PARIS – Finance is evolving in a more sustainable direction, and just in time. Pension funds, insurance companies, and sovereign wealth funds have made multiple commitments on climate change, biodiversity, and economic inclusion. In each case, the aim is to treat finance as a tool, not an end in itself, and to adopt objectives that go well beyond financial returns.

Today, more than $40.5 trillion globally is invested according to environmental, social, and governance principles. But who defines what constitutes an ESG investment, and how far can we trust ESG statements issued by corporations? We need a set of genuinely global ESG standards – and Europe can, and should, play a leading role in formulating and implementing them.

Far from being a purely technical matter, assessing firms’ non-financial performance is a deeply political issue. The first step is the choice of indicators to measure a company’s environmental or social performance. Then there is the question of establishing baseline ESG standards that Europe, the United States, or China will require from all firms that want to do business in their market, as well as a frame of reference that will directly influence financial and investment flows.

Designing such indicators is an invaluable instrument for building sovereignty. Europe, in many respects a global leader in the environmental and social domains, should therefore seize the opportunity, and advance the case for a different kind of sovereignty that serves as a launchpad for global initiatives.

Since French President Emmanuel Macron advocated building European sovereignty in a 2017 speech, the European Union’s view on the issue has evolved significantly. Nowadays, member states are far less ambivalent about defending European sovereignty, whether in response to emerging digital monopolies, the economic risks of Brexit, or the public-health threat posed by COVID-19.

To safeguard its model and values, Europe can no longer just respond to events, but needs to be proactive in identifying and initiating measures that will spread beyond its borders. Assessing corporations’ non-financial performance can form part of a more assertive sovereignty that also enables Europe to address equally urgent issues such as climate change, social problems, and shifting geopolitical alignments.

For example, the EU has set itself far-reaching environmental goals, starting with achieving carbon neutrality no later than 2050. To that end, it recently developed a so-called green taxonomy, a standardized classification that enables assessment of the sustainability of 70 economic activities that together account for 93% of the EU’s greenhouse-gas emissions.

On the social front, the EU established the Charter of Fundamental Rights in 2000, and in 2017 proclaimed the European Pillar of Social Rights – granting its citizens new and more effective means of ensuring equal access to the labor market, fair working conditions, and increased social protection. And in October 2020, the European Commission proposed an EU directive to ensure adequate minimum wages for workers in member states.

But here, too, Europe is trapping itself in a defensive situation. Although Europe is protecting its sovereignty by building such an environmental and social framework, it has no desire to introduce these ideas elsewhere. But in a global economy where each country is trying to shape standards to its own advantage, the key is not merely to defend a model, but to present it to the world as a basis for further discussion.

Since its inception, the EU has frequently been criticized for its sluggishness and bureaucratic red tape. But in a union of 27 sovereign states, every decision is necessarily the result of negotiation and compromise. Moreover, decisions about what constitutes good or bad behavior relative to a norm should not be made lightly. Ironically, therefore, Europe’s inclusive governance model may give it a competitive edge in shaping global ESG standards.

With its large and prosperous single market, high savings rate, and powerful financial sector, Europe can potentially influence these standards through what Zaki Laïdi calls “norms over force.” This is the exact opposite of traditional political and military power, or, as Laïdi puts it, the “ability to produce and set up a worldwide mechanism of norms able to structure the world, to curb unruly behavior from entering players, to offer those who abide by the rules, particularly the less powerful, ample opportunity to make the norms stand against all, including the powerful.”

Furthermore, because measuring non-financial performance goes well beyond simple accounting, the transition to a more ecologically and socially sustainable capitalism through participants’ transparency and shared responsibility may become the polestar of a new European identity.

At a time when Europe is seeking to outgrow its internal political divisions, the EU has an opportunity to reiterate its environmental and social values without requiring member states to support a particular economic model, but rather by simply sticking to a results-based approach. Despite their historical and cultural differences, member states have many shared values that enable them to agree on the basics on issues such as gender equality or environmental protection.

One of the founding fathers of European integration, Jean Monnet, believed that sovereignty declines when it is entrenched in old patterns. Having designed a sovereignty that differs fundamentally from previously tested governance models, the EU must now demonstrate its vitality by extending its power beyond its single market.

More than any other jurisdiction, the EU should embrace new norms, not fear them. By requiring an evaluation of a firm’s environmental and social impact before granting access to its market, the EU would have a unique opportunity to assert both the singularity and the extent of its sovereignty.

In doing so, Europe would contribute to a necessarily global debate regarding the transition toward a sustainable, resilient, and inclusive capitalist economic model. This goal was implicit in the Sustainable Development Goals and Paris climate agreement that the world adopted in 2015. We now have a duty to make it overt.

