Before the next financial crisis erupts, preparing to respond merits a more holistic approach – one that accounts for the serious and escalating threats posed by climate change

By Bertrand Badré, Emmanuel Faber, Bertrand Piccard, Paul Polman, and Ronald Cohen*

In the decade since the global financial crisis, mechanisms to boost the financial system’s resilience have been widely discussed. But while some progress has been made, the largely piecemeal approach that has been pursued may yet prove inadequate to support long-term financial stability. And a waning bull market means that the day of reckoning may not be far off.

It is impossible to say when the next crisis will erupt, let alone how long it will last or how damaging it will be. But there is no doubt that the risks we face merit a more holistic approach, much like what was called for immediately after the 2008 crisis (though those calls lost steam as markets recovered). This means agreeing on and implementing a new vision for governing the global economy; assessing it rigorously and adjusting it as needed; and ensuring full accountability for every stakeholder.

This vision must comprehend profound and ongoing changes, from increasingly concentrated market power to increasingly automated decision-making. It must also consider China’s rise, which demands that China be incorporated more fully into governance bodies, which will have far-reaching implications, especially as the country emerges as a less benevolent global actor.

Furthermore, this vision must contend with rising nationalism and isolationism, exemplified by US President Donald Trump’s “America First” approach and his trade war with China. And it must recognize that the effectiveness of macroeconomic tools – both monetary and fiscal – is more limited today than in 2008.

Finally, this new vision must reflect a clear decision about the extent to which we are committed to addressing climate and sustainability challenges. Despite the 2015 Paris climate agreement, which changed the paradigm in which we talk about climate change, world leaders have remained reluctant to do what is needed to make a real difference. We cannot continue to deceive ourselves by touting lofty goals while working only at the margins.

If we are serious about building resilience, we need to press ahead with tough systemic changes that address how we produce and consume energy and finance our economies. This will require effective leadership. But, while collaboration among governments has helped drive some climate action, growing fragmentation within the international community has made the limits of this approach clear. A more effective strategy may be to establish a coalition of civil societies and major financial and non-financial institutions to lead progress toward shared goals.

Such progress will demand, among other things, vastly improved accounting and reporting, together with smart regulatory reforms. Moreover, it will require that market participants put in place appropriate incentives and mandates to consider sustainability and climate action in decision-making.

These can – and, in some cases, already do – include adjusted bonus schemes for managers, relevant monitoring requirements, and environmental labeling on consumer packaging. Reputational factors, and even the soft-power influence of local governments, which are increasingly concerned with environmental risk, can also play a role in motivating companies to pursue a green transformation.

The financial sector, in particular, lacks the right incentives to contribute to addressing the climate challenge, because financial institutions’ decision-making is guided primarily – even exclusively – by monetary profit-seeking. This is short-sighted and untenable. Financial institutions need new incentives to reshape their operations, including their investments. For example, portfolio managers could have their bonuses partly tied to their investments’ performance on climate metrics.

These changes need not undermine economic growth. On the contrary, many climate solutions – such as the shift toward renewable energy – help to generate jobs, and can even increase corporate profitability. In fact, replacing outdated and polluting infrastructure with modern and efficient alternatives represents one of the key investment opportunities of the century.

But this is about much more than profits. As the Intergovernmental Panel on Climate Change warned in its recent report, the world’s current trajectory is leading to environmental devastation. Already, natural disasters are becoming more frequent and intense. As extreme weather events continue to multiply, large-scale destruction, migration, and conflict will become endemic.

We are at a pivotal moment in history, and we will need to muster the bravery and conviction needed to undertake strong action. We must not only implement solutions, but also test and refine them regularly – not after a decade – guided by clear, evidence-based objectives and measures. Only then can we ensure that not just our financial systems, but all of the structures that underpin global stability are sufficiently resilient.

To paraphrase Winston Churchill, we are faced with a choice between destruction and the status quo. If we choose the latter, we will have the former.


Bertrand Badré, a former managing director of the World Bank, is the founder and CEO of Blue like an Orange Sustainable Capital. Emmanuel Faber is Chairman and CEO of Danone. Bertrand Piccard is Initiator and Chairman of the Solar Impulse Foundation. Paul Polman is Chair of the International Chamber of Commerce and a member of the Leadership Council of the Sustainable Development Solutions Network (SDSN). Ronald Cohen is Chair of the Global Steering Group for Impact Investment. Copyright: Project Syndicate, 2018, published here with permission.

