If you find something peculiar about the inclusion of economic growth in the UN’s Sustainable Development Goals (SDGs), you are not alone.
Hans Stegeman, Chief Investment Strategist at Triodos Investment Management describes its presence as “very strange”; but there it sits, alongside goals to live within ecological limits barely acknowledged by the current economic system.
Specifically, SDG8 promotes “sustained, inclusive and sustainable economic growth”.
Stegeman, who describes himself as one of the few in the investment industry willing to speak publicly on the subject, points out that unlike the other goals and targets, economic growth isn’t an “end”: it’s a “means”.
But as a means overall, it has led to lifestyles – particularly among the affluent global minority – that are unsustainable, and completely out of kilter with planetary boundaries and distributive justice. It is estimated, for example, that the top 10% of the world’s earners are responsible for between 25% and 43% of environmental impact.
Is ‘sustainable economic growth’ an oxymoron then? Or could the economic paradigm which has taken us to the brink be the same one to save us? As the famous line from poet Friedrich Hölderlin goes: But where danger is, grows, The saving power also.
SDG8’s sub-targets make it clear that sustainable economic growth will be realised through a combination of technological innovation and resource efficiencies. But scholars have expressed grave doubts about the viability of this, with some arguing that SDG8 directly contravenes other SDGs, particularly those on climate action (SDG13) and responsible consumption and production (SDG12).
Triodos’ Stegeman agrees that, “if you actually look seriously at the academic evidence”, there is little to suggest that we can have sustained economic growth without any harm to the environment.
He does think it might be easier for carbon emissions, though. “I think you can make the case that you can mitigate climate change with continued economic growth, if you use carbon storage and capture and other unproven technologies; but in the case of biodiversity and other planetary boundaries, there's no evidence that we can.”
On this, he points to a “strange disconnect” between the most recent Intergovernmental Panel on Climate Change (IPCC) report and the 2019 report by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES). The former mentions no future scenario in which “degrowth or reduced economic growth” is entertained, he says, but the latter clearly states that “we clearly cannot go on this way forever and that we should rethink economic growth”. Stegeman jokes that there must be more economists behind the IPCC report.
Technology and efficiencies won’t cut it
Columbia University academic Steven Cohen says the world’s problems aren’t caused by economic growth, per se.
“There is nothing incompatible with capitalism and environmental protection, as long as rules are in place that control the environmental impacts of the products and services we make and use,” he wrote earlier this year in response to a New York Times article questioning growth, adding: “It is ironic that some environmentalists, along with some climate deniers, share the belief that we must trade off economic growth and environmental protection. We can and must accomplish both.”
But Oxford economist and author of Doughnut Economics, Kate Raworth, argued in 2018 that the data suggests this faith in “endless green growth” is a “flight of fancy”. “Unending growth cannot be decoupled from resource use on anything like the scale required to bring us safely back within planetary boundaries,” she said.
This was backed up earlier this year by an academic report claiming that “the overwhelming evidence from decomposition studies is that globally, burgeoning consumption has diminished or cancelled out any gains brought about by technological change aimed at reducing environmental impact”.
The study concludes that, unless we address consumption itself – particularly in the most affluent countries – technological solutions will “face an uphill battle, in that they not only have to bring about reductions of impact but will also need to counteract the effects of growing consumption and affluence.”
Investors must stop claiming to contribute to the SDGs by simply creating employment and contributing to economic growth
Stegeman tells RI that, from an economics perspective, this shouldn’t be a surprise, citing the ‘Jevons paradox’: the theory that, as energy efficiency increases, so too does consumption. The combustion engine, for example, has become more efficient, but vehicles have also gained in size and weight – in other words, consumer behaviour arising from lower costs offsets initial gains.
“Technically, a lot is feasible and there’s lots to be optimistic about,” he says. “But if you take a more economic point of view, and you look at the behaviour of people, there’s less reason to be optimistic. That’s what we have seen throughout history: lots of technological progress and more efficiency, but all at the expense of our natural environment.”
Anthropologist Jason Hickel argued in a recent paper that the implied global growth of 3% per annum in SDG8 “renders it empirically infeasible to achieve (a) any reductions in aggregate global resource use and (b) reductions in CO2 emissions rapid enough to stay within the carbon budget for 2°C”.
To bring resource use to sustainable levels, he writes, “would require efficiency improvements at a rate three to six times faster than has ever been achieved in history”, adding that “there are no examples of nations achieving sustained absolute decoupling and there has never been absolute decoupling at a global scale”.
But there have been signs it is possible to decouple emissions from economic growth: last year, the International Energy Agency published evidence that globally over the last few years, emissions from power generation have begun to flatten despite demand for electricity continuing to rise.
Questioning economic growth is generally seen to be something of a taboo. Stegeman says that, even at Triodos, which is well known for being a leader on sustainability issues, some of his fund manager colleagues “think, ‘Wow, we cannot discuss that because what does it imply for our long term returns?’”.
But as someone with a background in economics, he continues, “I don’t see how we can go on growing forever and be sustainable”.
Denise Hearn, author of the Myth of Capitalism, says that what needs to change first and foremost are the incentive structures and metrics used around economic growth.
“We are not going to stop growth or progress or whatever we call it,” she tells RI, “but I think the way that we measure it and the way we understand what is true progress is going to have to shift, because the way we measure economic growth, particularly with GDP, is so completely flawed and divorced from planetary boundaries and social consequences. I mean, war is great for GDP”.
From an investment perspective, there is one thing that needs to change, says Stegeman; and that is the “damaging” use of the economic growth component of the SDGs by asset managers. Investors must stop claiming to contribute to the SDGs by simply creating employment and contributing to economic growth, because those are things that, in themselves, could come at the expense of other Sustainable Development Goals.