FinancialGuy Writes!

Your author was fortunate enough to attend an excellent event last night. The Bavarian Permanant Representation In Brussels played host to WWF and ‘Make Space For Nature’ in this the International Year of Biodiversity.

The event had an excellent array of speakers. Hosted by HRH Princess Laurentien of the Netherlands were European Commissioner for the Environment Janez Potocnik, Jo Leinen MEP, Pavan Sukhdev and others.

The TEEB project offers a fascinating insight into the “value” of nature and biodiversity. Needless to say, we humans have ignored or not even considered the economic value of the world around us. As Mr Sukhdev says, we make economic decisions with much relevant information missing. In short, without considering the full cost over a cycle of our actions, we make poor decisions.

This means that while in the short-term, we may make rational decisions (to fish in a certain area, fell trees, farm one crop ahead of another, etc) based on which action brings a greater economic value, the long-term impact may mean that we are making a poor decision. For example, over fishing generally means that fish stocks reduce, thus generating smaller and smaller catches in the future.

With the 2020 vision for the EU due to be announced later today, there can be little doubt that the environment will play a major role in the vision. As will innovation policy. The shift to a low carbon, low emission European economy needs to really crank up. Understanding the decisions we make – as individuals, corporations, organisations and governments – and the impact they have on the world around us, and the world as a whole will be pushed to the front of policy planning. With luck, it all changes for the better from today.

The event made me think a little about what a huge decision making fault this clearly is of human-kind. Any sort of understanding of the financial crisis in 2008 shows just how rational short-term decisions can lead to unintended (or ignored) long-term consequences.

By lending money now to people with no jobs and / or income, a large commission can be generated. Woohoo!! We all love large commissions!! But by doing this, we cause financial pain for the borrowers, add risk to the mortgage book, slightly weaken the overall state of the national economy and (via slicing and dicing) manage to weaken investment funds and pension portfolios around the world. Each decision in the chain was rational with a short or medium perspective, but clearly questionable over the long-term.

But hey, we love that commission payment!

And so it seems that we do exactly the same when it comes to our use of the environment. Lets be honest, we knew that anyway, we just had not had it quantified before. Every time a car engine is switched on, or a tree is felled, or, or, or, we cause a tiny little bit of damage. This damage has no immediate economic cost to us, so we ignore it. Hey, it was free!

But with climate change becoming a very serious issue for many tens and hundreds of millions of people right now, that economic cost is becoming more visible and relevant by the day.

Can you give more thought to the full cost of decisions in the future? It is difficult, but we all need to try.

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