The basic narrative of our times is that our current path is not sustainable. The world’s answer has been the Paris Agreement and the UN Sustainable Development Goals, signed in 2015. After these, a huge number of initiatives have been set in motion to make the world a more sustainable place.
Ten years ago, the financial sector was in the middle of a full-blown crisis, widely seen as the result of too much innovation, greed and speculative risk-taking in the sector itself. Since then, the financial sector has been de-risking, and is now seen as a part of the solution to environmental challenges. In this context, there is a huge effort going on in the industry to define what is in fact sustainable.
Sustainable finance has a long tradition in the Nordic region. My own institution, the Nordic Investment Bank, integrated sustainability considerations into its loan processes at a very early stage. Whereas the prosperity of the region has been a major driver for the Bank since its establishment, environmental aspects became an integral part of our financing decisions at the beginning of the 1990s.
One key learning from the Nordics is that sustainability is not only about green. The balanced development in the Nordics can be explained by an approach in which economic, social and environmental aspects go hand in hand. When society is stable and the citizens have trust in their institutions, it is easier to take a long-term view on developing the economy and protecting the environment. This traditional, holistic view resonates well with the UN Sustainable Development Goals.
We should also not be blind to the fact that there could be victims from the green transition. When industries are challenged by green change, we must not forget those who may lose their jobs. Even though economists might see this just as a “short term adjustment”, for those who are affected it may be devastating.
In this respect, there are parallels between the green transition and globalisation. The world’s economies have become globally interconnected, lifting hundreds of millions of people out of poverty.
But globalisation has become unpopular in some parts of society in the developed world. Many industrial workers feel they have lost their jobs to cheap labour in developing countries. They may see themselves as victims of a policy that did not consider the consequences for them. That has paved the way for populist politicians who now lead resistance against globalisation, climate action, claiming workers will once again pay the price.
When we now see sustainable finance growing, it is important that we look to see if there are victims in this process of green transition.
Therefore, the focus should not only be on the environment, but also on the economic and social elements of sustainability. Increasing productivity is the main factor driving growth and income levels, leading to welfare and prosperity. We are living longer and healthier lives, which means a shrinking working-age population will have to provide for a larger proportion of dependents. As a result, our production will have to be ever more efficient in order to uphold sustainable growth.
We believe that equal economic opportunities are an important driver for productivity and long term sustainable growth. To support that goal, we finance projects which improve access to education and healthcare, be it schools, libraries or hospitals. That way, we create long-term conditions for our contemporaries and our children to live in a sustainable way. To leave people behind would jeopardise the change we need.
So there is much which is pointing to the need for social inclusion. And as we speak, there are also many actors in the financial markets who are increasingly taking into account social indicators when they make investment decisions.
But is it enough for bankers to produce Excel sheets with social indicators in them? It should be more than an exercise in ticking boxes, as it will move money to the assets which have a sustainable social impact. For that to happen there should be a change in attitude.
The report Nordic Economic Policy Review 2019 argues that the most effective way to reduce global greenhouse gas emissions would be to promote the development of clean technologies. The idea would be to develop sustainable solutions that could be replicated and scaled in other parts of the world.
As there may be things that can be learned from us, we should also learn from others. It does not matter from where the sustainable solutions come. The important thing is that they are being developed.
In addition, for this exchange of experience and best practice we need to co-operate, not isolate ourselves. The green transition is a global challenge. It is twice as hard to solve it in a fractured world.
Henrik Normann is President and Chief Executive Officer of Nordic Investment Bank