OVERVIEW

Current economic models have become more and more decoupled from sustainable development. Their benefits increasingly come at the cost of environmental degradation and collapse. Nor are they justly distributed; many people are left out or left behind. There is a growing recognition we need alternatives, from fixing what doesn’t work to rethinking economic and financial systems altogether. The sheer volume of ideas about what those alternatives should look like – from circular or regenerative economies, green or post- growth economies, to new or post-capitalism - is creating momentum for change, giving hope that these may grow into a fairer future for all.

SIGNALS

Economic growth is increasingly decoupled from human well-being and ecological balance. Even in the face of a triple planetary crisis – of climate change, biodiversity loss and pollution – fossil fuel subsidies and environmentally harmful agricultural subsidies persist, while political pressure is piling up on governments to slow down necessary reforms to build greener economies. Meanwhile, inequalities are fueling discontent. Gender gaps are increasing, youth unemployment is a growing problem in many developing countries. The IMF believes AI will worsen inequality, affecting 40% of jobs worldwide. Inequality means insecurity. Current social security systems are unprepared to cope with ageing populations. Increased risks and volatility from climate change are destabilizing insurance markets.

Values attached to nature and ecology are shifting from niche to mainstream. Over half of members of the Youth Global Climate Movement identified the root cause of climate and ecological breakdown as “a system that puts profit over people and planet.” The concept of nature as an asset class is growing, where investment returns are seen in biodiversity and ecosystem services; for example Brazil’s proposed $250bn fund, Tropical Forests Forever, to pay countries for slowing deforestation. Thailand, Kenya and Bhutan are among the countries taxing tourism to raise funds for the environment.

EU interest in post-growth economies and public support in Europe for such policies are increasing. A recent survey showed over half of researchers from non-OECD countries aligned with a green growth position – though some climate scientists are sceptical, believing that even “green” growth is incompatible with planetary boundaries. Indigenous economies are attracting interest as models that prioritize sustainability, respect for nature and collective well-being. Private initiatives for transformative investing aimed at wealth redistribution​ are emerging, like Resource Generation, whose members have committed to redistributing all or most of their money.

Initiatives like the Bridgetown Agenda are defining more sharply what reform of the international financial architecture should look like and who should pay for climate change. The Presidents of Ghana, Kenya and Zambia have made a joint proposal on how to make global finance work better for Africa. EU Ministers are proposing the fossil fuel industry should pay to fight climate change in developing countries, while G20 members Brazil, South Africa, Spain and Germany are calling for a tax on the rich that could generate $250 billion a year for climate and poverty. It has even been suggested that the IMF should be lending money to developed countries so that they can pay climate reparations.

Investment decisions are beginning to factor in development outcomes. Barclays has committed to mobilizing $1 trillion of sustainable and transition finance by 2030, and will stop directly financing new oil and gas projects. The Taskforce on Nature-related Financial Disclosures aims to shift financial flows from nature-negative towards nature-positive outcomes. A growing body of regulation, including the EU’s Corporate Sustainability Reporting Directive, encodes companies’ responsibilities to report their impact on people and the environment. The Taskforce on Inequality and Social-related Financial Disclosures139 will recommend something similar for inequality and social-related impact reporting.

Courts have ruled against exploitative and greenwashing companies in Mexico and the US. Small Island Developing States are seeking legal protection at the International Court of Justice. The European Court of Human Rights, in a case brought by NGO Elders for Climate Protection, found that the Swiss government’s action to combat climate change was inadequate. 

SO WHAT FOR DEVELOPMENT?

We cannot afford to continue to make investment decisions guided by short-term profit, ignoring the intergenerational costs to people and planet and missing huge opportunities for development. It is encouraging that companies are beginning to factor in the development impact of their investments, whether voluntarily or compelled by stronger regulation. Public financial institutions are growing more focused in linking their support for public finance reform to the development outcomes they are intended for, for example the World Bank’s “Reimagining Public Finance” and the IMF Global Public Finance Partnership. 

The most successful policies for low carbon tech transitions have been bold and integrated, rather than small nudges to a system assumed to self-regulate. Analysis of cases in China, India, Brazil and Europe suggests that investment in emergent technology - whether through subsidies, cheap finance, or bulk public procurement - gave a stronger impetus to systemic transformations, even though these technologies were not always the cheapest way to immediately cut emissions.

Local governments around the world are adopting the concepts of “doughnut economics” that call for redefining success not as endless growth, but rather as thriving in balance between social and ecological boundaries. Debate around the concept of circular economies has tripled in 5 years, with recent studies showing that circular economies could reduce by almost one third the current global volume of consumption. Examples include Roadmap for a Circular Chile by 2040;creating a regenerative economy in the Amazon; a regenerative supply chain for palm oil; regenerative farming in Kenya; and more cases of circular economy in practice. These are glimpses of new ways of rethinking economies and financial systems altogether. It seems that the current economic paradigm is waning - but without any consensus on what should replace it. Do we need a single terminology or approach, or is the plethora of pathways exactly what the future of development should be?