Sustainable Finance for Business

Rethinking Cash Flow, Equity and Investment

Molly Scott CatoProfessor of Strategy and Sustainability

University of Roehampton

Only a crisis—actual or perceived—produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes the politically inevitable.

Milton Friedman

Public Investment Bank?

• Project Merlin: targets missed

• Funding for Lending: risk transfers to taxpayer

• We hold controlling stakes in two banks

• Why £1bn. From taxpayers?—for high-risk securitised loans?

Laughing all the way?

The Last Great Depression

• Failure of aggregate demand

• Repayment of debts• Failure of lending and

borrowing• Recessionary spiral: ‘the

death spiral’

= wealth creation

= taxation

= private sector = public sector

= consumption

The Linear View

= wealth circulation

= wealth creation

= taxation

= private sector

= public sector

The Systems View

= third sector

= wealth circulation

= recirculation of taxed wealth

What really happened?

What really happened

Money: Unstable and Unsustainable

• Banks had resisted separation of retail from merchant banking

• Abolition of exchange controls in 1979: when Thatcher came to power you could only take £500 out of the country at one time

• Big Bang in 1986

And in the UK?And in the UK?

What Mervyn King said . . . What Mervyn King said . . .

‘Unemployment is up, businesses have closed, and the direct and indirect costs to the taxpayer have resulted in fiscal deficits in several countries of over 10% of GDP – the largest peacetime deficits ever.’

• ‘Of all the many ways of organising banking, the worst is the one we have today.’

Getting the boundaries right

• Businesses try to keep money flowing within their boundary

• Public authorities seeking growth should maximise flows throughout the system

• Banks should operate to support the second, not the first

Local Bond• Rates of return can

outstrip bank interest rates, especially when supported by the FiT

• Creates an investment vehicle for savers who receive virtually no return from banks

• Especially powerful on a local basis

Ecotricity’s EcoBonds• Launched in October 2010 to secure up to £10

million of funding for its Green Energy projects• Ecotricity challenged the profit rates required by

banks• By the deadline more than 1,800 people had

applied for almost £15million worth of EcoBonds, oversubscribed by nearly 50%

• The most successful private bond ever issued in the UK.

Mutual Home Ownership

• Creation and fair sharing of equity

• Also provides a pension• Balances asset holding

over the life course

Peer-to peer lending• Zopa has lent more

than £200m since 2005

• Makes equity sharing available on a small scale

• Shared risk but no significant commitment or relationship

• Shift consumption into the local economy?• Encourage activity in the core economy?• Reduce rather than increase inequality• Counteract recessionary pressures?• Reduce consumption?

Can we create money for a green Can we create money for a green economy?economy?

Encourage activity in the core economy?Encourage activity in the core economy?

Can we change the velocity of circulation?

• Interest encourages people to hold money and slows it down

• Negative interest (demurrage) might speed it up

• Silvio Gesell (1862-1930)• Do we want to speed up

circulation?

Uses principle of demurrage

Electronic and paper money

Back one-for-one by eurosCan be exchanged back

for a 5% feeMore than 500,000 in

circulation generating transaction volume of €0.5m

The ChiemgauerThe Chiemgauer

Design of the Stroud PoundDesign of the Stroud Pound

Bristol Pound

• Heavy involvement with local council• Partnership with credit union• Good support from businesses• Powerful media coverage• Can it compete with the pound sterling?

Find out more

www.greeneconomist.org

gaianeconomics.blogspot.com

www.greenhousethinktank.org

Green Economics (Earthscan, 2009)

Environment and Economy(Routledge, 2011)

The Bioregional Economy (Earthscan, 2012)