Opinion

W e d n e s d a y 1 8 S e p t e m b e r 2 0 1 9 A F I N A N C I A L T I M E S 1 1

experience, there’s no guarantee they

could manage this job more cheaply and

efficiently than the core banking sector.

CBDCs would also face a privacy para-

dox. If they guaranteed that transac-

tions would be private, that could make

government institutions complicit in

facilitating money laundering, which

would be intolerable. So privacy could

not be guaranteed. Facebook may be

intrusive, some might argue, but at least

it is not the state.

Rather than rush to compete with the

likes of Facebook, Tether and WeChat,

or ban them outright, central banks

would be better off following the PBoC

model of bringing digital payments into

the central banking fold and focusing on

what they do best: managing stability.

Then, if stablecoins do become so

popular that the sheer volume of their

reserves starts to constrain the funding

for loans, central banks have a recourse.

They could start charging such reserves

a negative rate, while allowing competi-

tive forces to determine how much to

charge customers in turn.

[email protected]

focus on wholesale transactions with

institutions they license and control.

For one thing, there are competition

and privacy concerns. There is a genu-

ine risk that CBDCs could make it much

harder for banks to attract funds, and in

so doing undermine their ability to

make loans. That could in turn put pres-

sure on central banks to enter the lend-

ing market directly to compensate. A

central bank that is the cheapest pro-

vider of both retail payments and loans

would begin to resemble a monopolistic

state bank. This is hardly progress.

Even without the competition issue,

central banks should be wary of moving

into retail. Providing good quality serv-

ices that comply with modern regula-

tory standards in an extremely competi-

tive environment is no easy task. Cen-

tral banks are simply not well equipped

to be profit-oriented, customer-facing

specialists.

Yet issuing CBDC would by definition

force central banks to deal with every-

thing from handling public complaints

and user inquiries, to performing “know

your customer” and anti-money-

laundering checks. Given their lack of

from the official banking sector’s failure

to satisfy the demand for low cost, fric-

tionless cross-border payment systems.

Since the official sector won’t step up,

the theory goes, central banks should fill

the void — and slow the growth of non-

bank competition — by issuing digital

currencies to the general public. This is

arguably easily done because central

banks already provide highly efficient

digital real-time settlement services to

the banks they oversee. CBDC enthusi-

asts argue other benefits come in tow:

they would allow central banks to

impose negative interest rates very

broadly, when necessary, and supply the

market with unlimited safe assets.

Yet there are good reasons why such

institutions have historically steered

clear of retail services, preferring to

cies such as dollars, euros and even the

renminbi. The best known is Facebook’s

proposed Libra. But existing crypto sta-

blecoins such as Tether — which operate

in a similar to non-crypto payment sys-

tems such as Kenya’s Mpesa and China’s

WeChat — already boast more than

$4bn in dollar assets.

The rise of such coins could be seen as

a win for government currencies they

are pegged to. But as their popularity

grows, non-bank stablecoins pose chal-

lenges to central banks around control-

ling the money supply. This will be espe-

cially true if stablecoins back their cur-

rencies with safe assets such as govern-

ment bonds, rather than cash deposits.

Some central banks, such as the Peo-

ple’s Bank of China, have already dic-

tated that non-bank issuers such as

WeChat must hold cash — not bonds —

to back their payment coins and keep

them at the central bank, rather than at

private institutions.

Other central bankers are considering

issuing their own competing “digital

currencies”, known as CBDCs. They

believe that the growth of stablecoins

reflects a gap in the market resulting

C

ryptocurrency developers

have recently become pre-

occupied with something

they previously eschewed:

stability.

To some degree this was predictable.

The appeal of highly volatile currencies

backed by absolutely nothing but specu-

lator faith was always going to be lim-

ited. If everyone uses a different type of

money with a different value, the very

point of money — a common ground for

all users — is undermined.

To combat this, the sector has begun

embracing something called stable-

coins. To avoid the wild fluctuations

common for conventional cryptocur-

rencies, stablecoins are backed by

assets, allowing their values to be

pegged to government-issued curren-

Central banks should not issue digital currencies

Providing good quality

services that comply with

regulatory standards

is no easy task

Martin

Lipton

but indeed require boards to address

them.

