. Even cen­tral banks have turned their at­ten­tion to the en­vi­ron­ment. The Peo­ple’s Bank of China has joined with UNEP to iden­tify prac­ti­cal steps to en­sure “green” fi­nan­cial­mar­ket re­form, and the Bank of Eng­land (BoE) has ini­ti­ated a pru­den­tial re­view of the sys­temic risks posed by cli­mate change to the United King­dom’s in­sur­ance sec­tor.

Septem­ber will mark the launch of the UN’s Sus­tain­able Devel­op­ment Goals, the world’s first uni­ver­sally adopted, mea­sur­able tar­gets for end­ing poverty and hunger while pro­tect­ing the en­vi­ron­ment and the planet’s nat­u­ral­re­source base. And, later this year, the in­ter­na­tional com­mu­nity is ex­pected to agree on bind­ing com­mit­ments to cut emis­sions and fi­nance the fight against cli­mate change.

But, although the signs are all point­ing in the right di­rec­tion, suc­cess is far from guar­an­teed. The gains could slip away if the mo­ment is not seized. The real ques­tion is one of tim­ing, and the ir­re­versible dam­age that de­lays could in­flict. More than 80% of the 140 coun­tries sur­veyed in UNEP’s “In­clu­sive Wealth” re­port reg­is­tered a de­te­ri­o­ra­tion in their stock of nat­u­ral cap­i­tal. The eco­nomic dam­age re­sult­ing from en­vi­ron­men­tal degra­da­tion is es­ti­mated to be roughly $7 trln a year, much of it ir­re­versible. The longer we wait, the worse our prob­lems will be­come.

What is needed is a ma­jor in­ter­na­tional ef­fort to re­align fi­nan­cial and cap­i­tal mar­kets in ways that sup­port sus­tain­able devel­op­ment. Our fi­nan­cial sys­tem’s cur­rent de­sign all but guar­an­tees what BoE Gover­nor Mark Car­ney has called the “tragedy of hori­zons” – a mar­ket fail­ure re­sult­ing from the in­abil­ity of in­vestors, com­pa­nies, and gov­ern­ments to act on prob­lems, such as cli­mate change, with con­se­quences that will be felt only far in the fu­ture.

Pol­i­cy­mak­ers and busi­ness lead­ers cite many rea­sons for fo­cus­ing on im­me­di­ate con­cerns. In­deed, the very pol­icy ac­tions needed to re­duce the risks of an­other fi­nan­cial cri­sis force banks and as­set man­agers to lend and in­vest for the short term, pass­ing up of­ten more prof­itable, but less liq­uid, longer-term op­por­tu­ni­ties.

Short-term pres­sures will al­ways be present, but they can be over­come with the proper tools: im­proved pric­ing of en­vi­ron­men­tal risks, cli­mate-sen­si­tive credit rat­ings, en­vi­ron­men­tal lender li­a­bil­ity, and ef­forts to mit­i­gate the en­vi­ron­men­tal risks to fi­nan­cial sta­bil­ity. A sus­tain­able fu­ture is within reach, but only if we put in place the poli­cies that make it pos­si­ble.

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.