Date: 2024-07-17 Page is: DBtxt003.php txt00009304
SUSTAINABILITY
TALK ... TALK ... TALK
SUSTAINABILITY & ENVIRONMENT ECONOMICS
Earth Calling the Financial Sector
Jeffrey D. Sachs and Hendrik J. du Toit
TALK ... TALK ... TALK
SUSTAINABILITY & ENVIRONMENT ECONOMICS
Earth Calling the Financial Sector
Jeffrey D. Sachs and Hendrik J. du Toit
http://www.project-syndicate.org/commentary/sustainability-finance-leaders-by-jeffrey-d-sachs-and-hendrik-j--du-toit-2015-02
Peter Burgess COMMENTARY
I am adding this commentary some 8 years after this article was written. Over many years, a lot has been written about sustainability but very little in the bigger scheme of things has been actually done about it.
To my mind, this is a 'management' problem. The people who have been seen as the 'top' people in 'sustainability' and 'development' may have been 'experts' in their field, but it is quite apparent based on performance and impact, they are not very good at 'management' which I define as 'moving the needle' in the way it needs to go!
I started working as an 'independent consultant' in 1878 when I was 38 years old. By then I had formal academic training in engineering and economics at Cambridge, a professional training as a Chartered Accountant with Cooper Brothers & CO in London ... now morphed into a bigger organization known as PriceWaterhouseCoopers (PwC) ... and more than a decade in quite responsible positions in the corporate world. My first appointment as a CFO was when I was in my late 20s and the expectation was that I would help the company improve its profit performance and do it quickly.
I was actually very good at this, because to 'move the numbers' you had to actually do something tangible and engineering analysis helps with this. You also need to understand how markets behave (not financial markets but markets for products) so that there is the right balance between the demands of the market and the capacity to produce.
In late 1978 I got an opportunity to do some work (financial analysis) for the World Bank on a big project in India and have been interested in, and concerned about, international development and humniatarian assistance ever since.
45 years later I remain interested and concerned because in broad terms the issues are bigger and badder today than they were when first got involved with little or no sign that the people with power and money and influence know aht needs to be done! It is fairly clear that most of such people are working with personal goals that are inconsistent with what is needed ... and this is difficult to change.
I agree with some ... not all ... of what Jeffrey Sachs writes. Rather little of his good analysis gets implemented and the reasons for this are not addrssed by the 'development system' as it currently exists and operates. There are a lot of 'good people' but they are situated in (... I origionally wrote 'work in' but don't think those words really fit!) a system that is huge and really no longer 'fit-for-pupose'.
I played high level rugby football whan I was a schoolboy and I am reminded of big games when the result ended up being 40-0 in our favour and other games when we played equally hard and the result was 0-0 or losing. Strategy matters ... and when it comes to international devewlopment and humanitarian relief we are not engaged in a winning game!
We need a management strategy that works and gets the results that are needed.
Peter Burgess
Written by Jeffrey D. Sachs and Hendrik J. du Toit
FEB 16, 2015
NEW YORK – Financial markets serve two crucial purposes: to channel savings toward productive investments, and to enable individuals and businesses to manage risks through diversification and insurance. As a result, the sector is essential to sustainable development, which represents unprecedented global-scale investment opportunities and risk-management challenges.
That is why, when world leaders meet this July in Addis Ababa, Ethiopia, at the Conference on Financing for Development, the financial industry should be ready to offer practical, global solutions to the challenges associated with financing economic growth, poverty reduction, and environmental sustainability.
We have now entered the Year of Sustainable Development. At three back-to-back global summits – the conference in Addis Ababa, September's meeting at the United Nations to adopt Sustainable Development Goals (SDGs), and the UN Climate Change Conference in Paris in December – 193 governments will attempt to ensure that global growth and poverty reduction continue within a safe natural environment.
It will be a close call. The global economy, despite all of the huge bumps in the road, is delivering aggregate annual growth of 3-4%, leading to a doubling of output every generation. Yet the global economy is not delivering sustainable growth in two basic senses. In many parts of the world, growth has been deeply skewed in favor of the rich; and it has been environmentally destructive – indeed, life-threatening when viewed on a century-long time scale, rather than according to quarterly reports or two-year election cycles.
