“Solidarity, generosity, co-operation, looking after other people: this crisis brings out admirable values. However severe this crisis may be and however much pain and sadness about the loss of loved ones it may cause, it also highlights the strength of our society,” adds Kees Vendrik, chief economist at Triodos Bank.

At the same time, the crisis causes feelings of uncertainty. And that is completely understandable, says Vendrik. “Your income, your job or your company could literally be at stake. Or it may be a matter of life or death. Moreover, no one knows exactly how the virus and the crisis will develop in the next few weeks, months and years.”

“It is much better to get this right first time, so let's aim for green and fair straight away.” Kees Vendrik, Chief Economist at Triodos Bank

Still, in the last few weeks it has become even more obvious that we need to invest in sustainable development, a circular economy and in positive change within our society. Vendrik: “Governments are now organising large-scale support packages in order to reflate the economy. Such support should be aimed especially at enhancing sustainability. If we do not do that and in the midst of this crisis spend this money in an unsustainable manner, we will end up jumping out of the frying pan into the fire. Because it would mean that at a later stage, we would have to make another huge investment - this time in sustainability. It is best to tackle it all properly in one go: so green and fair right from the start. We can only really overcome this crisis if we do this sustainably.”

The economy of the future in ten steps

1. Build a resilient economy

If this crisis proves one thing, it is how important it is to strengthen the resilience of our economy. This is the view of Hans Stegeman, Chief Strategist at Triodos Investment Management. “At the moment, the economy and many individual companies turn out to be far from resilient. It only takes one mishap for them to immediately run into trouble.”

Many companies, especially listed ones, have organised their finances extremely efficiently, says Stegeman. “Everything is aimed at maximising profit and serving shareholder interests. So if something goes wrong, companies immediately run into trouble. For instance, they previously bought back shares in order to boost their stock market valuation, but consequently ended up with more debt on their balance sheets.”

According to Stegeman, operating like that is no longer tenable. “It is important that companies organise themselves more robustly. For instance, by retaining more capital as a buffer against setbacks.”

2. Stimulate social and green entrepreneurship
In recent years we have seen an increase in the number of companies and initiatives that not only have a solid financial basis, but also realise positive social returns. Vendrik: ”The current conditions underline the importance of this type of social and green entrepreneurship. Examples include organic farms, sustainable energy cooperatives and small-scale healthcare institutions. But also large and listed companies that measure their results not only in terms of profit but also in terms of social and sustainable impact.”

Vendrik's view is that for a long time we have lived in a culture where self-interest, competition and performance were paramount. “Just look at how we treat our planet and nature. The climate problem is the result of us putting our own prosperity and the expansion of our economies first. That comes at the expense of our planet, the environment and our climate. But it also harms the interests of future generations and of people in poor countries. Because they are the ones who are hit hardest by the impact of climate change and the rising sea level.”

This egocentric culture is a deeper, underlying cause of the corona outbreak, says Vendrik. “The scale of the outbreak makes it all the more obvious that this approach is unsustainable. We have degraded our climate and biodiversity on a global level, by regarding nature chiefly as something that we can exploit to our heart’s content. But now we are faced with the other side of the coin. The biodiversity loss, for instance, makes it more difficult for nature to combat germs and viruses by itself.”

3. Differentiate the economy to make it more robust
The fact that the COVID-19 virus was able to spread so fast and on a global scale shows the other side of our globalised economy. Stegeman: “We have tied everything together. The virus simply hitched a ride on the global trade flows.”

Moreover, adds Vendrik, “the rapid spread of the virus is probably due to the significant worldwide inequality. Due to the way in which the global economy is organised, poverty and deprivation are concentrated in certain countries and regions, for instance in emerging economies such as Bangladesh. In many respects, these countries are particularly vulnerable during this crisis.”

“The crisis helps us to take a more conscious look at the origins of the products that we buy, particularly our food” Hans Stegeman, Chief Strategist Triodos Investment Management

“Healthcare in these countries is nowhere near able to cope with this crisis. But the economies of these poor countries are also being dealt a huge blow, precisely because they have such a one-sided role in the global system. The economy of Bangladesh is 80% dependent on the textile industry. But large textile companies have cancelled most of their orders. As a result, the carpet has been pulled completely from under its feet.”

According to Vendrik, our economy needs to become more differentiated. “It is unsustainable that countries such as Bangladesh depend almost entirely on the cheap production of our clothing. It is important to invest in more diversity and in more robust economic development. This can be achieved by also providing opportunities for other economic activities to develop and by the West also investing in these activities.”

4. Invest in a fairer economy
In addition to developing a more differentiated economy, there are other solutions for achieving an economy in which money is shared more fairly. For instance, we can provide fair opportunities for entrepreneurs in developing economies by investing in micro-finance institutions, says Vendrik, “They give entrepreneurs in regions such as Asia and Africa a chance to develop their talents and set up sustainable companies. By doing so, they make an essential contribution to ‘social inclusiveness’: involving talent in the economy and in society and preventing people from missing the boat.”

