Stockholm (NordSIP) – With recent increases in inflation worrying investors and the pandemic going through its most recent Omicron phase, 2001 Economics Nobel Laureate Joseph Stiglitz’ discussion focused mainly on broader economic dynamics, during Skagen Fonder’s 2022 New Years conference.
However, close to the end of the session, NordSIP had the opportunity to enquire about his views on the climate transition and ESG integration. The Nobel Laureate endorsed the ambitious deployment of more green financial resources in the post-pandemic recovery and suggested partnerships between the private sector and development banks.
Interest Rate Fears
With rising inflation, investors are most focused on the implications of rising interest rates. Stiglitz warns that overreacting could be dangerous. “Whether we raise interest rates or not or when we raise them, my view is that we need caution. The little inflation we have is not the result of overall excess demand. Raising interest rates excessively would be a cure worst than the disease, which would not solve the supply-side bottlenecks,” he says.
“I would rather see efforts to try to identify the supply side problem and taking actions like figuring out why the labour force participation rate is so low and trying to do something about the underlying bottlenecks in the economy,” Stiglitz adds.
“Governments have to continue to support the economy because the pandemic is not over,” he continues. According to Stiglitz, once the pandemic is truly behind us, the world is going to need financial support. “That’s when it is important that the money does double and triple duty – that as we sustain the economy, we change the economy in ways that build back better,” he continues.
The EU’s Green Recovery
Speaking of the NextGenerationEU fund set up in the Euro-zone to tackle the post-pandemic recovery, Stiglitz “was very pleased with the commitment in Europe that the recovery would be green. I was a little disappointed with the magnitude.”
Beyond the green focus of Europe’s recovery, Stiglitz also noted that it represented a step forward in European fiscal and financial integration. “I think it’s an important start, also institutionally,” he adds, noting the use of mutualised Euro-zone bonds was an idea he had argued in favour of for years.
Multilateralism and Development Banks
“Working together we realise that we can do things which we could not have done alone. We need all the resources that we can put to bear to address the enormous investments that the green transition is going to require,” Stiglitz argued.
“We have large amounts of money in long term sovereign wealth funds and pension funds and a lot of long term investment opportunities for the green transition. But in between those two, we’ve often had short-sighted financial markets. That’s where reforms in the financial system to make them more focused on long term sustainability are required,” he explained.
Referring to the conference’s preceding talk, given by Kara Mangone, Global Head of Climate Strategy at Goldman Sachs, Stiglitz noted that she echoed one of his arguments about the role of development banks. “If we are going to solve the problem of climate change, we have to get the emerging markets of developing countries involved. That’s where the vast majority of the increase in greenhouse gas emissions are going to occur,” he added.
“The world made a commitment of US$100 billion [in climate transition aid to the developing world]. It was not enough and then they did not deliver on that promise. We are going to need a lot of private-sector capital. Development banks have been doing that for years. Partnerships between development banks and the private sector are one of the optimistic ways to help deliver sustainable finance,” Stiglitz concluded.