Me on sustainababble

This week’s Fund Strategy included the following comment by me on sustainability. There is also a related cover story but it is too long to put on this blog. It can be reached through fundstrategy.co.uk – you need to register but it is free.

The fund management industry seems to have taken on sustainability as a self-evident good. It is seen as being worthwhile almost by definition. The fundamental problems with the concept are ignored.

Yet as Daniel Ben-Ami shows in this week’s cover story the idea of sustainability has a specific meaning.

In its basic form it embodies two fundamental assumptions. First, the idea that humanity should accept environmental limits on its actions. Second, development needs to focus on basic needs if humanity is to survive into the future.

Both of these premises are contestable. There is a long tradition that sees human progress as consisting of overcoming environmental limits. From such a perspective such limits can be overcome by the power of science and reason. As a result the world becomes more prosperous and human well-being can flourish.

The idea of focusing on basic needs can also be seen as suffering from a chronic lack of ambition. Societies have typically done best when they have striven to achieve difficult objectives rather than reconciling themselves to mere survival.

The best thing we can do for future generations is to try to make society as prosperous as possible in the present.

None of this means that sustainable funds, or ethical funds more generally, need not be lucrative. It is quite possible for them to provide good returns. But it does not follow that the shift to “green capitalism” is a positive one overall.

There is always the possibility of niche investments in sustainable themes proving profitable. Huge government subsidies and extensive regulations are also likely to benefit some companies over others. Many ethical fund managers probably play as much attention to these as to corporate fundamentals.

The so-called “carbon markets” are a good example of the direction in which things are heading. They are not really markets at all but indirect forms of state regulation. The number of permits issued and the forms these exchanges take are the result of government action rather than organic development.

No doubt money can be made from such trading, in some cases bonanzas, but whether they are the best mechanism to deal with climate change is another matter.

More generally the shift to green capitalism is likely to hinder rather than promote genuine development. Although the economy will still grow its expansion is likely to take the most conservative forms. Renovating the old will take preference over developing the new.

The tried and tested will be favoured over the innovative. We will be trapped in a mundane world in which the ambitious is viewed with anxiety while the familiar is exalted.