However, there remains another

issue. Under US law, only shareholders

elect directors. That means effective

governance requires boards and inves-

tors to work together. The prospects for

such a partnership are increasingly

promising. Large institutional share-

holders — notably BlackRock, State

Street and Vanguard — recognise that

companiesmust serve broader social

purposes. And surveys of major inves-

tors confirms that they expect compa-

nies to articulate a socially and econom-

ically valuable purpose, to take public

stands on ethical issues, and come up

with plans to address the rising risks of

income inequality and environmental

deterioration.

The law empowers directors to

address these new risks — and to

capitalise on the resulting opportuni-

ties. Investors should support them in

those efforts as a matter of priority.

The writer is a partner at Wachtell, Lipton,

Rosen & Katz. William Savitt, another

partner, also contributed

directors to take all stakeholders into

account. Some states have enacted

“constituency statutes” that specifically

reference stakeholder interests; others,

including Delaware, where most big US

companies are incorporated, have not.

But the controlling legal rule is uni-

versal and rock-solid: in every US juris-

diction, boards are allowed to use their

“business judgment” to pursue ESG

principles for the purpose of creating

long-term corporate value.

That is just the floor. Properly

informed directors are also empowered

to protect corporate reputations and

engage with investors about long-term

threats from social and environmental

issues.

Directors may also safeguard global

supply chains and strengthen the ability

to recruit and motivate a skilled work-

force. Moreover, boards have the

affirmative duty to identify business

risks and come up with a strategy for

dealing with them.

Taken together, directors’ duties not

only permit boards to address the full

range of risks that threaten a company’s

ability to deliver sustainable growth,

The environmental, social, and

governance investing movement pro-

vides a useful starting point. ESG prop-

onents urge corporations to adopt long-

term sustainable growth policies that

take into account the broader costs to

society of company behaviour. Some

boards have sought to integrate ESG

considerations into their decisions;

others have yet to address them.

To meet these challenges, directors

have the ability, and in many instances

the obligation, to use their reasoned

business judgment to balance the inter-

ests of all stakeholders — not just share-

holders, but also employees, business

partners, and national and local com-

munities.

We do not need new laws or court

decisions allowing well-informed

tors and the asset managers who repre-

sent them share with the rest of society

an interest in sustainable prosperity.

Our “New Paradigm” seeks to rethink

corporate governance as a collaboration

among shareholders, directors, manag-

ers, employees, customers, suppliers,

and the communities in which corpora-

tions operate.

This solution would be far less intru-

sive than proposals by presidential can-

didate Elizabeth Warren to put worker

representatives on boards. It also offers

an effective alternative to the share-

holder-value maximisation principle

that has dominated corporate thinking

for 50 years.

The myopic view that shareholder

returns are the central aim of corporate

governance is no longer politically or

commercially viable. Corporate law is in

the midst of an evolution that we believe

will eventually restore the broader

social mission of the corporation.

But directors cannot wait that long.

They must manage massive risks to

environmental and human capital

resources and drive growth without

fully-formed governance principles.

T

he stakes for responsible

corporate governance and

investor stewardship have

never been higher. Recog-

nising this urgency, the

Business Roundtable, a large group of

US chief executives, last month

embraced a broader view of governance

and urged companies to focus on sus-

tainable value creation. Yet, as directors

of American corporations seek to

answer these calls, they remain subject

to countervailing market pressure to

deliver outsized shareholder returns

over short periods of time.

Directors need support to mediate

this challenge and make responsible

long-term corporate decisions. My law

firm has long argued for a stakeholder-

centred model of corporate governance

rather than rote application of the

“shareholder primacy” model. Inves-

Directors have a duty to look beyond their shareholders

The stakes for responsible

corporate governance

and investor stewardship

have never been higher

E

verybody loves a good pro-

ductivity hack. Clever tips on

getting more from each work-

ing hour are a well-loved

genre, from complicated

to-do lists and tomato-shaped timers, to

advice on mindfulness and the merits of

going barefoot. That’s not to mention

the supposed gains in creativity and

concentration from surrounding your

desk with the colours red and blue.

