interdependence of complex ecosystems and opposing anthropocentric views that
privilege human interests over those of other forms of life. We might call these
‘dark-green’ transformations.
Denizens of quadrant 3 would also be sceptical about the possibility of ‘dematerializing growth’, but combine this with concerns over the distribution of income
and wealth. We might call this a ‘dark-green and red’ transformation, where we
would find academics such as Tim Jackson, think-tanks like the New Economics
Foundation,
9 and networks such as Research & Degrowth.
10
Quadrant 4 is where much of the international development community would
be found, where traditional emphasis on poverty and inequality are combined with
environmental concern. Within this framework, the dominant approach to
‘sustainable development’ has generally been more ‘light’ than ‘dark’ green. As a
result, we might call this type of transformation ‘light green and red’.
These different types of transformation are not equally compatible with different
modes of finance. Before examining these interactions the next section sketches
out a ‘typology of finance’.
A typology of finance
Modern financial systems contain a dizzying range of instruments, employed by a
diverse set of institutions. Despite large ostensible differences, however, the core
characteristics of these instruments fall into a relatively small number of groups:
equity, debt or derivatives, or some combination of these.
11 Equity is an ownership
stake, which may be publicly traded or privately held, and debt is the loaning of
a specified amount of money for a given time period at a rate of interest.
Originally used for hedging risk, but increasingly traded for speculative gain,
derivatives are financial instruments whose value is ‘derived’ from that of an
underlying financial asset. The main forms are forwards, futures, options and swaps.
While some are traded on formal exchanges (and the proportion is increasing due
to post-crisis regulatory pressure), the bulk of contracts are still agreed between
counterparties directly or ‘over-the-counter’ (OTC).
The main private financial institutions, the instruments they use and the
approximate size of their assets are described in Table 10.2. These institutions aim
to maximize their returns for a given level of risk – broadly, the higher the level
of risk, the greater the return required. Different institutions are prepared to accept
different levels of risk and so target different levels of returns. In Table 10.2, for
example, pension funds are quite risk averse, reflecting their need to be able to
meet liabilities for many decades. In contrast, private equity funds, most hedge
funds and investment banks, have a relatively high-risk tolerance. Public equity
and bond funds have varying degrees of risk appetite, as do commercial banks.
Similar differences exist between institutions with respect to maturities. Pension
funds have a relatively long-term approach to investment, while equity and bond
fund managers have a range of outlooks. Some ‘buy and hold’ based on long-term
value; other funds trade frequently in response to changes in macro indicators, politics
156 Stephen Spratt
privilege human interests over those of other forms of life. We might call these
‘dark-green’ transformations.
Denizens of quadrant 3 would also be sceptical about the possibility of ‘dematerializing growth’, but combine this with concerns over the distribution of income
and wealth. We might call this a ‘dark-green and red’ transformation, where we
would find academics such as Tim Jackson, think-tanks like the New Economics
Foundation,
9 and networks such as Research & Degrowth.
10
Quadrant 4 is where much of the international development community would
be found, where traditional emphasis on poverty and inequality are combined with
environmental concern. Within this framework, the dominant approach to
‘sustainable development’ has generally been more ‘light’ than ‘dark’ green. As a
result, we might call this type of transformation ‘light green and red’.
These different types of transformation are not equally compatible with different
modes of finance. Before examining these interactions the next section sketches
out a ‘typology of finance’.
A typology of finance
Modern financial systems contain a dizzying range of instruments, employed by a
diverse set of institutions. Despite large ostensible differences, however, the core
characteristics of these instruments fall into a relatively small number of groups:
equity, debt or derivatives, or some combination of these.
11 Equity is an ownership
stake, which may be publicly traded or privately held, and debt is the loaning of
a specified amount of money for a given time period at a rate of interest.
Originally used for hedging risk, but increasingly traded for speculative gain,
derivatives are financial instruments whose value is ‘derived’ from that of an
underlying financial asset. The main forms are forwards, futures, options and swaps.
While some are traded on formal exchanges (and the proportion is increasing due
to post-crisis regulatory pressure), the bulk of contracts are still agreed between
counterparties directly or ‘over-the-counter’ (OTC).
The main private financial institutions, the instruments they use and the
approximate size of their assets are described in Table 10.2. These institutions aim
to maximize their returns for a given level of risk – broadly, the higher the level
of risk, the greater the return required. Different institutions are prepared to accept
different levels of risk and so target different levels of returns. In Table 10.2, for
example, pension funds are quite risk averse, reflecting their need to be able to
meet liabilities for many decades. In contrast, private equity funds, most hedge
funds and investment banks, have a relatively high-risk tolerance. Public equity
and bond funds have varying degrees of risk appetite, as do commercial banks.
Similar differences exist between institutions with respect to maturities. Pension
funds have a relatively long-term approach to investment, while equity and bond
fund managers have a range of outlooks. Some ‘buy and hold’ based on long-term
value; other funds trade frequently in response to changes in macro indicators, politics
156 Stephen Spratt