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Can finance professionals rescue the environment?

Can finance professionals rescue the environment?

23 Apr 2014

Richard Spencer, Head of Sustainability at ICAEW, explains how initiatives like the Finance Innovation Lab can save the planet

Global financial meltdown was bad enough but what about catastrophic climate change?
Floods in the UK, forest fires in south east Asia, drought in California – the crisis with our climate could be more devastating than the financial crisis. Accountants were at the heart of the operation to rescue the global economy from financial meltdown and they have a similar central role to play in rescuing the environment from devastating change.

The desperate need to create a sustainable global economy throws up a range of issues which can only be tackled by a concerted effort among finance professionals who are in a position to change and modify the activities of multi-national companies and governments in ways which protect our planet for future generations.

ICAEW recognises the urgent need for strategies to create sustainable economies and the vital role its members have in averting catastrophe. As HRH Prince Charles, a member of the institute, has identified, there were three issues at the heart of the financial crisis: The rapid increase in debt without the ability to repay; over-confidence in the ability of market and regulatory systems to manage risk; and individuals and organisations incentivised to generate short-term profits without regard for their long-term sustainability. He went on to note that these issues also lie at the heart of a much more fundamental and alarming crisis for the climate and our world.

If we do not seek to avoid the issues concerning the climate, the ensuing economic problems will be dramatic. Long-term economic well-being relies on far more than the financial services sector and appropriate interest rates. It depends on a wider set of environmental and social considerations. If we can get this right, we can avoid the crisis yet to come.

A safe system for all
This has led to the creation of the Finance Innovation Lab. Its goal is to help create a financial system that is safe not just for bankers but also for society and the environment. The people who set up the Finance Innovation Lab believe that financial crisis has shown us that the current market arrangements, rather than markets per se, are flawed and have failed us. There is a strong public sense that the business world and the financial community in particular have abandoned values and ethical behaviour.

The Lab brings together two unexpected bedfellows, ICAEW along with WWF-UK (the World Wildlife Fund). This unlikely combination alone makes people take notice. Together the two bring expertise in the often incompatible worlds of finance and the environment. While many people working in finance care deeply about society and the environment they have not traditionally allowed these concerns to intrude on their professional lives. In fact it is possible to ensure that finance serves society and the environment. That is what the Finance Lab aims to do.

The range of themes the finance lab works on is dizzyingly broad. At the very highest level, the Lab provides a platform for discussion about whether economic growth is compatible with sustainability and if current measures of national progress, such as gross domestic product, lead society towards unsustainable development while neglecting more accurate measures of human well-being.

Accounting for resources
Take for example, the issue of natural capital – the damage inflicted by business or investors on society for which they do not bear the cost.  Under current arrangements, companies do not need to take many of these costs into account and so have little incentive to change their behaviour. In the end this can lead to disaster, not just for society but even for the businesses. David Nussbaum, at the World Wildlife Fund said that the risks of resource depletion need to be built into financial accounts in some way.

We are one of the founding members of the Natural Capital Coalition, which is a global, multi-stakeholder coalition, which works to build the business case and support the uptake of natural capital measurement, management, reporting and disclosure in business and investor decision making. With water shortages looming in many parts of the world, Mr Nussbaum believes there should be a way of accounting for the amount of water used to produce everyday items, such as cotton shirts.

Finance can be an incredible force for good. There is a lot of power that can be harnessed to protect the environment and reduce poverty. We just need to learn how to use this power.

The National Business Awards are now open and the deadline for entries is 23rd May. To find out more about the ICAEW Sustainable Business Award, and how to enter, visit www.nationalbusinessawards.co.uk.

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