Employment in the financial sector has been one casualty in our current financial crisis. In 2008, in the United States alone, finance employment fell by 233,000 jobs -- and more than half of that decline occurred in 2008's last four months. Unfortunately, the worst may not be over: By one estimate, London's financial sector, for instance, is expected to shed 9 percent of its jobs in 2009.
What will happen to all the skilled finance professionals losing their jobs? One domain they could turn to is environmental sustainability. We generally understand championing environmental sustainability being at the expense of economic growth and prosperity. However, over the last few years, more and more managers have come to realize that economics can provide ways to address -- and profit from -- the challenges of sustainability. Companies have begun positioning themselves to capitalize on the environmental and social constraints that will inevitably change how businesses are run. Forward-thinking organizations are not only rethinking their investment portfolios and their ideas about risk, but also their product and service offerings.
Aligning our economy with environmental constraints is only in its infancy. Consider the battle against global warming. Institutions are proposing carbon taxes and cap-and-trade policies as ways to recalibrate markets and harness economic forces in order to help society reduce greenhouse gas pollution.
Similarly, we're beginning to see "biodiversity" offsets: companies counterbalancing their environmental impacts in one region by preserving natural habitats in others. Royal Dutch Shell PLC uses this approach to help preserve antelope populations and other fauna in Qatar, offsetting the environmental damages it creates as it develops a new natural gas facility in another part of the country. The United Nations is promoting "reduced emissions from deforestation and degradation" to place economic value on existing rain forest because the land naturally sequesters a lot of carbon. Proponents of this plan hope to see it in the Kyoto protocol's successor, slated to take effect in 2013. In fact, Mike Johanns, a former U.S. secretary of Agriculture, sees "a future where credits for clean water, greenhouse gases or wetlands can be traded as easily as corn or soybeans."
It's also intriguing to consider new offerings that integrate economic and environmental concerns. Berkeley, California, for example, is working with Renewable Funding LLC, a financial services company based in Oakland, California, to offer a new program that helps homeowners purchase solar installations. The model allows property owners to install solar panels with little up-front cost, through funds the bond sales generate. The property owners pay for their solar installations over 20 years through a line item on their tax bills, thus repaying the bonds. Another company addressing the transition to solar power is Sun Edison LLC. The company sells solar energy to its corporate government and clients -- and it installs and maintains the equipment and arranges project financing for installations.
Of course, applying financial logic to environmental issues can be problematic, both morally and technically -- as became abundantly clear in the 2008 financial meltdown. There needs to be transparency, simplicity and clear links between financial instruments and underlying assets. There must be a great degree of prudence applied to environment-related markets.
Bearing in mind this caveat, integrating environmental concerns into business strategy presents remarkable business opportunities. Companies that have recognized the realities of finite resources and have begun shifting their business models are poised to benefit from this inexorable transition toward a more sustainable economy.
And in the current economic climate, corporations pursuing these strategies can easily attract bright, motivated professionals from the financial sectors. Many of these employees will be delighted to discover a way to intertwine their professional expertise with personal values.
This article is adapted from "Creating a Better Environment For Finance," by Dror Etzion, which appeared in the Summer 2009 issue of MIT Sloan Management Review. The complete article is available at http://sloanreview.mit.edu/smr/.