A New Era of Clean Capitalism is Coming: Let’s Roll Back the Blueprint

The declaration asks that government require companies to disclose their dependence and impact on natural capital “through transparent qualitative and quantitative reporting,” and require its own public spending and procurement to report and account for natural capital.

Once we account for natural capital, we can also make it easier for businesses and consumers to make informed purchasing decisions through better labelling of everything from grocery items to buildings.

Incentives

With natural capital properly inventoried and integrated into the balance sheets of nations and businesses, it becomes more feasible to develop policies that reward responsible market behaviour, such as energy conservation, and discourage irresponsible and inefficient use of our various natural resources.

Carbon pricing is one obvious and much-talked-about example, but others include: fast-track permits for builders of green buildings; road congestion charges to discourage driving and encourage use of public transit, cycling and other low-carbon options; a tax code that prioritizes investment in energy and water efficiency technologies, through mechanisms such as accelerated depreciation; and temporary, targeted subsidies – such as feed-in tariffs – for promising forms of renewable energy.

“By channelling the forces of the marketplace into environmental programs, economic-incentive mechanisms can make the everyday economic decisions of individuals, businesses, and government work effectively for the environment,” wrote Harvard University business professor Robert Stavins in 1990, outlining an approach whose time has come.

In addition to creating supportive policies, there’s also room to eliminate outdated policies that have accelerated our erosion of natural capital. Subsidies for the fossil fuel industry, for example, have long outlived their original purpose and should be phased out to level the playing field for more sustainable forms of energy.

Infrastructure

The decisions we make today on infrastructure, as long-lived public assets, lock us into a future that could prove protective or erosive to our natural and human capital. Coal-fired power plants have provided cheap electricity to industry, but at what cost to environmental and human health?

On the other hand, infrastructure investments that enable the development of renewable power and support public transportation and healthy lifestyles have tremendous potential to boost our inclusive wealth. This is particularly true if such projects, in addition to meeting our economic and social needs, reduce pollution and help with climate change mitigation and adaptation.

Both public- and private-sector investors, such as pension funds, must weigh every infrastructure project through an environmental, social and governance lens, with a view to the long-term impacts. Government’s role is to cut the red tape for what should be high-priority projects, while also working with the private sector to come up with creative financing solutions that will attract the necessary financial capital.

Investment

The difficulty of raising financial capital is one of the biggest barriers to a clean capitalism economy. More than $200 trillion in private-sector capital flows like water through the path of least resistance. This means industries with established track records, technologies, funding mechanisms, and proven investment returns tend to be favoured by the pension funds and investment houses that control the purse strings. Unfortunately, the path of least resistance tends to reinforce a world based on fossil fuels and the “dirty” infrastructure it relies on.

Even signatories to the United Nations’ Principles for Responsible Investment are having a difficult time weaning themselves from “unsustainable” investments. A recent study from the US SIF, which represents a wide range of investors, found that only 11 per cent of all investments under professional management in the United States qualify as “sustainable.” That works out to $3.74 trillion out of $33.3 trillion.