The true goal of finance: a sustainable society

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CARACHI:

Futurist Willis Harman said, “Business has become, over the past century, the most powerful institution on the planet. The dominant institution in any society must assume responsibility for the whole. (quoted in Hawken, 1992: 100, quoted in Gladwin, 1995, p 898)

In 1970, Milton Friedman, the neo-classical economist, referred to the slogan “taxation without representation”, borrowing from Lord Camden’s speech on Britain’s Colonial Sovereignty Bill.

What Friedman may not have realized is that the whole field of sustainability is a study of “taxation without representation,” permeating many layers of stakeholders.

The environment is taxed (without representation) by the pathological consumerism of corporations and society, while society is taxed (without representation) by the inequality and injustice perpetrated by the powerful elite, and governments claim that ‘they are taxed (without representation) with a perpetual barrage of criticism from mainstream and social media.

According to McKinsey & Company, the global financial stock was on course to exceed $200 trillion by 2010 and should be well under the $300 trillion mark at the time of this article’s publication. Needless to say, the global financial stock grew faster than global GDP, and most of that growth came from faster debt expansion.

This is alarming given that “annual global ecosystem services” are valued at between $17 trillion and $33 trillion.

Going back to Friedman’s metaphor for “taxation without representation”, could one hypothesize that the difference in value between the total financial stock and the value of global ecosystem services is the tax that the environment and society have to pay to fill the gap in the ecosystem? ?

Inevitably, there is “no free lunch” and someone has to pay the difference.

In addition to the puzzling value disparities between the stock of financial capital and natural capital, we also know from an abundant literature that management theory has traditionally lacked biophysical foundations.

The “anthropocentric paradigm” has taken over and dominated the discourse so much that any “non-human” discourse seems non-existent in management theory.

This state of affairs has created an equal and opposite reaction in the field of sustainability management, with environmentalists leading the charge and sending the financial sector to the back of the bus.

There are many opportunities to advance research in the area of ​​sustainable finance. After all, the roots of financial institutions were socially driven and originally focused on providing liquidity, allocating capital, and facilitating economic and social progress.

Pitt-Watson and Mann emphasize that the true purpose of finance is to serve society. Based on this, in the article “The Purpose of Asset Management”, Hawley and Lukomnik state:

“This immediately negates the common refrain of profit as a goal: making money is not a goal for the asset management industry, but a necessary condition, just as breathing is necessary for living, but n “is not the purpose of life. We do not underestimate the importance of profit. Profit rewards the asset management industry and sustains it. Without profit, the industry would cease to exist and the risk mitigation and intermediation, which serve society, would cease. But an essential contribution to the self-perpetuation of the industry must not be confused with the societal purpose of the industry, which is to serve the provider of the funds it manages.

Our current institutions and economic models are designed around neo-classical economics and our current model of innovation is at odds with sustainable development.

The role of management is to provide an enabling environment for innovation to flourish from the bottom up.

Elkington’s work highlights the importance of “building bridges” when it comes to sustainability, business and finance. It offers structured and framework-based approaches to enable companies to take concrete action around sustainability issues.

For example, his 39 steps to creating sustainable businesses are achievable and measurable. These are characteristics that resonate with the financial world and could serve as good bridges.

If prosperity comes as Jackson describes in his book “Prosperity Without Growth”, governments and the private sector must give serious consideration to sustainable finance so that the lion’s share of the $300 trillion in global capital can return to its true roots. – at the service of society and the environment.

The author is the founder of ESGTree.com, a tech startup platform, and a PhD student at the University of Waterloo.

Published in The Express Tribune, March 14and2022.

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