Creating a Better Environment for Finance

One casualty of the financial crisis and subsequent global economic downturn has been employment in the financial sector. In the United States alone, finance employment fell by 233,000 jobs in 2008 — and more than half of that decline in employment took place in the last four months of 2008. Unfortunately, the worst may not be over: London’s financial sector, for example, is expected to shed nine percent of its jobs in 2009, by one estimate. What will become of all the skilled professionals losing jobs in finance?

One domain where financial acumen may fruitfully be applied is, perhaps surprisingly, environmental sustainability. Addressing environmental sustainability has traditionally been understood as necessitating a trade-off with economic benefits such as growth and prosperity. Over the last few years, however, this mindset has started to shift, as more and more managers have come to realize that economics can provide a way to address — and profit from — the sustainability challenges that beset human society. Companies have begun positioning themselves to capitalize upon a world where environmental and social constraints will inevitably cause dramatic shifts in how businesses are run. Forward-thinking organizations are seizing the moment to rethink not only their investment portfolios and their perceptions of risk but also their product and service offerings.

The creation and redefinition of markets to align our economy with environmental constraints is only in its infancy. Prominent among these efforts is the battle against climate change, in which the logics of economics are being brought to bear on carbon emissions. Carbon taxes and cap-and-trade policies are both being proposed as viable mechanisms for recalibrating markets and harnessing economic forces to help society reduce greenhouse gas pollution. Similarly, we are witnessing the emergence of “biodiversity” offsets, by means of which companies can counterbalance their environmental impacts in one geographical region by preserving vibrant natural habitats in other areas. Royal Dutch Shell plc is using this approach to help preserve antelope populations and other fauna in Qatar, offsetting the impacts of developing a new natural gas facility being built in another part of the country. In a similar fashion, the United Nations is promoting the concept of “reduced emissions from deforestation and degradation” (REDD) to place an economic value on existing rainforest because of its high capacity to sequester carbon.