But there is one action that seldom

appears on these lists, despite a growing

volume of evidence to suggest it has a

pronounced effect on both physical and

mental productivity: working in a loca-

tion with good air quality.

Particulates — especially fine and

ultrafine particles below 2.5 microme-

tres in diameter — are widely recognised

as a long-term health issue, even if

many people do not appreciate the scale

of the harm or how extensive the evi-

dence has become. Inhaling particulates

leads to a higher risk of dementia and

causes one-third of all deaths from

stroke, lung cancer and heart disease,

according to the World Health Organ-

isation.

Recent research, however, suggests

air pollution is not just a long-term

health issue that causes unpleasant

diseases as you age. It also stunts child

development and appears to have an

instantaneous effect on productivity:

you become slower and dumber while

breathing polluted air. This should have

a profound effect on attitudes to air

quality.

Humans are notoriously good at dis-

counting long-term health risks from

cigarettes and alcohol. But to have your

cognition impaired right here, right

now, as you try to work or study is some-

thing else. The evidence increasingly

suggests that particulates do not just

penetrate the heart and lungs but also

the brain.

The health impact should be enough

to motivate action. But if confirmed,

these effects also change the economics.

Ill-health at the end of life subtract from

the sum of human health and happi-

ness, but damage to young brains sug-

gests a direct, accumulating effect on

productivity and human capital. Tack-

ling particulates, in other words, might

raise not just output but its growth rate.

The immediate, on-the-day effects of

air pollution can be surprisingly large.

The economists Avraham Ebenstein,

Victor Lavy and Sefi Roth show that a

modest increase in particulates on the

day of an Israeli student’s high school

exams is associated with a significant

decline in exam results. These exams

shape a student’s life career so that brief

exposure to air pollution has lasting

consequences, leading to an average of

0.15 fewer years of university education

and ultimately $30 less in monthly

salary. Every child has to take the exams

and the date is fixed, so richer students

cannot dodge the pollution and the

authors can control for factors such as

school quality. Consider the extremes

parents will go to improve their child’s

exam results or get them into a better

university. Yet their life chances can be

blighted by a single day of air pollution.

Another recent study by Tom Chang,

Joshua Zivin, Tal Gross and Matthew

Neidell looks at call centre staff working

for the same company in different Chi-

nese cities. On polluted days, productiv-

ity fell by 5 to 6 per cent, and the effect

was evident at air pollution levels often

found in Europe and the US. Again, con-

sider what else companies will do for a

5 to 6 per cent gain in productivity.

The effects on physical labour are less

surprising but still striking. There are

studies showing lower productivity for

citrus pickers exposed to higher ozone

levels. There are studies showing that

German professional footballers — who

cannot change the date or venue for a

fixture — make fewer passes on days

with greater air pollution.

Then there are the horrible effects

found in many studies of child develop-

ment. One shows that living in an area

of the US with high carbon monoxide

pollution does more harm to a baby

inutero than the mother smoking

10 cigarettes a day. A study of almost

3,000 schoolchildren in Barcelona

found that kids exposed to more air

pollution suffered slower cognitive

development. This affects the poorest

most of all, but nobody who lives in a

city is safe.

In recent years, climate change has

come to dominate environmental policy

— for good reason. Yet that is a challenge

for which humans are psychologically

ill-equipped. There are essentially no

gains from stopping climate change,

only losses averted, and the problem

is totally resistant to individual action.

Nothing a single person does makes any

difference.

Tackling air pollution, on the other

hand, benefits everybody and is amen-

able to action at every scale. What is

more, it appears the benefits will be felt

straight away. Individuals can install

filters to improve indoor air quality.

Small groups can monitor and publicise

local air quality: once particulates start

to affect property prices, watch how

seriously people take them. Cities and

nations can regulate polluting vehicles

and power generators. Since most par-

ticulate emissions come from the same

fossil fuel sources as greenhouse gases, it

is also a policy to tackle climate change,

framed in a way more likely to find

public favour.

