Allen L. White: Sustainability and the Financial Crisis
Allen L. White
The viral character of the financial crisis is a painful reminder of the dark side of globalization. No country, not even one as geographically isolated as New Zealand, is insulated from the damages of a global financial system that lacks both the moral fiber and institutional capacity to drive the sustainability agenda that the world urgently needs.
What began in the US as a crisis of plummeting values in mortgage–based securities has quickly spread to all corners of the world in the form of a global credit crisis, economic contraction at levels not seen in decades and spiraling unemployment, all accelerated by a breakdown in the most critical ingredient to a sustainable global economy: trust and transparency in financial markets. The result is a worldwide economic meltdown, from recession in New Zealand, to near collapse of the US auto industry, to the closure of thousands of export–oriented factories in China and the resulting threat of large scale social unrest.
Governments worldwide have been forced to intervene using a variety of mechanisms to rescue both failing financial institutions and corporations alike. Bailouts of General Motors, Chrysler and the giant insurer AIG, US and UK infusion of billions of dollars and purchase of equity in large banks, and Australia and New Zealand’s actions to guarantee all savings deposits in banks and financial institutions. Such actions, unimaginable only a few years ago, have suddenly become unavoidable as the financial crisis spreads rapidly across frontiers and organizations and confidence in financial markets plunges worldwide.
This moment of bleakness is an opportunity to ask if our current approach to sustainability will create the prosperous and just planetary civilization we all seek. Are we on the road, in the words of Professor James Gustave Speth of Yale University, to a “new consciousness” or, alternatively, will we remain captive to piecemeal, issue–by–issue approaches that collectively do not amount to the values shift that will drive societal transformation toward a sustainable future.
It will take years to recover from the current crisis. And it will an equally long time to untangle the range and roles of responsible parties, from unscrupulous Wall St. asset managers to flawed credit rating agencies, to breakdowns in due diligence among trustees of public pension funds. But wherever the blame lies, few would doubt that the current system of global finance is in dire need of a moral compass.
Voluntary initiatives such as the Principles of Responsible Investment (PRI) are hopeful signs. They have attracted hundreds of signatories from among many of the world’s largest asset managers and pension funds. But if they alone were up to the task of creating a values–based, sustainable financial system, the world would not be confronting the financial precipice that it currently does.
Like all business organizations, financial firms must be held accountable to a higher purpose that supersedes monetary gain. That higher purpose is to serve the public interest. Indeed, the purpose of all business organizations should be to harness private interests —competitiveness, innovation, value–creation—to serve the public interest. Only if and when this premise is generally accepted and put into practice by companies, governments and civil society can we hope to avoid calamities like the current global crisis.
The words of US President Franklin Delano Roosevelt, in his 1933 inaugural address delivered amidst the early days of Great Depression, ring as true today as they did 75 years ago:
Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men…They know only the rules of a generation of self–seekers. They have no vision, and when there is no vision the people perish…The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.
Allen White is the Co–Founder and Director, Corporation 20/20, Co–founder and former CEO, Global Reporting Initiative, and Senior Fellow, Tellus Institute (Boston, USA)