A Defining Moment for a Big Reset

    This article is part of NordSIP Insights – Impact Investing Handbook. Read or Download the entire publication here.

    by Hans Stegeman, Chief Investment Strategist, Triodos Investment Management

    Millions of citizens around the world are feeling the impact of the corona crisis. Some have lost loved ones or struggle with their health; many have abruptly lost their jobs. Numerous measures have been taken to help people and support the economy.

    Yet, it has become increasingly clear that there is no quick fix, neither for the pandemic nor for the unfolding deep economic recession.’

    The corona crisis and the resulting Great Lockdown are unique. What started as a health crisis quickly turned into an economic and social emergency. But this crisis has to be placed in context. In essence, we are witnessing a failure of our economic and social system: it is systemic.

    The question now arises: what next?

    So far, the focus has primarily been on overcoming the health crisis, and rightfully so. But Triodos Investment Management believes we also need to address the severe shortcomings in our present-day economies and societies. We need to prevent a future pandemic from holding the world in such a vice-like grip, we must intensify our efforts to combat the climate emergency and we must work on a more socially inclusive society. And the emergency measures from governments and central banks will determine economic developments in the years to come.

    Triodos Investment Management calls for a reset of the ‘old’ economy and for a global and collaborative effort to rebuild a more resilient, sustainable and inclusive one.

    Root causes

    If we are to take the right steps to rebuild the economy, we need to understand the root causes of the systemic corona crisis.

    First, our relationship with nature is broken. Zoonoses, like corona, are far more likely now to transfer from animals to humans than they used to be. Rampant deforestation, uncontrolled expansion of agriculture, intensive farming, mining and infrastructure development, as well as the exploitation of wild species have created a perfect storm for the spillover of diseases from wildlife to people. Part of the solution is to completely redesign our food and agricultural systems.

    Secondly, the Covid-19 disease and the crisis it triggered have exposed societal inequality and weaknesses in healthcare. Not everybody has access to affordable healthcare; not everybody can afford to stay at home. There is also inequality between countries: the economic effects of the crisis are likely to be more severe for lower income countries.We can and should use this moment to create a more inclusive society.

    Thirdly, the pandemic has laid bare fundamental flaws in the way we have organised our economy in our unrelenting efforts to strive for economic growth. The speed and severity of the economic impact on (global) enterprises and value chains are significant. The supply side restrictions and the fallout of demand demonstrate the absence of buffers and a lack of resilience in big parts of our economy. We have encouraged gigantic, highly leveraged firms to operate on a delicate balance of high debt and ultra-efficient, just-in-time performance. They are simply not equipped to adapt to the current conditions. The same goes for significant parts of the workforce. Many self-employed and casual workers are out of business and out of work. Without buffers they face instant difficulties. This needs to change.

    Plotting a path to the future

    The recovery from the corona crisis is not simply a question of putting the ‘old’ economy back on its feet. The reset we call for addresses the root causes and is a thorough overhaul of the economic system.

    Crisis management

    The transition to a more resilient, sustainable and inclusive economy starts with the crisis management of many governments and central banks as a response to the immanent impact of the corona crisis. Fortunately, many governments and central banks have launched comprehensive packages of measures to support liquidity. It is vital that these interventions are effective for the people most in need. Communities, business organisations and financial institutions should also do their utmost to mitigate the direct impact of the crisis.

    We need to revive and revitalise every corner of our economies.

    However, more is needed to support the transition. More global solidarity is needed. Gifts and aid packages should be made available on a larger scale and the IMF needs enough firepower to provide emergency credit lines, especially for countries with relatively low debt affordability. We need better cooperation in the European Union on many pandemic-related issues, including possible financial support in the form of a conditionalised mutualisation of corona-linked debt in the eurozone.

    The massive interventions of governments and the impact of the Great Lockdown on national budgets, will deteriorate fiscal balances and lead to a steep increase in public debt. Similarly, the debt burden might become a problem for companies, which historically have had highly leveraged balance sheets. In our opinion, central banks’ acquisitions of significant quantities of government and subsovereign bonds are unavoidable. Intervening in financial markets mainly serves those markets: it leads to higher prices of assets and does not serve the real economy. So to serve the real economy, Triodos Investment Management believes central banks such as the ECB should engage directly in financing public debt. And government support for businesses should be conditional: jobs need to be maintained and ‘fossil’ companies must submit ambitious greening plans to receive support.

    Long-term building blocks

    In addition to short-term crisis management, we should start to focus on the long-term recovery.

    Triodos Investment Management has identified three key building blocks: redefine what matters most; revalue the way we live, cooperate and communicate; and redesign our economy.


    We have known for a long time that human progress cannot be reduced to annual GDP growth. Declining ecosystems are a threat to our wealth.

    And as we have seen in the past decades, economic growth without adequate levels of equality ends up excluding people from basic needs, human dignity and resilience.

    People, planet and prosperity should therefore be the central values upon which government policy rests and business investment decisions are judged. Economic growth must make way for wellbeing.

    An important precondition is adopting the ‘true’ value or cost of production. This should be calculated and used as a metric for transactions. Governments can and should adopt this approach in tax policy (green taxation) and companies need to look beyond shareholder value and become more embedded in society.


    Public policy and the economic activities of companies should reflect the common shared values in each society. Standard neoclassical economics works from the premise that market prices, for instance for products and services, reflect our values. However, this is not how it works in practice and there is no guarantee that market forces deliver outcomes in line with what we want to achieve.

    So markets should be directed through cooperation, public investment, and more activist industrial policies. Such an approach helps to steer economies in the right, more sustainable direction and to create effective demand. Government has an important role to play here through fairer taxes and anti-trust policies.


    The notions of wellbeing, a values-based economy and public institutions and investments are building blocks for a redesign of the economic framework. The corona crisis is a clear indication many (global) enterprises operate on business models that are resilient nor sustainable and that more should be done to improve the diversity of economic and finance activity

    A concrete agenda

    The general framework of redefine, revalue and redesign provides the right context for concrete measures that work towards a resilient, sustainable and inclusive economy. This is truly a collaborative effort by governments, businesses and communities.

    We see a special role for the financial sector. After all, money and the way we use it have a material impact. The leadership of financial institutions will determine whether they will be part of the solution.

    Given the important role of private investments in the long-term recovery, it matters a lot how money will be allocated and how finance will be used in the transition.

    This is a defining moment for a reset. If we make the right choices, our economy can become more resilient, we can create better prospects for a lot of people around the globe and in the end build an economy that is also sustainable in the long term.

    The direction we choose over the coming ten years will define our future. If we make the right choices, future generations will also enjoy their lives.

    Donwload the full paper here.

    Image courtesy of Triodos Investment Management

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