Richard Morrow

A 31-year veteran of UBS, Paul Donovan is a true stalwart of the bank. He has worked as an economist in various capacities, largely for the Investment Bank, but in 2016 he moved to Global Wealth Management to become global chief economist, a position he has held ever since.

What does DEI and sustainability mean to you and why is it important within the context of economics?

The two are interconnected. If we are to achieve a sustainable future we need a more efficient future, which means we need to do more with less. Efficiency comes down to appointing the right person to the right job at the right time.

That leads to DEI. If you have a prejudicial society, you end up excluding people who would be best placed to enhance opportunities and ideas. In other words, prejudice undermines efficiency.
It’s hard not to see the importance of sustainability. From a personal perspective, I have lived on a farm for 16 years and I’ve seen climate change visibly affect livestock, crops, and the orchard.

When I started in the City of London 31 years ago, I hated it. It was misogynistic and homophobic. If people found out I was gay it would be close to the end of my career. Things have improved considerably over the past three decades, but the rise of prejudice politics shows there is still more to do on DEI issues.

You recently wrote a white paper about the Impact Economy. What is it and why is it important?

The Impact Economy is a natural evolution of economic thought. Basically, economics is about distributing limited resources to satisfy the unlimited desires of humanity. We’ve seen economics evolve from subsistence economies based on the need for food, to mercantile economies that prioritized the acquisition of precious metals and trade, to the output economy of the mid-twentieth century, which focused on the production of physical goods and services. Essentially, we have had an evolution of needs but the resources we have available have not changed very much.

The Impact Economy recognizes that people’s economic needs evolve. They still want food, plus the latest smart phone, but they also desire a sustainable future. The latter is a clearly articulated economic need and I’d argue that diversity, inclusion, and equal opportunities are also well articulated needs. The Impact Economy recognizes that humanity’s needs are not just focused on physical production but broader concepts, and our attempts to solve those economic needs reflect that.

One of the big challenges facing us is that the output economy uses GDP as a simple concept to measure it. GDP is a flawed number, and economists have complained about this for a long time, but people tend to crave the illusion of simplicity when the world grows more complex, which the GDP benchmark provides. The Impact Economy does not have a similarly simplistic statistic.

Sustainability has generally focused quite heavily on climate change. Is this emphasis correct?

I think there needs to be a further evolution of focus.

It’s a bit like GDP; carbon emissions are fairly simple, whereas you face even greater complexity when it comes to measuring other areas such as DEI, natural capital etc.

So, it’s an easier concept to just wonder: how much carbon does this emit?

Of course, we should consider carbon emissions, but there are many other complex things that we also need to weigh. Biodiversity is one example. It’s almost an offshoot of climate and often overlooked.

What DEI/sustainability-linked projects or initiatives are you currently most focused on? What could be their impact?

In the aftermath of the pandemic, we’ve seen significant structural changes to the labor markets. The introduction of flexible working and how much it will endure has important implications for DEI. A more flexible workforce allows for neuro diversity, as some people don’t flourish in an office environment but are capable of being excellent employees in a home environment. Gender diversity has also generally improved due to flexible working as, for example, it can help with childcare and old-age care needs.

Flexible working also changes how people commute, work, travel, transportation, which creates sustainability issues. There are all sorts of DEI and sustainability implications to come out of this which we need to focus on.

Another thing I’m looking at is the fact that the quality of economic data has deteriorated substantially. This is partly because we are evolving from output to impact economics, but it’s also because people don’t generally fill out surveys as much and statisticians don’t have the resources to keep up with these changes. So, our ability to analyze DEI and sustainability issues is becoming more difficult to solve.

What are under-discussed aspects of climate change that need more focus?

This is controversial but some areas of the world may benefit from climate change. For example, sub-Saharan Africa may well get warmer and wetter, which could improve agricultural output. While humanity as whole will be worse off, it does not mean that all nations will be.

On the DEI side, I think the role of social media is coming very much into focus. We can see how social media can inflame social prejudice, as with the postings around the Israel-Hamas war, Ukraine, US, and China relations. But it could also reduce it. For example, you can listen to podcasts that can expose you to new areas of society and thinking. The role of social media requires much more attention.

Added to this, I think the younger generation are more aware and attuned to the impact economy; my standard line to clients is that

Gen Z will change the world one TikTok dance at a time.

The younger generation is more likely to have wider networks and groups of people they’ve never physically met due to the nature of social media surrounding them as they’ve grown. They have a greater awareness of the threat of climate change and more actively discuss it.

How have you changed your personal life to be more sustainable?

I have installed 14KW-worth of solar panels on my farm’s roofs, which means I’m almost entirely self-powered, although this varies slightly depending on the weather. I’ve also gradually reopened fireplaces and installed wood burning stoves. This is carbon neutral for me, as I use the wood from trees on the farm that have died. That’s better than my central heating, which is oil and carbon negative. Added to that, I have planted well over 1,000 trees over the last 16 years, and I plant more trees and hedgerows every winter.

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