PARIS – Seen from Europe, Asia, or even North America, Manaus, the capital of the Brazilian state of Amazonas, is as remote as can be. Yet the 501Y.V3 variant of the coronavirus recently detected there has already been identified as a global threat, because its emergence in a city where two-thirds of the population was already infected in the spring of 2020 suggests that acquired immunity does not protect against it.

Scientists speculate whether 501Y.V3 may also thwart some of the existing vaccines. Even if the RNA-based vaccines can be quickly modified, the risk of ineffectiveness just when mass vaccination is being rolled out is extremely scary.

Viruses, of course, mutate all the time. While many mutations are innocuous, dangerous ones regularly appear. The larger the population that is infected at any time, the higher the probability that a hazardous variant, or possibly a new strain, will appear. Each person is a potential lab for these mutations. With some 600,000 new coronavirus infections identified daily, there are currently several million such labs in operation around the world. So it is a certainty that more mutations will occur.

This threat confronts the international community with a stark choice: either design and implement a comprehensive global strategy, or seal borders and let countries fight it out with the virus one by one. There is no effective middle way. The prevailing combination of vaccine nationalism and half-open borders is a losing strategy. In an open world where rich countries would attempt to protect their populations while poorer countries could not, contamination would repeatedly cross borders and defeat the most sophisticated health policies. Already, the South African and Manaus variants have been found in Germany.

On paper, the choice between acting globally and closing borders is a no-brainer. The total population of countries categorized by the World Bank as low-income and lower-middle income is about four billion. Assuming a $10 unit price, vaccinating 75% of this population would cost $30 billion, a mere two-hundredth of the crisis-induced fiscal loss already incurred by advanced economies. Even from a narrow economic standpoint, and even if ten times more expensive, investment by rich countries in curbing the pandemic in poor countries would be hugely profitable. The alternative of closing borders altogether to contain contamination would send a terrible signal and destroy prosperity on a massive scale.

Conscious of the challenge, rich countries actually support a program of this sort, though on a much smaller scale. The COVAX initiative, launched in April 2020 by the World Health Organization, the European Commission, and France, is meant to help participating states jointly negotiate procurement with vaccine producers, and to donate to poor countries enough free doses to vaccinate 20% of their population. Although this is insufficient to control the virus’s spread, it would be good enough to protect the elderly and health-care workers, and it would represent a significant stepping-stone to further action.

By the end of 2020, COVAX had raised $2.4 billion and pre-ordered enough doses to vaccinate a billion people in 2021, but it was still at pains to raise the additional $5 billion needed to finance its rather unambitious program. Under President Donald Trump, the US had refused to provide support. Moreover, vaccine manufacturers favor more profitable rich-country markets, where governments are willing to pay a premium to accelerate the supply of doses.

Not surprisingly, WHO Chief Tedros Adhanom Ghebreyesus recently warned that the world was “on the brink of a catastrophic moral failure.” But, alongside the moral failure, what is puzzling is the collective action failure this behavior represents. Self-interest, not just a sense of duty, dictates that rich countries should do more. Why aren’t they?

The first reason is short-sightedness. At home, too, governments are not doing enough. In Europe, investment in vaccine research and development has fallen short of the $18 billion the US has devoted to Operation Warp Speed. Oddly, the European Union’s €390 billion ($473 billion) in grant-making resources administered by the bloc’s Recovery and Resilience Facility does not include joint funding for vaccine research.

The second reason is the traditional temptation to free-ride on others’ efforts. Rich-country governments have strong incentives to protect their citizens, but support to poor states is vulnerable to free-riding, as each player’s interest is to let others pay for the common good. For example, Trump announced that he was withdrawing the US from the WHO at the very moment when joint action was urgently needed. Add to that China’s shirking of its global responsibilities, and international leadership has been dramatically absent since last spring.

The third reason is messy governance. The global health field is complex, scattered, and characterized by institutional overlap. Because the WHO is widely regarded as an ineffective and politicized institution, initiatives have developed on the side, with private donors such as the Bill & Melinda Gates Foundation, governments, and public agencies cooperating ad hoc to develop a flurry of initiatives. The resulting funding map defies imagination. This was fine as long as tackling emerging challenges required limited mobilization and resources, but the pandemic calls for acting on an entirely different scale.

Can the world change tack? Fortunately, US President Joe Biden’s administration has already announced its intention to join COVAX. Until recently, it was assumed that the repair of international trade and renewed engagement in climate action would be its first external priorities. Events may well turn the coordination of pandemic efforts into a litmus test of Biden’s global leadership. But if US commitment is clearly needed, much broader joint action is called for to prevent a moral, medical, and economic disaster.

Read the original article on Project Syndicate.