If there was a pill available that

improved exam results, reduced your

chances of dementia and made you

more productive at work, it would sell

by the billion. Since reducing air pollu-

tion is such a pill, why not take it?

[email protected]

Air pollution

drags down

productivity

Tackling the problem

benefits everybody

and the benefits will be

felt straight away

economics

Robin

Harding

W

e do not know when, or

even if, such a momen-

tous event will occur.

But it behoves us to be

prepared. That is why

Oxford university polled the public

recently on what humanity should do if

aliens make contact.

The answers, unveiled last week at the

British Science Festival in Coventry,

amounted to a boost for scientists and a

boo to politicians. Thirty-nine per cent

of respondents believed that scientists

should decide what to do next, outnum-

bering the 15 per cent keen for politi-

cians to shoulder this historic duty. Only

11 per cent thought a planet-wide refer-

endum should shape the future of cos-

mic diplomacy. Startlingly, a majority

would support replying.

This is madness on a galactic scale. An

alien lifeform extending the tentacle of

friendship is likely to be reaching out

from a position of technological, if not

intellectual, superiority. The history of

explorers pinpointing distant lands is

one of plunder and conquest. Parading

our presence could unleash interplane-

tary pandemonium.

The survey is not frivolous. Our spe-

cies has been never been more invested

in the scientific hunt for life elsewhere

in the universe. The Seti Institute in Cal-

ifornia, whose name stands for the

Search for Extra-Terrestrial Intelligence

and which is backed by Nasa, has been

scanning the heavens for alien radio sig-

nals since the 1980s. Billionaire tech

investorYuri Milneris a prominent

backer of the $100m Breakthrough Lis-

ten project, a decade-long rummage

through radio and visible light emis-

sions from distant stars.

The Kepler Space Telescope, mean-

while, was launched in 2009 to search

for exoplanets — those beyond our own

solar system. It found more than 2,600.

Last week, one exoplanet was revealed

to have water in its atmosphere. By ana-

lysing the starlight filtering through the

atmosphere of K2-18b, lying 110 light

years away, scientists at University Col-

lege London deduced the presence of

water vapour and hydrogen. “This

planet satisfies more requirements for

habitability than any other we know

about now,” one said. Life elsewhere

might be cut from a different molecular

jib; if not, liquid water is a prerequisite.

There is more data to come: the James

Webb space telescope, Hubble’s succes-

sor, should begin operating in 2021; the

European Space Agency will launch

Ariel, a planet-hunting mission, in 2028.

If a mysterious signal was picked up,

the detecting observatory would ask

others to confirm the signal is real, not

an artefact, and from space rather than

Earth. Next, scientists would need to

judge whether it is a “technosignature”,

a sign of technologically advanced activ-

ity rather than a natural phenomenon.

It is unclear what would follow,

although current recommendations

suggest the discoverer notifies the UN

and International Astronomical Union,

as well as the public. While 56 per cent of

those surveyed supported a reply (men

were keener than women), there is little

scientific appetite for messaging back.

“Intentionally signalling other civilisa-

tions in the Milky Way Galaxy raises

concerns from all the people of Earth,

about... the consequences of contact,”

runs a 2015 statement signed by, among

others,Elon Musk.

It is not impossible that a single nation

could steal the initiative. A new space

race is unfolding between India and

China. This year, China’s Chang’e-

landed on the far side of the moon, while

India deployed its own Vikram lander

(though contact was lost). President

Donald Trump’s resurrection of US

Space Command hints at a foreign pol-

icy calculation that dominance in the

final frontier can rebalance a lack of

diplomacy on terra firma.

The same muscular reckoning may

lead to a darker gamble: what more dra-

matic way for a strongman to show he is

king of this world than by controlling

first contact with another?

The writer is a science commentator

Contacting

aliens is

madness on a

galactic scale

Extraterrestrials are likely

to be reaching out from a

position of technological, if

not intellectual, superiority

SCIENCE

Anjana

Ahuja



Izabella

KaminskaKaminska

SEPTEMBER 18 2019 Section:Features Time: 17/9/2019 - 17:55 User: alistair.hayes Page Name: COMMENT, Part,Page,Edition: LON, 13, 1