Report: Rewiring our economyDr. Jake Reynolds
To combat climate change and poverty we have to change the way the economy is run
In September, at the United Nations in New York, the world’s governments will adopt the Sustainable Development Goals (SDGs) after an intensive discussion on what aspirations the world should set, collectively, for the next 15 years. Not everyone is delighted with the way the goals have been presented, nor the sheer number of them, but it is undeniable that they provide a useful steer for 21st century leaders.
But that’s all they are: a steer, a starting point, a glimpse of how the world could be in 15 years’ time. The question remains: how will the goals be put into practice? How do we, as individual leaders, translate them into action in our organisations and with our peers? I haven’t seen much evidence that this has been thought through. Rather than embracing these goals for the whole planet, I see decision-makers showering the majority of their attention on one mega-goal: economic growth.
Governments may believe that this growth will fill the public coffers sufficiently to provide a welfare net and environmental protection and, indeed, there is some truth in this. However, it seems perverse to me that in order to protect the environment, we must first damage it to create the income necessary to preserve what’s left.This has lead us to draw together ten tasks into a new plan called Rewiring the Economy to drive sustainable business. The plan is based upon the simple observation that while our present economy is successful in many ways, if left unguided it cannot be relied upon to deliver the social and environmental ambitions of the SDGs. Inequality is rising, ecosystems depleting, resources degrading and greenhouse gases increasing – this is not good for our economies in the long term, and has to stop.
We see the next decade as an important opportunity for partnerships across business, finance and government. Here is what we think each player should be doing over the next 10 years:
Government – steering the economy
Governments set the rules of an economy, steering its development, so we need them to measure the right things and set the right targets. We are not convinced they are served well by a dominating focus on GDP, and believe new or adapted metrics should be introduced that include social and natural capital alongside economic output. Many such metrics have been proposed such as the genuine progress indicator (GPI), Happy Planet Index (from the New Economics Foundation) or the OECD’s Better Life Index.
We’d also like to see governments use fiscal policy to drive change. Take fossil fuel subsidies, for example, where governments incentivise carbon-intensive energy sources, whilst puzzling how to cut carbon emissions. Surely it is more efficient to invest in making renewables cheaper than fossil energy, so that it succeeds without conflicting policy efforts? The G8, G20, IMF, IEA, OECD and the World Bank all seem to think so, as they have referred to the phase-out of inefficient fossil fuel subsidies as essential to transition to a low carbon economy.
Finance – fuelling the economy
The cost of capital to a company shapes its direction and ability to grow; access to insurance similarly so, and in larger companies the influence of shareholders – and capital markets more broadly – is significant and increasingly universal.
It is vital that capital is steered towards economic activities that support a sustainable future for the long term, for example extending the timeframe over which financial risks and returns are modelled or building a clear link between expenditure and beneficiaries.
Innovating traditional financial structures is also essential, as demonstrated by the Banking Environment Initiative, managed by CISL, that designed a ‘Sustainable Shipment Letter of Credit’. This paves the way for banks to incentivise the trade of sustainably produced agricultural (or ‘soft’) commodities such as palm oil, soy, timber and beef in its intermediary role between buyer and seller.
Business – the engine of the economy
Sustainable development is increasingly recognised by Boardrooms as a driver of value creation. We extend that logic further in Rewiring the Economy by proposing that social and environmental value becomes an outcome of doing business, not an additional to it. Business models can be identified to deliver essential services to communities in a way that enhances the environment. Examples include off-grid renewable energy, credit lines for social enterprise and impact investment generally. Larger scale business operations can deliver this too through judicious investment in landscapes, processes and people. CISL’s Natural Capital Leaders Platform is exploring just this with leaders in the food and agriculture industry.
We’d like to see more businesses setting bold ambitions on sustainability, and collaborating with each other as peers. Walmart, for instance, is a major source of global palm oil demand but, despite its size, by itself has relatively modest influence over complex palm supply chains in Asia. With other large companies in the Consumer Goods Forum, however, as well as government and finance partners, it is achieving greater leverage over palm production systems to combat deforestation – in short by acting collectively to transform markets.
The ten tasks in Rewiring the Economy allow leaders across government, business and finance to identify where they can make the strongest and most unique contribution to global challenges. If each member of our network reviewed this plan, matched it against their own capabilities, and took just three strategic actions we might really make a difference to the SDGs.
Don’t get me wrong, we aren’t saying we can deal with poverty and climate change overnight, but we want to lay the foundation stones so that in ten years’ time the economy as a whole is moving in the right direction.
If we don’t rise to this challenge then the SDGs will be forever dependent on public finance for their delivery and, in present circumstances, their scope for implementation may well be limited. Alternatively we can rally around the handful of key tasks set out in Rewiring the Economy and bring the full weight of the economy behind their delivery.
Share your thoughts using the #RewireEconomy or @CISL_Cambridge
Read the Rewiring the Economy report and model and get more information about the Cambridge Institute for Sustainability Leadership from http://www.cisl.cam.ac.uk/
This article first published July 2, 2015, on Ethical Corporation