Rewiring our economy to combat climate change and poverty
Dr Jake Reynolds, Director, Sustainable Economy
2 July 2015
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.
Take fossil fuel subsidies, for example, where governments incentivise carbon-intensive energy sources, whilst puzzling out 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?.
This is an example of what we are calling an economic ‘tilt’, a change in conditions that causes businesses to behave differently under the weight of their own commercial logic. We have drawn ten such tilts, or tasks, together 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.
That is not to say that this is solely a public policy agenda. Far from it. We see the next decade as an important opportunity for partnerships across business, finance and government. It is obvious why governments should be included as they set the rules by which business plays. However, another group with universal influence over business is finance. 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.
How then can these three actors work together to make sure economic development delivers the SDGs?
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.
It was the Consumer Goods Forum’s commitment that inspired the Banking Environment Initiative, which is managed by CISL, to design a ‘Sustainable Shipment Letter of Credit’. This paves the way for banks to incentivise trade in sustainably produced agricultural (or ‘soft’) commodities such as palm oil, soy, timber and beef in its intermediary role between buyer and seller. We devote a whole task in Rewiring the Economy (Task 6) to this kind of ‘innovation in financial structures’.
The idea that business can contribute to sustainable development is of course not new, and for 30 years or more companies have been focusing on resource efficiency, pollution control, local communities and philanthropy, often with great success.
More recently, despite many challenges, 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 should be an outcome of doing business, not an additional to it.
The ten tasks in Rewiring the Economy (above) 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.