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Sustainable finance for a shared future

By SATYAJIT BOSE/GUO DONG | China Daily Global | Updated: 2020-10-16 07:45


Chinese households are known to be consummate savers. China's gross savings rate of approximately 46 percent is among the highest in the world. Savings are necessary to fund future well-being, but they are not sufficient on their own. The continuation of human well-being also requires healthy ecosystems, nutrient-rich soils, sources of clean water and clean air, as well as satisfied consumers, motivated employees, good job prospects for new labor market entrants and investors eager to provide capital. Investing in sustainable development is just as critical as saving money for retirement. Yet the discussion around sustainable finance, which requires a multi-stakeholder approach to making investment decisions, has been sorely lacking in China and elsewhere.

The United Nations Sustainable Development Goals encourage governments and the private sector to envision the triple bottom line of people, profit, and the planet, and strive for economic growth that balances social and economic development with environmental sustainability. In the years leading up to their launch in 2015, the SDGs were formulated in an unprecedented participative process. The articulation of the goals was honed through the active engagement of and commentary from broad segments of society in a wide swath of countries. The two-year process included UN efforts to crowd source new ideas from the poorest and most vulnerable segments of society in public consultations and multi-stakeholder engagement, generating unprecedented and widespread adoption and legitimacy for the SDGs.

Due to their global adoption, the SDGs have facilitated a new chapter in the path to a future sustainable financial ecosystem. They were built through inclusive consultation, a bottom-up approach where all UN member countries were engaged participants. They contain the promise of a new era of cooperation and shared responsibility, with partnerships between public policy leaders, private financial markets and civil society. Financial decision-making has to follow a similar approach where voices representing the value of non-financial capital such as human and natural capital are heard. There will inevitably be tensions, conflicts of interest and differences of opinion during the iterative process of working through these partnership processes, but there is now a shared global ambition for sustainable development that acknowledges the role and the responsibilities of all stakeholders, not just governments. As citizens, workers, savers, consumers, managers and investors, we all belong in the overlapping interest communities that collectively form the financial ecosystem.

The Chinese central, provincial and city governments have declared their commitment to the SDGs. The China Center for International Economic Exchanges and the Earth Institute at Columbia University have been publishing a sustainable development ranking of 100 Chinese cities and 30 provincial-level regions for the past three years. Many cities and provinces are making choices that improve their sustainability performance. However, China's ambitious plan to fund critical development infrastructure globally through the Belt and Road Initiative has been held back by the lack of necessary framework that can safeguard local residents against environmental and social risks, essentially one that listens to their opinions and incorporates them in the planning stage of a project.

An important aspect of sustainable development is the participation of all sectors of society in a cooperative process. Compared to government efforts in China, the private and financial sectors have lagged behind in their focus on the triple bottom line. The Chinese saying "du mu nan zhi" emphasizes that a single log cannot hold up a building: broad cooperation is essential to tackling difficult challenges. Sustainable development cannot be the responsibility of governments alone. It requires the active participation and cooperation of all sectors of the ecosystem. This includes robust engagement by private companies with the SDGs, as well as the linking of sustainability goals with the provision of financing by investors and lenders. It also requires savers to direct their savings to investments that are aligned with the goals of sustainable development.

We have not yet figured out how to live well in polluted environments even with abundant monetary wealth. Few of us can be happy alone-we all seek to share our joy with others. Ultimately, the bank accounts, stock certificates, corporate debentures and government bonds that we save must be converted into healthy surroundings, clean air and water, affordable and effective healthcare and the provision of a happy life for family and friends. Monetary savings cannot amount to much unless it is combined with sustainable development for all. The COVID-19 pandemic has demonstrated to us that living in isolation, even with all necessary comforts delivered through e-commerce, is a desolate existence. As the Chinese saying goes, even beggars have three friends.

We are not being merely idealistic in preaching sustainability and ignoring the struggle many developing countries still face in meeting their subsistence needs. However, without the baggage of the well-established fossil fuel industry, the developing world has an opportunity to jump directly into renewables for their growth, and leapfrog the developed nations on clean technology adoption.

In the book entitled The Financial Ecosystem: The Role of Finance in Achieving Sustainability (with co-author Anne Simpson), we have tried to offer a synthesis of academic and practitioner perspectives on many aspects of sustainable finance, including sustainable investing, impact investing, decentralized finance, conservation finance, clean-tech finance and social entrepreneurship. We try to view sustainable finance as an extension of the practice of efficient capital allocation, taking into account the long run sustainability of the natural and human ecosystems within which economic activity occurs. We also emphasize the need for all participants in the financial ecosystem to foster sustainable development, especially corporations and financial institutions.

Difficult tasks require collective efforts. This is a task not just for governments, but also for corporate enterprise managers, investment professionals, corporate finance practitioners, household investors, private banking advisers, insurance underwriters, responsible consumers, engaged employees and a host of other actors interested in improving the environmental and social impact of economic activity. We need every pillar of society, large and small, government and private, to achieve sustainable development.

Satyajit Bose is a professor in sustainability management at Columbia University. Guo Dong is an associate director of the Research Program on Sustainability Policy and Management at Columbia University's Earth Institute. They recently co-authored The Financial Ecosystem: The Role of Finance in Achieving Sustainability, with Anne Simpson. The authors contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

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