How sustainable finance can tackle the climate emergency

This collection of essays from the Social Market Foundation and the Chartered Banker Institute looks at green finance and impact investing.

The Social Market Foundation was established in the summer of 1989 and began work with the publication of Paper No 1: The Social Market Economy, by Robert Skidelsky. In that essay, Skidelsky set out the view that the market economy, where goods and services are owned by people and companies and traded between them, is the best way to deliver wealth and happiness: “The most hopeful political development of recent years is revival of belief in the market system. It has become worldwide, uniting rich and poor, capitalist and socialist countries in a common language and the beginnings of a common practice. In Russia, China, and Eastern Europe, the monoliths of state socialism have started to crumble; in the West the army of officials is in retreat. New Vistas of freedom and peace have opened up as the world starts to converge on the ideals of political and economic liberty.”

However, Skidelsky was clear that support for the market does not mean the market alone was sufficient: “there remains a substantial role for government. Adding the word “social” to “market economy” is not just a political flourish. Its object is to draw attention to the elements of statesmanship and design necessary to sustain a market order.” I cite that 1989 essay here not because this collection happens to coincide with the 30th anniversary of its publication, but because I think it is directly relevant to the issues raised in this publication. Changes in the earth’s climate, the warming of the planet, have at least some of their origins in the failures of the market system to properly recognise in good time the environmental costs of economic activity.

Those changes also pose a fundamental threat to that market economy, both by physically disrupting human activity, and by undermining confidence in the market system to address such challenges. Unless the market system can prove its ability to allocate the resources that will be needed to decarbonise economic activity and address the climate challenge, it is unlikely to remain, in Skidelsky’s phrase, “politically acceptable”; demands for direct state intervention, control and ownership would follow.

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