Our current economy causes damage to the living environment and people. Think of the loss of biodiversity rather than the growth of income inequality. If our economy is not a sustainable yet, how does Klaas Knot, president of De Nederlandsche Bank (DNB), think we can get there?
In my role of blogger for reshaping business education (RBE) of The Hague University of applied Sciences, I attended the third so called One Planet Talks. These talks are organized by Museon and Omniversum, an organization that uses its expositions and events to sensibilize visitors and citizens to topics related to sustainability.
In recent years, civil society has asked central banks to make their own part in building a more sustainable economy. Thus, Klaas Knot was invited to share its views on sustainability from his position as the president of the Dutch Central Bank. After the lecture, our THUAS students got the opportunity to make question on several topics (Sustainability, Inflation, Cryptocurrencies, Blockchain, CBDC, EU cooperation and euro). This blog summarizes only the part of the talk related to sustainability.
The event started with a key-note speech from mr. Knot:
“The human race, with its wishes and needs, had a considerable impact on the planet. Dinosaurs could only dream about it. We, as humans, have made our own choices without considering the future consequences. Nonetheless, I believe that the footprint of the human race on our Earth had really begun with the enlightening era. With our free and independent thinking and will, we started to narrow the limits that mother nature had imposed and we started exploiting its resources, indifferent to the repercussions on the ecosystem. Today, we must change the way we make decisions. We should make choices that do not consider only the present generations but also the future ones, which cannot control our present.
Every sector of our economy harmed the environment, even the financial world. Central Banks, being part of this environment, should also be blamed. But both the financial sector and central banks depend heavily on governmental policies and plans. Therefore, only if our governments take the lead in guiding the society in the green revolution, the financial sector will change its mindset and adapt to the new requirements.
Still, be careful when talking about economic transitions. Some see the current economic progress as the cause of global warming and thus ask for an economic underdevelopment. I don’t believe that de-growth is the way we should take. Sustainability and growth are not substitutes but rather complementary. Nowadays, green investments offer the highest returns and employment opportunities, hence development. Therefore, our role is to support the green revolution, while ensuring that nobody is left behind. But should we leave the transition to the “invisible hand” described by Adam Smith? No, we need governments to take a clear position and create policies that can help people and businesses switching to greener mindsets.
If we are all here today, we all feel the urgency to act. Sustainability works also applying small changes, changes that each and every one of you can implement. The age of green reason has begun. The Anthropocene epoch of the Earth will not be the last one and we must seek for some real hands instead of invisible hands. I’m in. Are you?”.
Then, it came the time for THUAS students to ask their questions to Mr. Knot. The first question was from Charlotte Williams. She asked what DNB policies on sustainability Mr. Knot would consider as the most successful, and why.
Knot replied that this was a difficult question to answer since the DNB had just begun to include sustainability among its core focuses. Still, pricing properly environmental externalities would be a good start. When a flight Amsterdam-Nice costs 45 euro per person, the price does not account for the actual costs of pollution produced. Based on the environmental externalities of the trip, the price should be much higher. As long as prices are not adjusted for the actual environmental impact, transition will fail. When correct pricing will be implemented, sustainable products will become cheaper, pushing citizens to choose for these products rather than the polluting ones. Governments can implement this already through taxation and information disclosure. Taxation enables to increase costs of more polluting goods, while incentivizing companies to become greener and citizens to buy sustainable. Disclosure of climate impact would also make citizens more conscious in their choices.
Then it was the turn of Agita Berzanskaite. She wondered how the DNB would you deal with profit-driven companies that claim that becoming more sustainable decreases their profit margins.
President Knot invited to connect this question to what said previously. Once you make polluting profits more expensive and tax emissions properly, companies would only gain by being sustainable. Therefore, it is all a matter of creating the right incentives, to foster a switch of mentality.
After these two questions, the discussion moved to other topics, but because of personal interests, I would like to keep the focus on sustainability and give my opinion on what heard.
First, I don’t think that we would turn to greener economic models only through pricing externalities properly. The issues of overconsumption and overproduction, which existed because of our capitalistic standards, remain unsolved. I think there is also an inner transformation process necessary to change our behavior and our wishes and needs. And maybe also de-growth is necessary in the overdeveloped countries.
Finally, in the context of Reshaping Business Education (RBE), I thought it was a very nice and appropriate session. Because RBE also aims to embed another type of (economic) thinking more integrally in the curricula of higher professional education.