Sustainable capitalism and Mauritius

The repo rate was subject to a decrease of 4.65% on June 17, 2013 following the Government of Mauritius’ preference for economic growth over price stability. Now here is why the Bank of Mauritius’ (BoM) servants were against this policy: it causes an increase of inflation weakening price stability – going against the BoM’s founding principles. Another underlying fact that should be understood about the economy: short-term trade-offs impose long-term economic costs. Our shortsighted actions may have long-term consequences with deleterious effects, which should be taken into consideration. For instance, current shifts in land-use and the consumption of fossil fuels to drive production is contributing to climate change. It is by favouring unfettered capitalism in the first place that most economies were trapped in the financial crisis of 2008 and unprecedented climate change: short-term prospects were preferred to long-term benefits; potential liabilities that may affect the economy are not evaluated. As a result, Mauritius suffered from it: economic growth decreased from 5.5% in 2008 to 3.0% in 2009 and it is only now that it is getting better. The Government of Mauritius, by favouring economic growth, wants to further decrease unemployment and to keep pursuing economic prosperity – nothing wrong with that. The only problem is that this decrease of the repo rate will unlock economic benefits that will not last in the long-run calling for another quantitative easing manoeuvre. Recourse to quantitative easing questions the credibility of Mauritian growth and its robustness to threats in a globalized market: how can we escape quantitative easing without hurting exports, favouring employment and better living standards? So far, there is no concrete answer to this question. The current economic downturn Mauritius is facing should be seen as an opportunity: we can avoid the mistakes of developed and other developing countries by adopting sustainable capitalism.

Sustainable capitalism is the maximization of long-term benefits over short-term solutions to solve problems. Maximization is possible by restructuring markets to conjugate environmental, social and governance (ESG) variables with the decision-making process. ESG variables such as resource efficiency, business model resilience, or innovation impulse contribute, like financial variables, to a better assessment of value creation. Research shows that incorporating environmental sustainability to economic growth facilitates the increase of profits and savings, reduces waste, enables energy efficiency while improving human capital dynamism. ESG metrics such as climate change, consumer protection and employee relations, among many, are creating greater momentum as part of the share of non-financial factors composing the valuation of equity, real-estate, corporations and all fixed-income investments: sustainable capitalism, through its ESG metrics, concerns all asset classes, stakeholder and industries.

ESG metrics give rise to the Socially Responsible Investing (SRI) industry where investment approaches unlock social benefits and financial return by having a sustainable, ethical or green impact. In other words, SRIs are directed towards environmental stewardship, consumer protection, human rights, and diversity among others over investments in alcohol, tobacco, gambling, etc. Practices such as community investing, shareholder advocacy, and community investing define the SRI industry.

Currently, the SRI industry in Europe and the U.S. is expanding. According to the Forum for Sustainable and Responsible Investment, investment portfolios taking into account ESG metrics were evaluated at $3.07 trillion in 2010 and at $3.74 trillion in 2012 in the U.S. – a growth of 22 per cent. This growth is equal to a 486 per cent increase when compared to the 1995 performance. As from 2012, the SRI industry represented more than 11 per cent of assets managed in the U.S. The Mauritian context is, of course, different from that of the U.S.; the SRI pattern has nevertheless proven possible with promising returns and this is why we should consider this new path.

So far, several practises demonstrate that our economic development is done via short-term trade-offs: weak amount of resources are allocated to tertiary education while nearly 80% of our energy production results from the use of fossil fuels – negatively affecting the economy by being detrimental to the environment and society. The economics, environmental and societal components of the system are not independent: they are interdependent. Human interactions enable economic activity within a society contained within an environment; justifying the importance of ESG metrics and SRIs within the Mauritian economy.

Having an SRI approach in an emerging market like Mauritius is important: favouring the long-term over the short-term will impact the economy, the environment and our society positively. Bold investments in sustainability, research and the education sector, along with the development of the financial sector, will strengthen human capital while developing the importance of sustainability in doing business. Integrating ESG metrics in our investment approaches will favour society by improving public health, human capital performance and training. Positive investments in society will lead to a spillover effect benefiting the economy. Better human capital training, through the establishment of Mauritian institutions on a par with international institutions, will lead to higher performance and hence greater profits. As the business community and the government incorporate ESG metrics into their respective approaches to creating value, the liability of the Mauritian economy to threats will decrease through greater diversification and lessening our contribution to climate change. Mauritius possesses the technological and financial resources to face economic crises and climate change. Integrating ESG metrics and the SRI pattern to our practices requires considerable investments. It is important that we “do what is right, not what is easy”. This is how Mauritius will emerge prosperous.