"We need a different definition of a good life"

Two economists on a different form of economic growth

Economic growth is beginning to take its toll on people and the environment. Nature has reached its limits and people are rebelling against the unequal distribution of wealth. According to economists Hans Stegeman of Triodos Investment Management and Charles Kalshoven of APG, we need a drastically different way of thinking. "People are getting a different sense of what is valuable."

Hans Stegeman is a Chief Investment Strategist at impact investor Triodos Investment Management. He regularly publishes about the boundaries of the current economic system. Charles Kalshoven is a macro-economist and senior strategist at APG. In his columns, he discusses economic developments and how they affect our daily lives.

Hans, as an economist, you regularly publish about your belief that the current system of striving for endless economic growth is no longer sustainable. What do you mean by that?

"I'm not against economic growth, but it does have major negative consequences for the planet: climate change, increasing social inequality and the drastic decline in biodiversity. Some say that new technology can solve those problems, but I haven't seen any convincing evidence for that. I sincerely hope technologies such as CO₂ capture (capturing CO₂ as soon as it is released during combustion and thus preventing it from entering the air, ed.) will help, but I have my doubts. I really think we need to move to a different form of growth. Incidentally, I think economic growth is a limited concept for measuring progress. Growth doesn't always equate to happiness or well-being."

Charles: "Classic economic theory sees economic growth as the outcome of capital and labor. But since the industrial revolution, an important factor has been added, namely energy. And so far, this has mainly been fossil energy. This comes at a price, in the form of damage to people and planet. But it's not or insufficiently passed on in the price of products."

Still, poor countries need economic growth to get out of poverty.

Charles: "That's a dilemma. If you want to fight poverty, you need economic growth. And that in turn leads to a greater demand for energy. On the other hand, you want to limit the use of energy to combat climate change. So we have to look for a different kind of growth that requires less energy and makes more use of renewable energy. We need to handle raw materials more carefully and reuse them; we have to transport less stuff and people all over the world. What helps is that economic development usually leads to smaller families and thus lower population growth. And that benefits the climate."

Hans: "The boundaries of our ecosystem are rock-hard. There's only one planet earth. That can't be changed. We'll have to find a way to create prosperity for everyone within these limits. Prosperity is very unevenly distributed. The richest 10% of the world - and that includes most of the Dutch - are buying more and more stuff, without really being happy about it. While at the same time, there are billions of people who are starving and barely have a roof over their heads. This should be fairer."

How do we get such a sustainable, fair form of economic growth off the ground?

Hans: "We have to think differently in the West. We live in a competitive world where everyone wants to race to the top. With an expensive watch or designer clothing as a status symbol. But do they really make us happy? Or are they values such as togetherness and being satisfied with what you have? To achieve such a change in thinking, all parties involved must cooperate, the government, businesses, consumers and investors. You have to play chess on all boards. And each game starts from a different point. That's very complex."

Charles: "We need a different definition of 'a good life'. Currently, it's mass consumption. And status. But the things that bring status can change. The younger generation no longer thinks it's 'cool' to work 80 hours a week, and attaches importance to other things than making a lot of money. The government also has a role to play in this. It has to create a remote prospect, something we all want to aim for. And then stimulate this with laws and regulations. For example, by including the costs of CO₂ emissions in the prices of products."

Hans Stegeman (left) and Charles Kalshoven

Has 'corona' changed our way of thinking? Has it brought a sustainable economy closer?

Hans: "People are getting a different sense of what is valuable. For example, I asked if this interview could start 15 minutes earlier, because I wanted to pick up my son from school on the sleigh. What I've learned is that people are motivated by positive rewards, not by the deterrent effect of a negative outlook. If we want to change something in our economic thinking, we achieve the most by inspiring with positive examples. In particular, indicate what is possible and how this can contribute to our well-being."

Charles: "I've noticed that corona has had an influence on politics. In Europe, corona has really given a boost to green initiatives, such as the Green Deal (an action plan to make the economy of the European Union sustainable, ed.). The attitude of governments has also shifted from austerity and financial discipline to investing in society and supporting affected people and businesses. Increasing public debt is no longer as taboo as before.

Hans: "The virus has made us more aware of our relationship with nature. I do think that the government has missed an enormous opportunity by not attaching any conditions to support for businesses, such as Schiphol. This would have been a great opportunity to accelerate the sustainability of Schiphol. Maintaining something that isn't sustainable is actually a waste of money."

What role can pension funds and investors play in making the economy more sustainable?

Charles: "We play an important role with the money we manage on behalf of our pension funds. And that goes beyond excluding producers of bad products. We talk to businesses. For example, about how they can make the switch from fossil to sustainable energy. Or because we think they're doing very well and we want to share their example with other businesses we invest in. One example is Arcadis, which started to report on how they contribute to the Sustainable Development Goals, partly through discussions with us. The challenge is that there's still far too little information about the sustainability of businesses and projects. We therefore press businesses about it and contribute to the development of sustainability standards, so that as many investors as possible speak the same language."

Hans: "As an investor, you need to know where you want to go. And contribute to that. That goes much further than a CO₂ footprint that's lower than the market. The market as a whole is a reflection of the world and the world is far from sustainable. At the start of our investment process, we determine which positive developments we want to contribute to and that's what we invest in. Examples include micro-finance, solar panels or online platforms where you can buy food products directly from the farmer. Things like nuclear weapons and fossil energy are not part of that."

Triodos Investment Management has customers who consciously opt for a 'green' investor; APG serves pension funds which participants must be affiliated to. Does that make a difference in the way you can implement responsible investment?

Hans: "Triodos once started excluding certain investments on ethical grounds, and that has evolved towards a focus on positive impact. APG naturally has to deal with the expectations of participants in the pension funds for which it works. APG is given a specific mandate from the pension funds and this involves a specific policy. But it could be stricter, as far as I'm concerned. There has to be a lower limit. If the core of a business isn't sustainable and improvement discussions come to nothing, you have to leave. APG could also explain in more specific terms what positive impact it wants to achieve."

Charles: "We believe in the power of engagement (improvement discussions with businesses, ed.). If you sell all fossil energy companies, it won't make the world any greener. By talking to them, you can bring about positive changes. Companies such as Shell and BP understand very well that we have to move to a different form of energy. There's a lot of knowledge and money in the energy sector. We must take advantage of that. With assets of over € 500 billion, we can also take relatively large stakes in companies, which allows us to exert influence. But we also sell a company if engagement doesn't work in the end."

Hans: "There are fossil companies that are switching to green energy. Ørsted from Denmark, for instance. But the real change isn't going to come from the big oil companies. Most still want to milk their oil supplies for as long as possible. Rather, change comes from small businesses with smart, new ideas. We take relatively large stakes in these types of start-ups and non-listed companies. This allows us to exert influence right from the start."

Is investing in a sustainable economy at the expense of the returns you can achieve?

Hans: "Not in the longer term. Of course, in a year of rising oil prices, we won't benefit from it. But we won't be bothered by this in the longer term. Also, sustainability information provides additional insight into a business. It's a persistent myth that sustainability comes at the expense of returns. There are numerous studies that indicate that this is not the case."

Charles: "I agree. Responsible investing not only tackles financial risks, but also other types of risks, such as the risk that your real estate properties will flood due to climate change. If you know exactly where this is happening and take preparatory measures, you actually reduce the risk of your investments. Unsustainable investment, now, that's a risk."