Climate change is the greatest of these environmental threats (though by far not the only one). Given the current trajectory of global fossil-fuel use, the planet's temperature is likely to rise by 4-6 degrees Celsius above its pre-industrial level, an increase that would be catastrophic for food production, human health, and biodiversity; indeed, in many parts of the world, it would threaten communities' survival. Governments have already agreed to keep warming below 2º Celsius but have yet to take decisive action toward creating a low-carbon energy system.
The financial industry has a central role to play in catalyzing the global transition to inclusive, sustainable growth. After all, effective financial markets should convey accurate long-term information to savers and investors, thereby enabling businesses, pension funds, insurance pools, sovereign wealth funds, and others to allocate their resources to projects that provide solid long-term payoffs, and protect their savings from financial calamities. Given climate change, that means accounting for whether, say, entire low-lying coastal areas or agricultural regions will be able to cope.
Effective financial markets should also channel far more global saving from high-income countries with relatively weak long-term growth prospects to low-income regions with relatively strong growth prospects, owing to new opportunities to leapfrog development with smart, information-based infrastructure. Just a decade ago, hundreds of millions of rural Africans lived outside of the flow of global information. Now, with the rapid spread of broadband, once-isolated villages benefit from online banking, transport services, and ICT-enabled agribusiness and health and education programs.
To seize the benefits of these new technologies at scale, and to avoid investments that aggravate cascading environmental crises, the finance industry will need to understand how the SDGs will reshape the investment landscape. The time has come to embrace the concept of true long-term investing, which requires marshaling the capacity of institutionally mobilized capital to support investment opportunities that will secure a sustainable future for all.
We know that enormous public and private investment is required for the transition toward a low-carbon economy, to win the global fight against poverty and disease, and to provide high-quality education and physical infrastructure worldwide. Today's savvy investors, and the financial industry as a whole, need to look ahead, beyond today's market prices and policies to the market prices and policies of the future.
For example, today there is no global price on carbon to shift energy investment from fossil fuels to renewable sources; but we know that, in order to keep global warming below the 2º limit, such a price is coming soon. As stewards of long-term capital, today's investors cannot ignore the coming carbon price and the shift toward low-carbon energy sources. That means devising practical ways to finance and encourage the required shift.
We believe that financial leaders want their industry to play its vital role in sustainable development, and we urge them to contribute actively to the unique opportunity that this year represents. Today's financiers can choose to be remembered either for the 2008 crisis, over which they presided, or for their creative and resourceful efforts to encourage long-term sustainability. Assuming that they choose the latter, the financial industry should work with governments to create a global investment framework that includes appropriate incentives to take on the challenges of sustainable growth. This implies the continued globalization of finance, which will be essential to allocate money from capital-rich regions to their poor, capital-scarce counterparts, as well as to develop local capital markets that can facilitate capital formation and protect countries from the vagaries of global sentiment.
Financial leaders should also involve citizens (the savers) in the journey to a fairer and more sustainable global economy. That means encouraging responsible investing by adopting ever higher standards of stewardship – for example, by requiring companies' portfolios to meet certain sustainability targets. It also means contributing to a new framework for global infrastructure investment that steers resources away from environmentally destructive projects and reduces the wastage often associated with political patronage.
Since the Industrial Revolution, finance has been a powerful enabler of human progress. The great task of this generation's financial leaders is to mobilize investment in the skills, infrastructure, and sustainable technologies that can end poverty, spread prosperity, and protect the planet. Those who act first will be the wiser – and wealthier – for it.
JEFFREY D. SACHS ... Jeffrey D. Sachs, Professor of Sustainable Development, Professor of Health Policy and Management, and Director of the Earth Institute at Columbia University, is also Special Adviser to the United Nations Secretary-General on the Millennium Development Goals. His books include The End of Poverty and Common Wealth.
HENDRIK J. DU TOIT ... Hendrik J. du Toit is Chief Executive Officer of Investec Asset Management.
