Rethinking Finance for Sustainability

Direct link to lecture audio file

This past Wednesday, the Bard Center for Environmental Policy (Bard CEP) and Levy Economics Institute hosted a public lecture entitled “Finance for Sustainability.”  Bard CEP director, Eban Goodstein, moderated the presentation by finance experts John Fullerton and Rick Stuckey of the Capital Institute, who focused on the emerging field of finance for sustainability.  Mr. Fullerton and Mr. Stuckey drew on the work of Hyman Minski, former Distinguished Scholar at the Levy Economics Institute, specifically focusing on Minski’s financial theories regarding the inherent instability of the financial system.

Mr. Fullerton began the lecture by illustrating the need for a paradigm shift in the financial system.  He went on to discuss the difficulty in transforming the financial system due to the presence of competing reductionist and holistic world views.  He stated that the underlying problem with the current system is that exponential growth cannot continue within a finite world with finite resources.  Fullerton provided a practical example of sustainable finance by introducing the audience to his Grasslands Project, “a custom grazing business” that simultaneously creates jobs, enriches the soil, sequesters carbon, and nourishes high quality cattle. The Grasslands website describes the project as “harnessing the power of the photosynthetic process and converting it into financial, human, and ecological capital.”

Mr. Fullerton also stressed the negative effects of the increasing wealth gap, citing studies by Wilkinson & Pickett that correlate increases in the wealth gap with decreases in well-being and Paul Krugman’s Inequality And Crisesblogpost on the New York Times webpage that suggested a correlation between inequality and crises.  Mr. Stuckey emphasized that financing is the most important source of instability in the economic system, highlighting how financial innovation has accelerated tendencies towards instability. He nevertheless argued that in a world of uncertainty, derivatives and options will remain critical tools to lower risk at the level of the individual portfolio.

The main point made by both presenters is that the world’s current use of the planet for raw materials and as a waste sink is unsustainable. The depletion of finite natural resources cannot go on forever. The emerging practice of sustainable finance aims to address this issue by regenerating the natural capital upon which our current system depends, thus bringing economic and financial systems into better alignment with the planet’s systems, while still meeting society’s needs.

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