The good folks at Zocalo Public Square, who featured Plenitude during the summer, asked me to comment on the financial reform bill. What’s the most important thing it got wrong? Here’s my answer:
The conversation on financial reform has been dominated by questions of systemic risk, too big to fail, consumer rights and protections, confidence, and compensation excess. These are all important. But there’s another set of issues that are even more pressing, and that’s the relation between finance and ecological sustainability.
Right now, investment proceeds with virtually no concern for the effects of the investment — that is, the activities it supports — on the planet. Both corporate entities and international financial institutions like the World Bank are funneling money to build highly-polluting coal-fired power plants, destroy tropical rain forests, erect McMansions farther out from urban centers, blast off mountaintops for coal mining, and the like. Much of this activity is truly suicidal — finance is flowing to activities that are profitable, but only because we’re using an accounting system that ignores virtually all environmental destruction. (In fact, in the GDP, environmental destruction often shows up as a positive.)
My one reform is full-cost environmental accounting. That means financial institutions would have to make decisions based on a price for carbon that is compatible with keeping global warming to an increase of 1.5 degrees, that the impacts on air and water quality and eco-system services would be a part of what determines where and how money flows.
If we did this, we’d be getting a wealth of beneficial innovation in the financial sector: location-efficient mortgages, protection of valuable bio-diverse forest resources, accelerated investment in clean, renewable energy, and an end to destructive extractive practices that are imperiling the livelihoods of people around the globe.