And preventing certain sectors or regions from running hot will help to reduce overall economic volatility as well. First and foremost, however, national economic and fiscal policies need to be tailored adequately to ensure that economic developments do not diverge too much. Countries experiencing a cyclical boom should run a tighter fiscal policy, and countries experiencing a slump should loosen it.
This tendency must be encouraged through properly designed regulation and the adequate provision of information, and also by preventing the risk of “green washing” practices in the provision of sustainability scores by the rating industry. There needs to be a coherent approach, activating all levers – incentives, taxes and regulation – to deliver on our goals.