“But investments in inclusiveness and a robust economic development could also involve donations from private individuals, companies and governments. Donated money is free money, in the sense that the recipient does not pay interest or make repayments. That is precisely why donations in particular can provide a powerful boost to the development of economies and entrepreneurs in poor countries.” According to Vendrik, cancelling legacy government debt is essential for many poor countries. “Many of these countries have accumulated unbearably high debts. These are millstones around their necks. If these debts are not cancelled, they will never be able to get rid of them. These huge debts make economic and social growth simply impossible.”

Furthermore, so-called true pricing initiatives are very important when it comes to providing fair opportunities for emerging economies. Stegeman: “True pricing is about the real cost price of products. It could mean incorporating the environmental impact of the production process in the retail price. Or the cost of guaranteeing a decent wage for every person who is part of the production chain. A concrete example is: if we in the Netherlands pay a fair price for our clothing, that will result in fair payment and better labour conditions for the people who work in the garment workshops in Bangladesh.”

Split within the Western economy

Not only people in emerging economies such as Bangladesh are vulnerable to the impact of this crisis, says Vendrik. “In rich countries too, a split has emerged in recent years between people with permanent jobs on the one hand and a growing group of flex workers and small, self-employed entrepreneurs on the other hand. The latter group is particularly vulnerable during an economic crisis. An economic downturn has an immediate impact on their income and social security. There is a chance that this crisis will only increase the inequality and make the split bigger. We need to be alert to this. We will have to ensure that the self-employed and workers with flexible contracts have enough rights and resilience to weather the storm. That means, among other things, that customers will need to pay self-employed entrepreneurs a decent price. And that people with flexible contracts obtain sufficient legal certainty.”

5. Further increase awareness about the origins of goods and food we buy
According to Stegeman, the crisis helps us to take a more conscious look at the origins of our goods and commodities. And especially our food. Stegeman: “Food is the basis of our existence. Does it therefore make sense to source part of it from the other side of the world and thus make us dependent on global food and transport chains?”

Stegeman expects that going forward this question will be asked more and more frequently. “When it comes to food, should we not aim for a smaller and more local scale? In my opinion we should, because that would make the food system more robust.”

A growing number of entrepreneurs is taking concrete steps to move to resilient, sustainable and local agriculture. Stegeman: “Farmers who base their business on a closed-loop system, for instance. They use the manure that their cattle produce on the fields where they grow their crops. This makes them independent from the supply of (artificial) fertiliser, sometimes from the other side of the world. Another example are organic farmers who produce for their local markets and sometimes even set up cooperatives that consumers can join as members. These cooperatives ensure that the farmer will realise a specific sales volume. And the consumers who have joined as members are assured of access to healthy food with a clear provenance, i.e. not from an anonymous source. And, finally, there is nature-inclusive agriculture: i.e. businesses that produce food but at the same time reinforce biodiversity and the quality of the ecosystem. 

During the outbreak of the coronavirus in the Chinese province of Hubei, it became clear how vulnerable a globalised and highly specialised economy is. Some essential components for LCD screens and cars are made only in Hubei. Because the province went into lockdown, many companies elsewhere in the world ran into trouble.

6. Reinforce biodiversity
Hans Stegeman: “We have made ourselves very vulnerable to viruses such as COVID-19, because we have seriously degraded nature's buffer capacity.” “Biodiversity, for instance, was hollowed out in recent decades, partly as a result of climate change.”

The extent of the corona pandemic underlines the importance of reinforcing nature and ecosystems. “Because healthy ecosystems are indispensable for combating the outbreak of diseases,” says Stegeman. “More and more individuals, companies and governments are aware of the importance of ecosystems and biodiversity.”

7. Government support required…
For a time, the neoliberal fashion was to criticise the government and expect the free market to solve everything, says Hans Stegeman. “That did change to some extent during the 2008 financial crisis and in later years, when governments had to throw themselves into the breach with huge sums of money in order to rescue banks.”

The corona crisis underlines once again that a strong government is indispensable. “This means a government that takes control when it comes to combating the crisis. But also a government that provides support for employees and companies where necessary. And that is now happening on a large scale. The governments of many Western countries have already promised support packages of up to 10 to 15% of the country's gross national product.”

If the crisis proves one thing, it is the importance of making our economy more resilient
Hans Stegeman

The European Central Bank and other central banks are also doing everything they can to get the economy going again, says Stegeman. “They are, for instance, buying up large amounts of government debt. This can be a sensible emergency measure, but no more than that. A much more direct way of supporting an economy is to provide extra resources to its citizens. This means temporary direct support for consumers. This guarantees that money ends up where it has the most effect: in the real economy. In other words: the money will then, via the consumers, end up with the businesses that produce goods and services.”

