Financing Change: The Financial Community, Eco-efficiency, and Sustainable Development

236 Pages·1996·1.459 MB·English

by  Stephan Schmidheiny, Federico J. L. Zorraquin, World Business Council for Sustainable Development

Financing Change

Financing Change
The Financial Community,
Eco-efªciency, and
Sustainable Development
Stephan Schmidheiny and
Federico Zorraquín
with the World Business
Council for Sustainable
Development
The MIT Press
Cambridge, Massachusetts
London, England
© 1996 Massachusetts Institute of Technology
All rights reserved. No part of this book may be reproduced in any form by any
electronic or mechanical means (including photocopying, recording, or information
storage and retrieval) without permission in writing from the publisher.
This book was set in Palatino by Wellington Graphics.
Printed on recycled paper and bound in the United States of America.
Library of Congress Cataloging-in-Publication Data
Schmidheiny, Stephan, 1947–
Financing change : the ªnancial community, eco-efªciency, and sustainable develop-
ment / Stephan Schmidheiny and Federico Zorraquín : with the World Business
Council for Sustainable Development.
p. cm.
Includes bibliographical references and index.
ISBN 0-262-19370-1 (alk. paper)
1. Financial services industry—Environmental aspects.
2. Financial services—Moral and ethical aspects. 3. Social responsibility of business.
4. Liability for environmental damages. 5. Sustainable development. 6. Economic de-
velopment—Environmental aspects. I. Zorraquín, Federico J. II. Title.
HG173.S297 1996
332.1′068′4—dc20 95-44373
CIP
Contents
Foreword ix
Acknowledgments xi
The World Business Council for Sustainable Development xv
Executive Summary xxi
I The Game 1
1 Eco-efªciency and the Financial Markets 3
Seven Key Assumptions 7
Business and the Environment 10
Eco-efªciency Versus Sustainability 16
Beyond Environment 19
Coming to Terms with Eco-efªciency 22
All This . . . and the Financial Markets 27
2 Financial Markets and the Development Process 29
Private Capital Flows 33
Foreign Investment and Sustainable Development 35
Global Integration and Trends 38
Financing Eco-efªciency in the Developing World 41
International Development Agencies 43
Innovative Financial Strategies for Cleaner Energy 47
vi Contents
II The Players 53
3 The Company Leaders 57
Leadership for the Long Term 58
Motivation for an Eco-efªciency Strategy 61
The Counterview 67
Communicating the Strategy 69
Ways Forward 75
4 The Investors and Analysts 77
Ownership 79
Fiduciary Duty 82
Ethical Funds 84
Socially Responsible Fiduciaries 86
Investment Managers in the Middle 89
Factoring in the Environment 91
Ways Forward 96
5 The Bankers 99
Environmental Pressures on Banks 102
Initial Responses 106
Banks and Small Businesses 109
Searching for Opportunities 110
Ways Forward 116
6 The Insurers 117
Legacies of Past Decisions 120
Future Risks 121
Taking Action 125
Using Insurance and Finance to Control Risk 127
Ways Forward 129
Contents vii
7 The Accountants 131
Understanding Market Demands 134
What Is an Environmental Cost? 137
Setting Financial Accounting Standards 140
Stretching the Boundaries 144
What Is Environmental Management? 148
Ways Forward 152
8 The Raters 153
How Traditional Credit Ratings Work 155
A Detailed Environmental Rating for One Company 158
Other Rating Systems 161
Strengths and Limitations of New Systems 163
Ways Forward 164
III The Scorecard 165
Appendix: Statement by Banks on the Environment and
Sustainable Development 177
Notes 181
Glossary of Acronyms 195
Selected Bibliography and Further Reading 199
Index 203

Foreword
Thirty years ago, concern for environmental issues was restricted to
small groups of scientists and activists but was effectively nonexistent
among the business and ªnancial communities. Since about the time
of the Stockholm environment conference in 1972, awareness of envi-
ronmental problems has become more central to the thinking of inno-
vative industrialists. This process is now gradually spreading within
the ªnancial community as banks and other ªnancial institutions real-
ize that they cannot ignore the implications of environmental policies
and concerns for their own businesses.
As an investment banker prior to my appointment as President of
the World Bank, I was closely involved with the World Business Coun-
cil for Sustainable Development, and am proud to be a member.
Through that connection I have observed with interest the ways in
which environmental concerns have become more important to the
mainstream activities of the ªnancial sector. Thus, I welcome this
valuable contribution to the debate about how businesses and ªnancial
institutions should take account of environmental issues. It puts for-
ward many interesting ideas on the appropriate incentives to encour-
age commercial enterprises to take account of the environment and the
need for sustainable development in their day-to-day operations.
At the World Bank we regard the promotion of environmentally
sustainable development as one of our fundamental objectives. Thus,
we look forward to building upon the ideas and approaches outlined
in this book as well as to cooperating with the business and ªnancial
communities in promoting the wide adoption of the most effective
practical measures that are emerging from the current debate. At the
same time, we recognize that the achievement of sound environmental
x Foreword
practices depends upon a constructive partnership between businesses
and governments. We hope that we can play a useful role in promoting
such partnerships and in assisting governments to put in place incen-
tives that ensure that economic growth is sustainable.
James D. Wolfensohn
President
The World Bank