A study undertaken by Green Alliance has said that improving resource efficiency will help to reduce volatility in commodity prices.
In the report, Managing Resources for a resilient economy: lessons from the financial sector, showed that governments around the world have focused on improving resource stewardship in response to rising commodity prices since the turn of the century.
But with recent falls in these prices, some have questioned whether we need to recalibrate resources policy to an era of lower commodity prices.
The report rejected this viewpoint, as it said that it ignores the inherent volatility and unpredictability of commodity prices.
In the report summary, it said: “The volatility and uncertainty surrounding commodity prices has wide ranging macroeconomic as well as specific business impacts.
“Energy and other widely used commodities, such as food, have major impacts on inflation, living standards and economic growth. Other critical resources, such as rare earths and precious metals can be vitally important for specific products or processes.
“Financial analysts spend a lot of time considering volatility and risk. Because of the enormous sums of money that can ride on some investments, the financial sector has developed a variety of approaches to managing risk, which seek to achieve a combination of good returns with acceptable levels of risk.
“We consider the approaches taken by financial analysts and believe there are lessons that can be learnt for resource management.
“Greater investment in resource efficiency and recycling, and the adoption of circular economy business models, have important benefits from a risk management perspective.
“From a societal perspective, an economy less reliant on imported commodities would naturally be more resilient to gyrations in international commodity markets.”
The report recognised that greater resource efficiency will require investment, but this can be justified on the basis of reduced volatility, diversifying the share of resource efficient activities should lead to an economy more resistant to resource price shocks, and mitigate the impact of ‘tail events’ that lead to large price spikes.
Visit http://www.green-alliance.org.uk/ to view the report