COMMENTS
Commented John Yngvar Jones FEB 22, 2015
'With Sachs' track record in Mongolia, Bolivia and Soviet/Russia and Millennium Villages one might expect some kind of sharing of tragic lessons learnt. Instead 'Earth callling...' presents naive expectations of capitalists primarily searching for arenas to do good, and not doing their 'job' pursuing maximising profit and avoiding expenses as is any capitalist's primary obligation. If Sachs wants to continue 'advising' the UN or others, let us hear how he wants to control capital for the common good.
Commented Michael McDonald FEB 22, 2015
The main risk to the kind of global financial system the authors support is now on display in Greece, where a new government is trying to renege on agreements that already involved debt repudiation.
Commented Nirmalan Dhas FEB 22, 2015
In order to build resilience before we run out of resources quantitative easing along with resource allocations - or rationing - will have to be employed. Reply
Commented Nat Scientist FEB 21, 2015
Earth’s Bank of International Settlements Calling the Financial Sector:
BIS Working Paper Nr. 490 dated February 2015 reached the following conclusion:It looks as if the financial industry, or at least these authors, will be avoiding this critical observation at the July summit in Addis Ababa. Banks and Financial Institutions are a utility no more important than electric power production, syndicating capital resources for empowering a workforce of individuals, more sustainable than any panel of networked, credentialed experts could ever devise.
'In this paper, we study the real effects of financial sector growth and come to two important conclusions. First, the growth of the financial sector is a drag on productivity growth. That is, higher growth in the financial sector reduces real growth.
In other words, financial booms are not, in general, likely because the financial sector competes with the rest of the economy for resources. Second, using sectoral data, we examine the distributional nature of this effect and find that credit booms harm what we usually think of as the engines of growth – those that are more R&D-intensive. This evidence, together with recent experience during the financial crisis, leads us to conclude that there is a pressing need to reassess the relationship of finance and real growth in modern economic systems.”
Commented Prasanna Srinivasan FEB 20, 2015
A few points that you may consider as part of this discourse :
- i) The financial needs in poorer countries are about including millions of steady earners - even if they are part of the informal sector - into accessing banking. This part won't happen through global players but local ones.
- ii) Several huge investment opportunities exist in developing regions that are constrained by national policies. For example, investments in farm-to-consumer cold chains, other infrastructure. Many of these may take 10-15 years to pay off, with several accompanying uncertainties - given farming is very political even in developed countries. The private sector does not want to be involved - look at how its voted with its money so far.
- iii) Imposed upon this, for developing countries, is adopting new technology on energy use. Its high cost, inadequate in terms of supply (wind, solar for example) to the extent affluent economies still haven't adopted this! Countries in the forefront of climate change related matters still use 80% and more of dirty fuels, after at least 2 decades of deciding this is a major problem.
- iv) The financial system in aggregate, works towards short term returns. Any metric of investments trading establishes that. While its often termed 'market signals' and 'information' - a market signal that bounces a currency rate or an effective interest rate up and down ranges of 20% and more in short spans of time is just plain guessing. Financial investments are completed skewed towards short term returns - its why the emphasis on quarterly results in a public corporation has overridden anything 'long term for the business'.
While I think its terrific that people meet to swap ideas on a meaningful subject, too often they really haven't translated into much on the ground.
Commented Procyon Mukherjee FEB 19, 2015
Completely agree with Sachs and Toit, the world of finance has more to gain if they look at sustainable development rather than making allowances for products that are far more risky and which by their inherent nature of pool risk actually extend far more de-stabilizing influence on the future when the monetary policies of central banks unwind. The excess pool of capital at negative interest rates are actually allowing production on goods that can be inventoried and traded, thanks to innovation in the financial sector. This excess supply whether in inventory or in circulation is one single stumbling block that creates the deflationary spiral, something which the economies have found almost impossible to fend off.
There is so much more to be achieved on the contrary to extend credit conditionally to the developing world, where the seeds of responsibility could be sown.
Commented Peter Cullen FEB 18, 2015
The Year of Sustainable Development....
