By EUGENIO CLARIOND REYES-RETANA

No one disputes that the principal social function of business is to generate wealth, jobs and opportunities. But there are different ways to generate wealth. Our history is full of examples of cases where attempts to make short-term profits have caused serious problems for the future. In some cases, the damage to the environment or to our social fabric has been irreparable. We already have made enough mistakes to know that we have to do things differently.

But in order for us in business to change the way we do things, we must get signals from government and financial institutions that will promote sustainability instead of discouraging it.

Many of the economic signals we now receive are counterproductive. Our countries’ fiscal institutions tax what is good for people, such as salaries, savings and wealth creation. Then, they turn around and use that same income to subsidize such things as fuel consumption, water use, pesticide use, and garbage disposal, in this way encouraging overconsumption, pollution, and misuse of resources.

Governments provide large subsidies to citizens of large cities. A striking example is Mexico City, where clean water is pumped more than 1,000 meters in elevation, provided to people almost free of charge, and then discarded without treatment. Public transportation is also subsidized, and education is not financed by the local government, as it is in the rest of the country. The Autonomous University of Mexico, which has some of the lowest academic standards in the country and the highest cost per student, is also the only Mexican university where even the wealthiest students pay tuition of two cents per semester. Considering all of this, why would any Mexican want to live anywhere but in Mexico City?

Our societies must develop a new set of economic incentives that will lead us to ecoefficiency. For the business community, “eco” refers both to economics, as in increased profitability, productivity, and competitiveness, and also to ecology, or less impact on the environment.

We need market signals that promote ecoefficient performance. We cannot expect people to conserve natural resources whose use is being subsidized. A subsidy is an open invitation to overuse. Can we subsidize the use of water and fossil fuels, and then expect people to cut down on their use? It seems equally contradictory to expect businesses to invest in new ecoefficient technology when the fiscal system penalizes capital investment.

Governments must provide incentives for the right behavior and the penalties for the wrong behavior. But although governments support sustainable development at the rhetorical level, the rhetoric is seldom translated into real economic decisions. In most cases, the issue of sustainable development is not even addressed by our governments’ councils of economic policy-makers. So for all practical purposes, the issue does not exist.

The IDB and other international financial institutions have a powerful role to play in promoting sustainable development, even beyond financing projects that are environmentally sound. The IDB, the Multilateral Investment Fund, the Inter-American Investment Corporation and others can use their considerable influence with governments to promote sustainable development policies. This is the central issue, and one where the Bank can make a major contribution.

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