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10 Comments

We need to the must do action for NZ is to take climate change action outside of the political sphere. Whether you support National or Labor should have nothing to do with taking action on climate change.
As I understand it a bill is to go before parliament early next year aimed at doing just that. This is the same policy that has been in place in the UK for years and has been shown to work there. But we need all the major party's support to push this through.
Maybe someone who knows more about this could add some more detail.

yes,
lets get practical.
it must be treated as a project.
where is the feasibility, you know dollars + resources against time, with outcomes/deliverables also against time.
good we got great project managers and best accountants in NZ
understand job costing, QS & getting productivities and WIP accounting.
perfect.
lets load up on engineers.

They have, among other things, analyzed the UN Millenial goals (169 of them, which is far too many), prioritizing and rank-ordering them in terms of practical implementability and costs and benefits. Those who claim to truly care about the world's dispossessed could do far worse than to study Dr. Lomborg's work.

https://www.youtube.com/watch?v=prrbooi9PNw

https://www.copenhagenconsensus.com/sites/default/files/post2015brochure...

It's about changing attitudes, climate change should be embraced, not feared. It's naive to expect the earths climate not to change, it constantly changes, if it didn't earth would be as sterile as the moon. People will always suffer, life itself is suffering. I've had enough of the self righteous, pretentious hand wringing of total hypocrites who are all talk and no action. I guess banning plastic straws will help them sleep at night but a rational analysis will show just how empty and meaningless such gestures really are and how impossible it is to stop CO2 emissions or even worse try and stabilise an unstable system.

Good lord, written as if there's no such thing as anthropogenic climate change.

However, okay, let's take it as given that we shouldn't worry about the climate changing. Instead, how about we focus on the obvious problems that humans are responsible for:

1. A global pollution pandemic: much like the climate change that we shouldn't worry about, this one plainly should be worried about and is a terrible legacy to be leaving to future generations. So while they may have some overlap, let's worry about this one and not the climate change part.

2. The Holocene Extinction event that humans are causing: https://en.wikipedia.org/wiki/Holocene_extinction

The Holocene extinction, otherwise referred to as the Sixth extinction or Anthropocene extinction, is the ongoing extinction event of species during the present Holocene epoch, mainly as a result of human activity.The large number of extinctions spans numerous families of plants and animals, including mammals, birds, amphibians, reptiles and arthropods. With widespread degradation of highly biodiverse habitats such as coral reefs and rainforests, as well as other areas, the vast majority of these extinctions are thought to be undocumented, as no one is even aware of the existence of the species before they go extinct, or no one has yet discovered their extinction. The current rate of extinction of species is estimated at 100 to 1,000 times higher than natural background rates.

You might get away with saying "Why should we worry about leaving a warmer world to following generations?" but you'd have to be a right prat to do nothing about leaving a polluted, faunally-denuded world to the same.

I don't pollute and neither should you, I also don't waste my time biting my nails over imaginary problems and I've long since realised what a total farce the general handwringing about environmental issues actually is. The fact that so many people have the spare time and technology to harp on about it, is proof positive of how clueless they actually are, about the actual actions needed to change the issues they pretend to cry about. You'd have to be a real prat to tell other people how to live without leading by example.

And you would have to be total prat to say "what a total farce the general handwringing about environmental issues actually is".

Regardless of any discussion of climate change how do you respond to:
- plastics pollution in the oceans (e.g. the floating morass in mid-Pacific)
- deforestation in the Amazon (the lungs of the planet)
- biodiversity loss and ecosystem collapse (hmmm, no bees?)
- ground water pollution (heavy metals in aquifers, water-borne diseases)
- air pollution (asthma, lung cancer, brain decay - no kidding)
- coral bleaching/death
- plundering of fisheries (no more protein anyone?)

And so on & so forth.

So you're completely independent of all this are you? No contribution from you or any need to modify your lifestyle because everyone else fails to live up to your standards of Christ-like perfection.

Add "tool" to prat.

Simple. He didn't respond. He ignored it and blustered along about climate change again instead.

As long as this change results in more money being distributed to the wealthy like most other reforms bring it on!

"status quo" is tracking just fine. "But it’s deceptive to track disasters primarily in terms of aggregate cost. Since 1990, the global population has increased by more than 2.2 billion, and the global economy has more than doubled in size. This means more lives and wealth are at risk with each successive disaster.

Despite this increased exposure, disasters are claiming fewer lives. Data tracked by Our World in Data shows that from 2007-17, an average of 70,000 people each year were killed by natural disasters. In the decade 50 years earlier, the annual figure was more than 370,000. Seventy thousand is still far too many, but the reduction represents enormous progress.

The material cost of disasters also has decreased when considered as a proportion of the global economy. Since 1990, economic losses from disasters have decreased by about 20% as a proportion of world-wide gross domestic product. The trend still holds when the measurement is narrowed to weather-related disasters, which decreased similarly as a share of global GDP even as the dollar cost of disasters increased."
https://www.wsj.com/articles/some-good-newsabout-natural-disasters-of-al...