UN Member States Receive Report on Finance for Sustainable Development

Commentary by Hazel Henderson, Editor-in-Chief

Good News from Mr. WU! The UN Report on Finance for Sustainable Development shows the global economics paradigm shifting: from today’s financial model of the global casino dominated by high-frequency trading and multi-trillions in derivative positions far exceeding the real world economy’s GDP – to finance as service to the real economy, as a public good accessible to all, which we at Ethical Markets advocate (see our TV series “Transforming Finance” at www.ethicalmarkets.tv and for educators worldwide at www.films.com and our MOOC www.ethicalmarketsexploratorium.com).

This report, following the UN’s Monterrey, Mexico, summit in 2002 on Financing for Development, has tracked these issues through the financial crises of 2007-8 and how these gradually changed the global debate. From the Reagan-Thatcher 1980s model of globalization as “market-based reforms”, privatization, etc., we now find new language for reforming markets themselves: Financing For Sustainable Development and, since 2012 and RIO+20, from MDGs to SDGs (Sustainable Development Goals ). The report accurately tracks the growth of ethical, socially responsible investing by private investment managers, NGOs, the UN’s leadership in the Global Compact and the Principles of Responsible Investing (in which Ethical Markets is a signatory), green bonds , innovative digital “cellphone” banking and other ways to bypass sclerotic financial intermediaries still using models derived from obsolete economics, discredited by the 2007-8 crises. The report advocates the new model of ESG (environmental, social ,governance) investing now prevalent in many portfolio managers’ toolboxes and adds the missing piece: economic and market reforms, i.e., EESG. This moves the paradigm towards the new accounting standards of SASB, IIRC, ICAEW and others now finally ending the legitimacy of old business models based on externalizing costs to taxpayers, consumers, future generations and the environment.

The report also shows how vital is the role of governments at all levels in funding innovation, R & D, education, and making sure their regulations are well-focused, democratic, flexible, transparent and implemented in multi-stakeholder deliberations. It also recognizes that political corruption and tax-havens are rampant and must be curbed by international coordination and disclosure. High-frequency trading(HFT) and the role of derivatives in de-stabilizing current financial markets is recognized and how trade rules must not favor investors over citizens, local rules and environments.

Beyond these important tasks for multi-lateral agreements between countries, the report shows the need for global safety-nets for disadvantaged people and how digitization in so many sectors of our economies is changing job markets. This is leading to “Jobless Economic Growth“ and the need for guaranteed minimum incomes, as in Milton Friedman’s negative income tax and the Contingent Cash Transfers in Brasil and Mexico as I covered in my Building a Win-Win World (1996, 2008 e-book). The report covers why re-distribution is needed , such as Earned Income Tax Credits ( EITCs) and other tax reforms and social services to prevent further inequality.

The report notes the need for more market-based reforms: from carbon taxes and financial transaction taxes (initiated in many countries so far), and includes references to the growth of green bonds (as we cover in our forthcoming Green Transition Scoreboard® mid 2014 update ) and also references new shared platforms for more coherent asset management of long-term pension funds, such as the U.K. Pensions Infrastructure Platform which can bypass obsolete financial intermediaries’ and their failed models. The essential role of countries and their citizens democratically controlling and owning their own resources is emphasized , as well as references to the new regional approaches to financing.

Ethical Markets welcomes this ground-breaking report , which is also integrating so many of our policy priorities and recommendations and providing important input to the Open Working Group on Sustainable Developments Goals. We recommend additional references to the need for more market reforms beyond carbon taxes (much better than “cap and trade“ systems) but still mysterious, and simply calling for pollution taxes, which are very popular with voters! We also advocate that natural resources should be priced, as TEEB proposes , but at replacement costs (since we need to identify which resources are irreplaceable at any cost).

We would like to see more market-based reforms of stock markets’ new platforms, particularly for HFT, electronic trading, such as the recently launched in October 2013 IEX Investors Exchange www.IEXtrading.com which provides a technical solution: an electronic platform that automatically shuts out HFT, electronic front-running and other speculators (see my review of FLASH BOYS by Michael Lewis on www.seekingalpha.com). IEX founder Brad Katsuyama has testified before the US Senate on the need for such market reforms , including banning the so-called “maker –taker” kickbacks offered by these new electronic exchanges to brokers for routing orders to their exchanges and dark pools owned by big banks (see our Reforming Global Finance page) .

Lastly, Ethical Markets would like to see more focus in the report on overhauling obsolete economics models and statistics still driving economies and finance toward further instabilities and crises: GDP is a prime example (see our Beyond GDP page), but we also need more honest statistics on employment, incomes, wealth distribution and all the non-economic statistics we use in our Ethical Markets Quality of Life Indicators (I co-developed these with the Calvert Group in 2000).

While it was beyond the report’s remit, we also cover the role of central banks, money-creation politics, and how these models create unrepayable debt and serial defaults, such as that presently in Argentina, being held up by a single New York-based US creditor. We advocate orderly workouts of creditor debts using a version of the US Bankruptcy code, Chapter 9, which protects social services in municipal bankruptcies.

Read the full report.