Financial markets advising US Investors to take US capital off- shore and invest in Lucrative Opportunities in Foreign Lands, because there is a shortage of 'productive' Investment opportunities at home!I suppose this will all be done honestly and above board without the Investment Companies (Insurance Companies and Banks I assume) taking advantage of the Corruption opportunities that exist in these Foreign Lands because of their barely adequate and very underdeveloped and under regulated Governments.
Actually, looking around at the Social Upheaval that is taking place in a lot of these developing Nations, in a lot of cases caused by the rapid development that is being imposed on them by external Organisations and Investment Companies, as well as by Investment by the Mega Transnationals who are basically a law unto themselves; those investments have a lot of Risk!
I think that if we want to look at Sustainable Development not only in Developing Nations but also in the Developed ones; then we need to seriously look at the meaning of 'Sustainable'.
Judging by the Global Economic Problems that are currently affecting the Stability of 'Globalisation' and 'The EU' the current system of Regulation of those Economic Trade Blocks leaves a lot to be desired. The Systems are Failing because a couple of Fundamentals in the Regulated Trade Organisation process have deliberately been ignored. One suspects, not by accident, because those missing fundamentals are the Loop Holes that the 'Mega Trans-Nationals' are sailing their Oil tankers, Bulk Carriers, Cargo Vessels and Container Ships Through: I am talking about Parity of Wage Labour Rates between Member States and the Proper Organisation of Central Banking Systems that act as 'Lender of Last Resort'.
Those two Fundamentals have been ignored in the organisation of 'The EU' and 'The Globalisation Trade Block' and in Both those Trade Blocks we see what really amounts to a 'United Nations, IMF, ECB and World Bank' sanctioned 'Official Slave Labour Trade'. No wonder there are problems of Social Unrest!
Let's just look at what would really be a Sustainable investment for US Investors and leave out the Greedy Lucrative and Risky Investment Strategy in Failing Systems, before the Social Unrest Spreads deeper and more seriously into The US Itself! From What I hear and have seen and read in reports from the ASCE (American Society of Civil Engineers) , The USA has extremely serious (Life Threatening!) problems with its ageing Infrastructure , specifically Roads and Bridges.... Oh! I know that the funding for such Maintenance Projects should really (In a total Free Market Economy of the Type recommended by The IMF - Privatised Public Utilities!) come from the Private Sector but That isn't working! (There are far more Lucrative Productive Foreign Investments being Promulgated by The Financial Sector)... The USA Economic Life Blood, It's Cash Flow, is being syphoned Off and leaving the US Dry.
I think if Truly this is the 'Year of Sustainable Development' - First things should be Sorted Out First - Fix up the Two Fundamentals of Trade - Rough Parity of International Wage Labour Rates - and Properly Organised and Regulated Central Banking for The EU (the ECB) and for Globalisation (The IMF and The World Bank).
Then when that has been sorted out properly perhaps there might be some Equity for the Developing Nations in Actually Developing Their Own Resources using their Own well Regulated Currency and Central Banking (National Lender of Last Resort) Systems - With Proper Social and Economic Advice being supplied by the UN, IMF and World Bank, as well as the better Regulated Mega Trans Nationals who would by then at least be contributing to Individual Nations their required Taxation on Profits earned.
Yes! Earth Calling the Financial Sector!... Sort out The Real Problems that are preventing Sustainable Development!
Commented Eduardo Lamarca FEB 18, 2015
I do Agree with Mr. Peter Cullen. I would point out: we need to ask ourselves about the meaning of 'development' either.
Commented Jonathan Lam FEB 17, 2015
Gamesmith94134: Why Development Aid is Not Enough 18 Jan, 2011 >br>
Erick Solheim is right on the development aid is not enough, because the system does not give a proper redistribution of the wealth to the poor; instead, it created the sovereignty debts for the developer nations since there is not an appropriate system to support or police the developments. It is because the ones control the funds are not subject to the necessity with lesser control in term of supply and demand, so whatever the outcome of the project is being manipulated my its participants, of the ruling class like brokers, manufacturers and financiers. Besides, they are to the projects based on profitability and control, whatever how fruitful the outcome of the project are. Profits are goes to the ruling class and never the entrepreneurs or its producers since they turned into labor by class by the ruling parties after the goods are subsidized by its government and price are controlled by the medium like future market systems or manufacturers.
