THERE is an important question that almost no one is asking: Are world financial markets bad for the environment?
The query may at first sound absurd, but consider this logic. To conserve the environment we need ''sustainable development.'' That is: forms of progress that meet needs today without making it impossible for future generations to meet their own needs. Whatever forms of progress we get - sustainable or otherwise - are going to be financed mainly by stock markets, bond markets, and debt markets (banks).
These markets rigorously ''discount'' the future. They place little or no value on clean air and water or a stable climate. They purportedly encourage companies, and investors, to think only of the next quarter's returns, never of the next generation. They have not been very effective at rewarding clean companies nor punishing polluting companies.
So, are financial markets intrinsically opposed to this goal of sustainable development?
The World Business Council for Sustainable Development (WBCSD), a global group of 120-plus like-minded corporations, recently created a task force to study this question. Our findings are now published in book form.
First the bad news - and this is not a new thought but may be a new insight for many. It almost always makes more financial sense to destroy a sustainable natural resource by overuse or overharvesting, and to put the money in the bank, rather than to use the resource sustainably. This is true of forests, whales, fish, and usually of topsoil.
It is true because, with prevailing interest rates, one can enjoy higher annual returns by harvesting and selling all the trees or fish, and banking the money, than by harvesting sustainably. Interest earned will almost always exceed annual profits from maximum sustainable yields of slow-growing creatures like rain-forest trees. Human laws and institutions must be made to reflect this dire reality.
Now the good news. We found a lot of positive change in the financial community. A growing number of companies are moving beyond regulations and even beyond green consumer pressure to prove to themselves and the markets that ''eco-efficiency'' pays. Eco-efficiency is the word the WBCSD coined to describe businesses that add ever more value with ever less waste and pollution.
Some investors are making money in the fast-growing environmental sector. A rising minority of analysts and investors realize that eco-efficient companies are generally better managed, and that good management is a vital indicator of corporate success.
Bankers suddenly got interested in the environment in the early 1990s because of a few US court cases that made foreclosing banks financially liable for the ground pollution caused by the foreclosed company. So more and more banks are establishing environmental officers to make sure they don't lend to polluting companies which might themselves incur large fines and thus become bad debtors. A few banks are even selling business customers advice on environmental liabilities.
Many insurance companies - paying out more each year for devastating storms and floods - are becoming as convinced as environmentalists that pollution is changing the climate. They are beginning to attend governmental climate meetings and to lobby for action. They are also creating new business by becoming environmental consultants. The key question is: Will they follow the same logic in their investments as they see in their risk business? If so, their vast investment power would encourage eco-efficiency, and thus slow climate change.
We found that the accounting profession, often accused of being the most conservative among the financial- community players, is in fact among the most creative in coming up with new ways to help companies account for their costs in using environmental resources. The standard accounting practices of the US are steadily gaining in ''environmental content,'' and these practices are being adopted among the world's emerging markets.
Even the rating companies are adding the long-term value of environmental conservation to their rating techniques and are developing new types of environmental rating systems.
Over all, on the question of whether financial markets are ''anti-environment,'' we found cause for concern, but also a lot of changes in the financial community, which is slowly beginning to equate corporate financial excellence with environmental excellence. We think that, without major changes in laws, the markets will begin to reward clean companies more - as profitability is seen to be linked to eco-efficiency, which is a crucial part of Total Quality Management.
And instead of finding gloom and doom, we found a lot of business opportunity in the slow progress toward financial markets that place value on ''sustainable'' environmental practices.