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Box 8–2. Sovereign Wealth Funds: The Financial Arm of Intergenerational Governance?

Intergenerational justice has emerged as a concept underpinning several sovereign wealth funds around the world. If governed in the right way, such funds can provide a financial resource for future generations. Yet the policy settings that underwrite sovereign wealth funds vary globally, influencing the purpose of the funds, their success, and what they are ultimately used for.

Generally, sovereign wealth funds are stateowned funds that invest in financial assets.

They are often established from a balance-ofpayments surplus and channeled into investments. The Sovereign Wealth Fund Institute estimated that in 2013, the total size of sovereign wealth funds reached $5.8 trillion. The funds thus can make a sizeable contribution to help future generations cope with potentially devastating environmental damage. It is important, however, that the governance settings that support them ensure that they are managed ethically and in favor of intergenerational justice.

The nature of these funds can vary depending on their source of funds, their administration, and their financial structure. Resource-rich countries often use sovereign wealth funds to manage profits from resource extraction; some dedicate these profits to generating wealth for future generations, such as the oil-funded Norwegian Government Pension Fund (see Chapter 17) or the Kuwait Investment Authority.

Out of coherence with the principle of intergenerational justice, there is increasing public pressure on governments with sovereign wealth funds to invest in “ethical” activities. Australia's Future Fund, for example, no longer invests in tobacco or munitions projects. An increasing proportion of funds, such as the pension fund in Norway, acknowledge explicitly that their interests are linked to sustainable development, and have adopted specific ethical guidelines for shareholder investments.

—Elizabeth Buchan CliMates member, Australia Source: See endnote 13.

worth pursuing, even if it means closing the doors to sustainable prosperity for a substantial part of the world's population? Too many decision makers, whether political or economic, make choices every day that effectively answer “yes” to these two questions. To achieve sustainability, we will need more voices able to articulate a resounding “NO!” Fortunately, such voices are multiplying, particularly among young people—to the point where listing all youth-initiated efforts for the planet would require a full publication of its own. In the area of climate change in particular—with its far-reaching consequences and intrinsically temporal dimension—young people are being inspired in droves to take action, with many increasingly making it the defining battle of their generation.

 
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