Perhaps, it sounds like I am anti-market system or free trade, but throughout my years of observation through the transition of the past to present. I am seriously considering the system is at fault since the polarization of the up-rising of the labor classes or the poor and no-solution ruling class. And, I opposed the Millennium Development Goals because it does not have a proper system in maintaining the progress and misses the goal by proportion.
In example of story I heard of, the grain production in China, farmer got only 20% of the sack of wheat, the rest went to the processors or the mill, and the marketing. Does it really farmer’s four months works is lesser than a five minute phone call? Or the processor can give a better price to the public under the price control means the lower pay for farmers, the public may be subsidized under automation, or the farmer should be compensate more when he market his grain.
There is another story on the bullet train as the infrastructure developed in California, USA. It was cancelled because the cost of it went up three times as estimated; after its funds was diverged to projects for traffic congestion instead of buying lands that needed to build its train. I do not blame those refuse to sell the land at the lower price, but I cursed at those prospectors buying the land to sell---- developers with close tie to its friends on the projects.
- • Do people learn anything from the ClubMed incident? From boom to doom, it is all delusions; just because the project is lack of control and prospectors are those control the progress; and the wealth does not trickle down as it thought but the middle man made it fortune with its alliance with the ruling class.
- • 'Since 2000, when the international community adopted the Millennium Declaration and the Millennium Development Goals (MDGs)”. Again, I question on the international community by G-20; are they work for the brokerage or the labors? And how they market their goals? I like it better if they can be inclusive to the zones of the development and monitored by the local or market system that the development can appeal it case, not brokers.
- • 'Power has also shifted in the global political arena, with the global financial crisis catalyzing the emergence of the G-20”, why just 20 and not all of world takes like the United Nations with full members of it working together to avoid manipulation of the prospectors. I think the farmer should know how much he deserves in the deal then he can compete on the market of the world, not to its processors or mills.
Sorry! G-20, the cook does not get his best meal, and the waiter serves only its customers; and Gourmet Restaurant gave the tasteful on a few only, McDonald provides most with a full stomach for lesser price. Development aid can never be enough if it serves only a few by proportions.
May the Buddha bless you?
Commented Per Kurowski FEB 17, 2015
Get some decently analyzed sustainability ratings for projects, and then allow banks to hold less equity against loans to those highly rated, and so to give banks the incentive to earn higher-risk-adjusted returns on equity on these projects.
That at least would serve a good purpose; not like the odiously discriminating and dangerously distorting credit-risk-weighted equity requirements for banks.
(Do not forget using potential of-job-creation-ratings too)
http://ourpiedaterre.blogspot.com/2013/10/if-regulators-absolutely-must-distort.html
Commented Krzysztof Worytkiewicz FEB 17, 2015
Financial markets certainly should be as defined in the opening paragraph, yet in the real world their main purpose is to make their participants richer at the cost of others. It is effectively a zero sum game and given the sums in question it is unlikely that participants in the financial markets will change their behaviour out of free will. As such financial markets are largely counterproductive to the society.
Commented Mr Econotarian FEB 17, 2015
Free financial markets WILL channel saving from high-income countries to low-income regions when investors are assured of good growth prospects, low-income regions welcome foreign capital (many have high levels of capital controls where investors can not easily pull their money out, regulations on foreign investment, protected sectors, etc.), and those low-income regions have governments that respect private property rights. Recent expropriations in Venezuela, Bolivia, Argentina, and Russia underscore the high risk for investors in some of these countries.
Commented Paul Daley FEB 16, 2015
It's not hard to argue that weak growth in the developed economies over the past thirty years -- all despite accelerating technological progress -- may have been due to the corruption of capital markets, which now cannot produce a price for money or separate good investments from bad. The recent episodes of QE have brought this issue to a head, but the steady decline of real interest rates over the past several decades have provided investors with a steady diet of policy-induced capital gains and an easy path to riches. So, Sachs is on the right track, but he should be little clearer about what's at stake. It's not just 'sustainable' growth that's at risk; it's overall growth in capitalist economies.