The importance of Cross-Sector Collaboration

There is a common understanding of the urgent need for change towards sustainable business practices. At the same time far too little is done by the relevant sectors in order to move to sustainability. [1] One could even say, that the policy makers, financial decision makers and businesses sometimes hinder each other with regard to environmental and social friendly business practices. [2] E.g. Banks and investors are incentivised to provide money to industries which might be environmental unfriendly as they are often considered less risky due to subventions by the government.[3] Various energy subsidies still exist in the U.S. to promote the production of cheap and abundant fossil energy. [4]

 

I think it is common sense that it should not be cheaper to get money for a venture which is harmful for the environment than for one that focuses on sustainable business practices.

In order to change todays unsustainable economy into a sustainable one, the dialog and collaboration between these sectors has to be intensified. Businesses are highly dependent on the circumstances set by governments, so they have to be adjusted in a way they encourage sustainable actions. [1] The Paris Agreement was a great first step, where governments sat together to discuss global principles for the economy, society and financial systems aiming to mitigate climate change. [5]

A big issue in the transformation and a “new collaboration” of economy, policy and finance is the measurement of economic success. Shareholders are looking for investments which bring short term financial success, instead of long term sustainable growth, taking the environment and society into account. That’s also how the reporting regulations are laid out (quarterly repostings). Luckily a slight shift from shareholder value creation to stakeholder value creation can be observed already, but needs to be intensified in the future. [6] 

Wouldn’t stakeholder change to a more long term investment approach, when the reporting regulations where adjusted to long term goals? I can imagine that they would also be more likely to adapt their investment horizon accordingly.

The Sustainable Development Goals (SDGs) are a great basis to incorporate common guidelines to promote sustainability in all sectors. The Cambridge Institute for sustainability suggest a 10-tasks-10-years plan based on the SDGs which will lead to advanced sustainability in the economy, when complied by all institutions. They call it “rewiring the economy” and it goes beyond CSR reporting. [1]

It is vital that governments, businesses and the financial sector start working together towards the same goals in order to achieve SDGs in time. This way, the governments will be more likely to work towards an economic environment, which promotes/rewards sustainable business practices which will then be more interesting for public and private investors.

Sources:

1. J. Reynolds, Rewiring the Economy (Cambridge: University of Cambridge Institute for Sustainability Leadership (CISL), 2017).

2. Better policies for sustainable development 2016: a new framework for policy coherence (Paris: OECD Publishing, 2016).

3. D. Avermaete & D. Bouzas, Encouraging and rewarding sustainability (Brussels; Frankfurt am Main: European Banking Federation, 2019).

4. A. Laporte, Fact Sheet: Fossil Fuel Subsidies: A Closer Look at Tax Breaks and Societal Costs. eesi.org, (2019). https://www.eesi.org/papers/view/fact-sheet-fossil-fuel-subsidies-a-closer-look-at-tax-breaks-and-societal-costs (accessed October 11, 2020).

5. Paris Agreement. Climate Action – European Commission, (2016). https://ec.europa.eu/clima/policies/international/negotiations/paris_en (accessed October 10, 2020).

6. R. Bhowmik, Four ways to walk the talk on long-term value | EY – Global. ey.com, (2020). https://www.ey.com/en_gl/wef/four-ways-to-walk-the-talk-on-long-term-value (accessed October 10, 2020).

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