8. ...based on sustainable choices
When it comes to government support for companies, it is important that future-proof choices are made, says Stegeman. “And to be honest, that does cause me concern. Reflexively, governments now appear to focus mainly on supporting virtually every company that comes along and asks for help. Due to this policy (or rather the lack of a well-thought out policy) the big boys may well prove the big winners. Which means that a lot of money will go to non-sustainable companies that are part of the old economy. Oil and airline companies, for instance.”

Vendrik agrees that this is indeed a real danger. “I can imagine that governments want to support airline companies. But they need to attach very strict conditions to such support. For instance, that the company must be fully climate neutral by 2050.”

The awareness that this crisis provides the means for accelerating the transition towards a green and fair economy, is fortunately broadly based in society and politics, says Vendrik. “Euro Commissioner Frans Timmermans recently stated that a European recovery plan for the economy will need to be green. Others, too, argue for a robust European Green Deal: a recovery and investment plan that will motivate companies to become more sustainable.”

Solidarity, generosity, co-operation, concern for others: this crisis brings out some great values
Kees Vendrik

But in Vendrik's opinion, the basis needs to become broader. “Is also important to attach social conditions to government support. One such condition might be that a company that receives support, guarantees long-term regional employment. This means that it cannot, for instance, at a later point in time ‘just’ decide to move part of its production to a low-wage country. But other conditions for support are conceivable too. The Danish and Polish governments, for instance, recently announced that companies that evade taxes will not receive support.”

All in all, any investment that a government makes using public money should be based on a well-thought out public investment agenda, says Vendrik. “Tax money should go first and foremost to companies that add value from a social perspective. And to initiatives that contribute to broader objectives, such as employment or reducing CO2 emissions. For example, companies and projects in areas such as sustainable energy, green hydrogen or energy-neutral construction and renovation. These in particular should be able to count on government support.”

9. Connect post-crisis recovery and strong climate agenda
It is important that governments make future-proof choices when they decide which companies and economic activities to support. “That awareness is also important for climate policies,” says Vendrik. “We are facing a huge sustainable challenge. In the Netherlands, for example, this challenge has been laid down in the Paris Climate Agreement and in the Dutch National Climate Agreement. By 2030 CO2 emissions must have been be reduced by half relative to 1990. In order to reach this essential target, we need everyone to contribute.”

According to Vendrik, the post-crisis recovery and a strong climate agenda go together very well. “But this means that the government will not only need to set sustainability conditions for companies that ask for support but must also provide direct support for sustainable companies and initiatives.”

“This is why I am pleased about theletter that the European climate ministers recently sent out, arguing for sustainable choices when it comes to providing government support during this crisis.” Vendrik says it is good to note that climate awareness has grown significantly in recent years. “I myself as chairman of one of the national climate discussion groups in the Netherlands have noted that nearly everyone - companies, governments and individuals - are aware of the importance of a solid climate policy. This gives me confidence in society's willingness to change.”

According to Vendrik, governments play a crucial part when it comes to making the economy climate neutral. “Fiscal measures can be used to leverage change. For instance, by taxing CO2 emissions and the use of natural resources at a higher rate. This would create an incentive for companies to become greener more quickly.”

10. Banks and financial institutions: invest in sustainability
The corona crisis causes government debt and government deficits to rise sharply, whichever way we look at it, says Stegeman. “As for the climate challenge, the role of banks and other financial institutions will become increasingly important. The growing deficits leave governments with less scope for investing in sustainable development, so banks will have to jump into this breach, even more so than we anticipated six months ago.”

“It is of course great that, now that we are in the midst of a financial crisis, many banks are prepared to extend a helping hand to the corporate sector. By being flexible when it comes to repaying debts. But this is, at the most, only a start, because in the years ahead banks will be expected to show much more social responsibility. They will need to invest in sustainable companies and initiatives. That is how they will accelerate the necessary transition to a sustainable society. And they will have to focus on financing the real economy.”

Values-driven banks are based on the principle that the credit that they provide and the investments that they make must always make a positive contribution to society and nature, says Stegeman. “It is encouraging that worldwide more and more banks are emergingthat have this principle at their core. And also that the more mainstream banks are starting to realize that focusing exclusively on financial results is detrimental to the broader and essential values. This is how more and more banks put flesh on positive change. And the creation of a sustainable, circular and well-balanced economy.”

Text: Tobias Reijngoud

Reset the economy

The corona crisis points to substantial shortcomings in our current economic and social system. That is the reason why Triodos Bank calls for an overhaul, a reset of our economy. Download our vision paper Reset the economy, and explore our concrete policy, business, and finance agenda to prevent a future pandemic from holding the world in such a grip as corona has, to intensify our efforts to combat the climate emergency and other eco-crises, and to work on a more socially inclusive society.