Financing a sustainable future
Nick Silver examines the environmental and social impact of the finance markets, and asks how would a better system work?
Over many years, the finance industry has developed a set of powerful tools that could be used to improve wellbeing and to solve our environmental problems. For example, to avoid dangerous climate change, the essential rapid shift away from fossil fuels requires enormous levels of investment into low-carbon infrastructure. We mostly know how to do this technically, and the funds are available; there is a global savings surplus resulting in trillions of dollars sitting in government bonds earning negative returns; surely, this could be mobilised into the low carbon economy? Why is this investment not happening at the scale required?
These powerful financial tools have been co-opted by the same finance industry for the main purpose of growing its own revenue and importance, with resultant collateral damage to society and the environment. Figure 1 shows the increase in size of the US financial sector compared with the economy, from about 2% of GDP to about 8%. The French economist Thomas Philippon has calculated that the efficiency of financial services has not changed over the past 130 years; remarkable in a period where we have gone from steam and the telegraph to the internet. There might be more need for finance in an increasingly globalised ...