We've been dealing with economic and climate problems in a manner similar to the wise men in Isaac Bashevis Singer's stories: Instead of filling in a dangerous pothole, we've decided to build a hospital alongside of it to treat those injured. At today's closing panel at the Ceres Conference, experts weighed in on how we might rebuild a capitalist economy for sustainability and what went wrong.
Leslie Lowe, director of Energy & Environment Program, Interfaith Center on Corporate Responsibility drew applause from the crowd on more than one occasion, demanding radical system change. "As long as sustainable investing is a just a preference for some investors, it's not going to change the system."
David Blood, senior partner at Generation Investment Management laid out three steps to correct the system. Given that three quarters of people polled in the developed markets think that people in "our line of work" (i.e. finance) are overpaid, dishonest, or both, we have a real "crisis of capitalism," Blood relayed:
1. We need to internalize externalities by putting a price on carbon and rethinking how we calculate GDP.
2. We need to acknowledge that environmental, social and governance issues are critical business issues, not just "nice to have." This needs to become a mainstream conversation.
3. We need to rework the compensation structure for asset managers such that it rewards long-term performance. The current system promotes short-term thinking by rewarding on quarterly outcomes, which is detrimental to economies.
Lowe asked how an honest company can compete with "banksters" using fraudulent accounting -- and advised using collective power to solve the problem. "We've been bystanders of the catastrophe," she said. "We need to accelerate -- we are moving at a snail's pace and the problems are on the superhighway." Ideally the SEC and the EPA would work together to enforce environmental disclosure.
Lowe really got to the heart of the issue when she said: "We've mistaken the measure of value for value itself. Paper is paper. Real wealth comes from water, energy, soil, sun. We've got the idea that pieces of paper are our future ... We need to focus on real wealth."
Stephen Davis, from the Millstein Center for Corporate Governance and Performance at Yale School of Management moderated the panel and noted, "It's a systemic risk when investors sit on their hands."
Davis summarized the sentiments of the panelists:
1. There was no consensus on rating agencies (ratings were a point of contention throughout the panel between David Wyss, chief economist and managing director of Standard & Poor's and Richard Ferlauto, director of Corporate Governance & Pension Investment, AFSCME).
2. ESG disclosure needs to be mandatory.
3. Long-term performance must be linked with long-term pay and long-term ESG risk management.
4. Serious work needs to be done on rights and access to proxies.
5. Lobby reform is deeply needed.
6. Americans who've lost assets in the downturn need a new voice in capitalism going forward.
Image by Watje11.