MGCY Priorities for the Final Meeting of ICESDF
Statement can be found..
Thank you chair,
We would like to highlight some issues that were partially touched upon during this very enlightening discussion and offer some suggestions to forward the conversation.
A lot has been said about different financing strategies. We strongly support many of these points specifically related to the illicit flow of funds and tax avoidance & havens, the FTT, and existing ODA commitments.
In order to add content to the discussion we would start by making the assertion of viewing the economy as a subset of a society that is embedded in the environment. Keeping this in mind we would like to make the following points in light the all important paradigm shift:
Trade and investment regimes more conducive to sustainable development
For an environment to be truly ‘enabling’ for productive investment that leads to sustainable development, we need need to bring the “S” that is the environmental pillar into focus as well, and effectively allocate the risk different scenarios of a country’s ecological footprint pose. We need to take into account not only our fiscal, but also our ecological constraints. Resource scarcity is not a new word, but is rarely operationalized as a risk factor while assessing an “enabling” investment environment. [At no other time in history has human demand on resources been greater, the rate of which exceeds our Earth’s capacity to regenerate raw materials for food, shelter and clothing, and absorb the carbon dioxide we emit.]
Such an attempt has been made by UNEP while developing its ERISC (Ecological Risk Integration to Sovereign Credit). It demonstrates the materiality of environmental risk, by making the connections between environmental risk and core economic or financial indicators quantifiable.
Just to quote some examples from the study- The report found that a ten percent variation in commodity prices can lead to changes in a country’s trade balance equivalent to 0.5 percent of GDP. Further, a ten per cent reduction in the productive capacity of soils and freshwater areas alone could lead to a reduction in trade balance equivalent to over 4 per cent of GDP
In order to be a more “investment grade” economy by receiving a higher credit rating, a country would have to better manage its natural resources, control its ecological footprint and reduce its ecological deficit by implementing better natural resource management, by more effectively regulating unsustainable and extractive sectors, by introducing barriers against environmentally and socially irresponsible practices that adversely affect the achievement of the SDG targets, and better incentivizing ecologically responsible and regenerative practices.
Among others steps, such a scenario would require more transparent reporting. More commercial activity will have to be brought under comprehensive integrated reporting, that is not just voluntary but mandatory. A country’s ecological footprint is nothing but the summation of the ecological footprints of its economic activities.
In addition to the GRI, we would like to highlight SASB (Sustainability Accounting Standards Boards), and the E P&L (Environmental Profit and Loss) methodology that takes a cradle to grave approach in studying the supply chain of a business to articulate its environmental impact and ecological footprint.
Apart from sovereign bonds the scope for such an analysis will need to be extended and applied while determining the overall health, earning potential, share price and solvency of private and public corporations.
Finally, we would like to raise the issue of stranded assets along with divestment & disinvestment.
This is a scenario where environmentally unsustainable assets experience premature write-offs, downward revaluations or are converted to liabilities. These risks are rarely factored into company valuations and this has resulted in over-exposure to environmentally unsustainable assets throughout financial and economic systems.
The most popular example being Unburnable fossil fuel. This concept ascertains that if we are to stay within the temperature rise determined by UNFCCC as safe, a significant portion of known fossil reserves cannot be burnt. Exxon Mobil has officially acknowledged this risk.
This is, in essence, the implication of not voluntarily adjusting investment and liquidity in line with the emissions trajectories required to prevent runaway climate change, and not limiting natural resource depletion to remain within our planetary boundaries. The impediments will be regulatory, economic and physical.
An investment regime equipped to finance sustainable development needs to immediately create mechanism to identify and disinvest from these stranded assets, and reallocate these resources to sustainable and regenerative avenues, along with the full implementation of the polluter pays principle.
In order to think beyond growth, our macroeconomic environment needs to needs to be prepared for such a transition. Keeping this in mind we would like to highlight the work in an IMF working paper the paper titled- “The Chicago Plan Revisited”. It was published in August 2012. It talks about moving over to a full reserving banking system from a current fractional reserve variant.
International Investor state dispute mechanisms must be condemned as they violate national sovereignty and threaten environmental and social protection.
Finally, we support what our colleagues from the Third World Network have said about trade regimes.