Mariano Torras, PhD, professor and chair of finance and economics, responds to a published article, flagging “one of the major obstacles to progress on the environment: the lack of precise meanings of ‘green’ and ‘sustainable.’”

Mariano Torras is a Professor and Chair of the Finance and Economics Department at the Adelphi University Robert B. Willumstad School of Business.

The piece by Laurence Fletcher and Joshua Oliver (“Green funds risk a red flag”, Big Read, Feb​ru​ary 21), lays bare one of the major obstacles to pro​gress on the envir​on​ment: the lack of pre​cise mean​ings of “green” and “sus​tain​able”.

Thirty-five years ago Gro Har​lem Brundtland defined sus​tain​able devel​op​ment as devel​op​-ment that meets the needs of the present “without com​prom​ising the abil​ity of future gen​-er​a​tions to meet their needs”.

Yet not​with​stand​ing count​less quant​it​at​ive assess​ments and stud​ies on the sub​ject, the cru​cial terms “needs”, “com​prom​ise” and “abil​ity” remain vague. Con​sequently, while many might, for example, be quite cer​tain that activ​it​ies under​taken by com​pan​ies like Chev​ron and Shell are “unsus​tain​able”, the claim is vir​tu​ally impossible to prove.

Do the authors detect any irony in their stat​ing that on the one hand sus​tain​able and green are “seem​ingly vague” terms and, on the other, that investors poured exactly $142.5bn into sus​tain​able funds in the fourth quarter of last year?

Even the Cam​bridge dic​tion​ary appears to be of no help here since it defines “sus​tain​able” as caus​ing “little or no” dam​age to the envir​on​ment for “a long time”. What precisely do these phrases mean?

Basic account​ing and fin​ance inform us that sus​tain​able activ​ity is that which pre​serves wealth or assets.

Or, as the eco​nom​ist Sir John Hicks remarked, all income — pre​sum​ing, of course, it is pos​it​ive — is sus​tain​able by defin​i​tion.

Con​cep​tu​ally, it really is that simple. Unfor​tu​nately, since the envir​on​mental and social costs of “unsus​tain​able” eco​nomic activ​ity have always been murky, and often unquan​ti​fi​-able, oppor​tun​it​ies for decep​tion or obfus​ca​tion (referred to as “gre​en​wash​ing” by the authors) remain rife.

Mar​ket fail​ures come in many forms, but it is dif​fi​cult to ima​gine a more con​sequen​tial example.

Read the fill Financial Times article.

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