Covid-19 has shown how dangerous it is to ignore systemic risks, and the time is ripe to build a new economy that is resilient against other systemic risks such as climate change, according to Travers McLeod, chief executive of the Centre for Policy Development.
While some talk of Covid-19 as a ‘black swan’ event, the risk of a pandemic was foreseen and famously predicted in 2014 as the cause of the next financial crisis by Professor Ian Goldin from the UK’s Oxford Martin School.
“Pandemic and coronavirus were not new words when Covid-19 began,” McLeod said. “This risk was foreseen… and there are other systemic risks as well, like climate change, antibiotic resistance, infrastructure failure… and it’s incumbent on governments, businesses and institutions that they are looking clear-eyed at those risks and making sure they’re prepared for them.”
Speaking on Market Narratives, a podcast series hosted by Investment Magazine’s head of institutional content Alex Proimos, McLeod argued now is the time to build a new system that is resilient against other systemic risks, as world economies rebuild and citizens have had a painful look at what first-order economic impacts look like.
To listen to the full interview with Travers McLeod on the Market Narratives podcast click above or find the series and episode on Apple Podcasts, Google Podcasts or Spotify.
The most obvious systemic risk is climate change, which will deal increasingly regular “sudden shocks” to the financial system unless countries around the world achieve net zero emissions by 2050, McLeod said.
“We’re seeing a number of countries and institutions around the world that are using the crisis that’s been caused by Covid-19 to accelerate their investment in climate and transition policies so there’s a double dividend in their response, and this is something that Australia needs to be doing as well,” McLeod said.
Business leaders are increasingly pointing to the problems of a short-term focus on growth and the idea of “shareholder primacy” that is often used to perpetuate it, with some notable voices including Andy Haldane, chief economist at the Bank of England, and Commissioner Kenneth Hayne at Australia’s Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
“There’s a strong push around the world to broaden our sense of stakeholders that investors and businesses consider when they’re looking at returns,” McLeod said. “So there’s not this approach to shareholder primacy at all costs but a broader set of stakeholders, employees, communities, suppliers, to make sure that growth is delivering for all.”
Attitudes surveys conducted by CPD show Australians support conducting business for a broader set of stakeholders and having a wider definition of capital to include things like economic, social, environmental and governance. When asked what the primary purpose of Australian democracy is, the top answer which is three times as popular as the second is boosting equality and opportunity, especially for the most vulnerable, McLeod said.
“I think what that tells us is Australians – perhaps more than most other countries in the world –want their democracy to improve the lives of others. They want it to have a positive impact on equality, especially for our most vulnerable citizens and they want that in the best of times and especially in the worst of times.
“And they understand the vulnerability we face because of climate change is an important systemic risk that must be responded to so we can do that more effectively. We had no bigger reminder of that than the horrible bushfires we experienced over the summer.”
Travers McLeod, CEO of the Centre for Policy Development will be speaking the upcoming FEAL National Conference on the Ten steps to a stronger Australia after the pandemic.
To register for Resilience, How to survive and thrive in a time of disruption on Thursday 6th August 2020