DISCUSSION Financing A Sustainable Economy

by Yolanda Villafuerte _______28th January 2013

As the World Economic Forum comes to a close in Davos, the hot topic has appropriately been building sustainability into our global financial system. It’s estimated that $100 trillionis needed by 2030 for global infrastructure needs and it is imperative that this investment be created in a sustainable way if we are to avoid moving ever closer to the climate change tipping point of four degrees Celsius or more. Although greening these investments currently costs more, moving the economy towards this model will bring the overall cost of these investments down and holistically improve the environment and the global economy.

Over the past decade, as we’ve seen a surge of natural disasters hinder economic development in the Far East with tsunamis in Thailand and Japan and stall the economy in the world’s financial capital with the hurricanes that struck New York City and the Eastern seaboard. Flooding cost Thailand $45 Billion in 2011 and Hurricane Sandy cost the US an estimated $71 Billion in damages without accounting for the costs of loss of human life, lost productivity and the ripple effects on the broader economy. According to the Green Growth Action Alliance, $140 billion annually is required to green the $15 trillion investment in energy generation which are expected by 2020. This outlay, taken on a strict numerical basis, might seem unnecessary, but managing this investment between the public and private sector will move the economy towards a greener future and lessen the additional cost in future years.

While it is worrying that increased fiscal strain has prompted previously enlightened nations such as the UK, Germany, Spain and the US to reduce their incentives in the clean-tech sectors. Estimates suggest that each public dollar can be matched by up to 8 dollars in private investment meaning that globally, $130 billion annually in public investment would close the incremental costs of building a sustainable economy. Although all countries need to participate in this inherently interconnected goal, moves by countries with maturing capital markets, such as Brazil and South Africa are promising and are creating chances to jump ahead into the future of investment by building low-carbon, resource efficient economies.

Readjusting our system of incentives to take into account the overall cost of an investment would render sustainable investments with a more attractive profit margin against old market, short term profit models. By not including the overall cost to the planet in our capital markets we are incentivizing a warming planet and an unstable economy. Tomorrow’s Company has launched a new initiative, Tomorrow’s Capital Markets, in partnership with Aviva Investors, United Nations Finance Initiative, UBS, Berwin Leighton Paisner, Hermes Asset Management, and Korn/Ferry International, in an effort to seek a realignment of the incentives towards sustainable investment.

Mara Richard is an entrepreneur and consultant to both US and UK politicians. She’s currently working on Tomorrow’s Capital Markets.

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