Policy instruments promoting sustainability, such as investment taxonomies, are playing an increasing role in guiding the allocation of financial resources internationally. But can policy instruments define sustainability in ways that are both operational (i.e. assessable via replicable procedures) and which specify practices that can reliably be expected to enhance future generations' welfare? This paper analyses candidate definitions of sustainability and identifies a dilemma: while various definitions identify a ‘capital’ variable whose value can indeed be determined empirically; we have no reason to assume that preservation of any specific capital variable will maximise expected future welfare. By contrast, sustainability can be defined ‘dynamically’ in terms of activities that will, on expectation, lead to future developmental trajectories with high welfare. But, as we show through discussion of concrete examples, ‘dynamic sustainability’ cannot readily be operationalised. We conclude that what qualifies as ‘sustainable’ will remain a subject of political dispute and that authoritative comprehensive assessments of ‘sustainability’ will remain chimeric. We suggest that selecting a narrow class of specific measures, such as of life-cycle greenhouse gas emissions, might lead to more effective and less contentious approaches to resource allocation.
- Investment taxonomies can play a significant role in aligning resource allocation with public interests, such as that of avoiding dangerous climate change.
- In developing policy-relevant definitions of sustainability it is useful to distinguish between capital-focused definitions linked to the belief that activities can continue ‘indefinitely’ if they preserve specific capital variables, and ‘dynamic’ definitions that seek to steer future development towards trajectories with high welfare and/or low catastrophic risks.
- Capital-focused definitions of sustainability can be made operational in the sense of making it possible to assess sustainability via quantifiable and empirically replicable procedures. However, we show there is no reason to believe that such definitions will identify practices that maximise the expected welfare of future generations.
- Dynamic definitions of sustainability that identify sustainable practices with those that maximise expected future welfare and/or minimise catastrophic risks cannot be operationalised. Sustainable investment taxonomies are thus destined to remain politically contested.
- Compared with bundling multiple measures into seemingly authoritative comprehensive assessments of ‘sustainability’, a potentially more useful aid to policy making is to utilise a narrow class of quantifiable measures of environmental impact, for example, ‘life-cycle greenhouse gas emissions’.
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