Investors must help create a sustainable economy

Published on Monday, 12 September 2011 09:53
Posted by Scott Buckler

Investors should use their financial muscle to create a resilient, stable and sustainable economy and lobby governments for support, urges a report released today by Forum for the Future

Commissioned by Aviva Investors SRI team and aimed at major investors like pension funds, banks, fund managers and companies and at policymakers, Sustainable Economy in 2040: a roadmap for capital markets warns that capital markets are funding activities which are pushing the planet beyond safe environmental limits.

These unsustainable activities are also threatening investors’ long-term interests, it warns: “Investors as a whole will find it hard to maintain healthy financial returns if faced with accelerating climate change and ecosystem collapse.”

The report urges investors to use their financial power to shape markets, and shows how they can reap long-term rewards by helping to create a sustainable economy. It calls on them to put pressure on businesses to build sustainability into their strategy and lobby for government intervention, and it gives practical guidance on where to invest and avoid investing.

Alice Chapple, Director of Sustainable Financial Markets at Forum for the Future, said:
Investors have a vital role to play in creating an economy which puts us on a path to sustainable growth. They will generate the best long-term returns for their clients - and the best future for us all - if they look actively for new technologies, products and business models which benefit the planet and improve people’s lives.”

The report, which is available to download free from www.forumforthefuture.org/project/vision-sustainable-economy/overview, breaks new ground by basing its recommendations on an assessment of how investments must be switched from unsustainable to sustainable activities to achieve a thriving, resilient and stable economy. It defines a comprehensive range of environmental boundaries and social conditions which a sustainable economy must respect.

It states: “Our prosperity depends on a wide range of resources and services supplied by our planet, from fresh water, metals and minerals to crop pollination performed by bees. Most of these are overexploited and underpriced, or not valued at all in today’s economies.”

The report also calls on investors to lobby governments for policies which will support the development of a sustainable economy, for example: new definitions of economic success which take into account the health of the environment and public wellbeing; a meaningful carbon price and a requirement for all companies to disclose their emissions; financial incentives for clean energy generation; and an end to fossil fuel subsidies.

Peter Michaelis, Head of SRI at Aviva Investors, said: “All investors should welcome an economy which is more stable and durable while delivering greater prosperity. Sustainable Economy 2040 shows investors what such an economy could look like and what their role should be in creating it. Crucially it describes the characteristics of major economic sectors, allowing us to select for investment those companies best placed to prosper from the transition to a more sustainable economy.

“However, to achieve Forum for the Future’s full vision of a sustainable economy, we will need much more action by both investors and global governments to correct the market signals. The capital market will only incorporate companies’ full social and environmental costs into their company valuations where these issues influence company earnings.”


Forum for the Future singles out areas for urgent action by investors, companies and government:

•    Investors should require all companies to report on their long-term strategy to make the business more sustainable and deal with future risks such as climate change, water stress, loss of biodiversity and population growth.

•    Companies should report in their accounts the value of the environmental services and social relationships the business depends on such as the availability of water and fertile soil and relationships with customers and local communities.

•    Financial institutions should demonstrate that the products and services they offer serve the long-term public good and do not increase risk and instability.

•    Governments should offer tax incentives to funds which invest in companies aligned to the vision of a sustainable economy.

•    Pension funds should require fund managers to take social and environmental issues into account in their investments.

•    Companies should change their remuneration systems so that they reward staff for activities which build long-term value in the business, not short-term returns.

•    Insurance companies should charge higher premiums for activities that create systemic risk by contributing to climate change, the depletion of natural resources and social instability.

The report also offers investors specific guidance on investing in five sectors which are fundamental to a sustainable future: food; health and wellbeing; energy; mobility; and finance. This is based on a “vision” of where these sectors need to be in 30 years in order to be viable and sustainable.

 

Source: Forum for the Future

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