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Sustainability and the financial system Review of literature 2015

  • N. G. Aspinall, S. R. Jones, E. H. McNeill, R. A. Werner and T. Zalk...
Abstract

Much actuarial work is underpinned by the use of economic models derived from mainstream academic theories of finance and economics which treat money as being a neutral medium of exchange. The sustainability of a financial system whose understanding is based on a limited view of the role of money has increasingly been subject to criticism. In order to identify needed research programmes to address such criticisms and improve these disciplines, we sought to understand the current state of knowledge in economics and finance concerning the link between monetary and financial factors and sustainability. We have approached this through a search for relevant literature published in the highest-rated academic journals in economics, finance and the social sciences for titles and abstracts containing both references to the financial system on the one hand, and sustainability and environmental factors on the other. The systematic search of a universe of 125 journals and 355,000 articles yielded the finding that surprisingly few research papers jointly address these concepts. Nevertheless, we find that current research shares a broad consensus that the implications of the growth-oriented economic model results in an increasingly interconnected and fragile financial system whose participants are not incentivised to fully recognise the natural environment and resource constraints. We further observe that the prescriptions offered are relatively limited and small-scale in their outlook and that there is a vital need for further research, particularly for actuaries who are required to take a longer-term outlook. The Resource and Environment Board has supported this work with two key objectives: first, to identify research that may have direct application to actuarial work and, second, to identify gaps in academic research that would help drive the Institute and Faculty of Actuaries’ own research agenda. With this in mind there are three further areas of potential actuarial research. These are the policy aim of pursuing growth without limit within a finite ecosystem; discount factors as the primary means of capital allocation and investment decisions; and the use of gross domestic product as the key metric of economic activity and success. We also conclude that further academic research is urgently needed to understand the sustainability of the banking and monetary system.

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Copyright
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted re-use, distribution, and reproduction in any medium, provided the original work is properly cited.
Corresponding author
*Correspondence to: N. G. Aspinall, c/o Resource and Environment Board, Institute and Faculty of Actuaries, 7th Floor, Holborn Gate, 326 – 330 High Holborn, London WC1V 7PP, UK. E-mail: reboardchair@actuaries.org.uk
References
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Meadowcroft, J. (2013). Reaching the limits? Developed country engagement with sustainable development in a challenging conjuncture. Environment and Planning C: Government and Policy 31(6), 988–1002.
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Category B Papers: Financial Sector Without Institutional Detail and Unaware of Money
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Category D Papers: Financial Sector with Institutional Detail and Awareness of Money
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Siegel, L.B. (2012). Fewer, Richer, Greener: the end of the population explosion and the future for investors. Financial Analysts Journal, 68(6), 2037.
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Wallner, H.P., Narodoslawsky, M. & Moser, F. (1996). Islands of sustainability: a bottom-up approach towards sustainable development. Environment and Planning A, 28(10), 17631778.
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British Actuarial Journal
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