Breaking the Cycle: Financial Stress, Unsustainable Growth, and the Transition to Sustainability

Abstract

Increasing debt, natural disasters, and extreme weather events claim an ever-larger part of national budgets across the globe, undermining global stability and the capacity of our societies to transition to sustainability. The dominant crisis response policy paradigm treats the economy and the environment as separate domains and is based on a ‘fix-the-economy-first’ principle, i.e., fiscal consolidation and debt sustainability need to be achieved first before addressing other socio-environmental policy goals. This paper demonstrates that this approach entraps countries and the global economy in a vicious cycle. In the absence of an integrated policy framework for addressing these intersecting challenges, our responses to financial stress often exacerbate the environmental crisis and its consequences, adding further financial strain on an already fragile socio-environmental system. Breaking out from this conundrum requires a new crisis response policy paradigm. To this end, this study develops the Unsustainable Growth Vicious Cycle (UGVC) as an analytical framework that exemplifies the incentive structure that governs the dominant crisis response model, and the negative feedback loops that sustain it. Our analysis unfolds in four stages. We analyse how financial stress triggers multidimensional poverty traps and how these impact on the environment. We use the concept of poverty-environment trap 2.0 to capture the emergence of the environmental crisis as a global poverty and inequality trap in its own right. We explicate the limits of the dominant economic policy paradigm through the lens of unsustainable economic growth. We finally discuss the need of transforming ‘economic adjustment programmes’ into ‘sustainability adjustment programmes’, as part of a new global settlement for sustainability transition.

1. Introduction

Since the 2008/09 Global Financial Crisis (GFC), the global economy has gone through an unprecedented number of shocks and crises, as well as unorthodox economic policy interventions. The anticipation of a return to the ‘normality’ of the ‘great moderation’ period gradually gave way to a sequence of ‘new normals’. In this environment of radical uncertainty, one thing remained constant throughout the post-GFC period: lower economic growth rates. In the current context of environmental crisis, this could be deemed a positive development. Yet, this ‘great stagnation’ period not only did not lead to sustained environmental benefits but, on the contrary, in some areas, is associated with continued environmental damage [1]. Therefore, the global economy faces a huge challenge. On the one hand, lower economic growth rates have a significant adverse impact on poverty and inequality dynamics, intensifying socio-economic instability. On the other hand, intensifying economic growth rates to deal with this adverse socio-economic conjuncture could accelerate the drivers of the current environmental crisis, pushing people and the planet beyond the boundary of sustainability.

The way in which this poverty-environment challenge will be addressed will determine the outcome of the attempted sustainability transition at planetary level. The concept of sustainability transition draws from the concept of sustainable development; a mode of development that meets the needs of the present without compromising the ability of future generations to meet their own needs [2]. In this sense, the practice of sustainability transition should be based on the protection of our global commons, the natural systems and resources that sustain life on our planet. Yet, until today, our main policy paradigm for lifting people out of poverty is based on creating economic activity through a set of policies that have serious environmental consequences [3,4]. Transitioning to sustainability requires moving beyond such an approach. Poverty reduction cannot be ensured in conditions of environmental crisis, and the environmental crisis cannot be dealt effectively under conditions of socio-economic degradation [2]. Having to destroy the natural environment to lift people out of poverty is an important manifestation and driver of poverty itself.

Understanding the multiple ways in which poverty, the environment and economic growth affect each other in the current polycrisis context is critical for developing a new, integrated approach between socio-economic and environmental sustainability. By feeding the environmental crisis and its consequences, the dominant economic policy paradigm is emerging as a most dangerous global poverty trap. Sustainability transition reforms must intervene in the vicious cycle between socio-economic development and environmental degradation, and transform it into a virtuous cycle in which socio-economic livelihoods and resilience will be based on, and foster environmental resilience and vice versa. In this way, sustainability transition necessitates a major transformation in the existing socio-economic model away from unsustainable economic growth, that is, policies and practices that boost economic growth rates and national income in the short term, but create significant negative socio-environmental effects and costs in the medium- and long-term.

Building on a wave of significant contributions that emphasise the need for a more integrated approach to social and environmental dynamics in the context of sustainability transition (e.g., [5,6,7,8,9]), our main aim in this paper is to develop an analytical framework that exemplifies the multiple ways in which poverty/inequality, environmental degradation, and unsustainable economic growth policies interconnect and reinforce each other within the current polycrisis context.

Lower economic growth and historically high debt in the post-GFC period have increased financial stress at a global level (see Figure 1).

Increased financial stress (re)activates a range of multidimensional poverty traps with significant immediate and long-term socio-environmental implications. These pressures unfold in a context where climate change itself emerges as an all-consuming poverty trap. By using the concept of multidimensional poverty, we adopt a more comprehensive approach to the interaction between poverty and the environment under conditions of financial stress. Introducing the term poverty-environment trap 2.0 we highlight how the ongoing environmental crisis has fundamentally altered the assumptions and parameters on which dominant economic policy-making is based. Similarly, the use of the term unsustainable growth emphasises the need to focus on the sources of economic growth, without negating the importance of the rate of economic growth for economic development and poverty alleviation. To integrate these ideas, we develop the Unsustainable Growth Vicious Cycle (UGVC) as an analytical model that help us rethink our responses to financial stress and financial crises under conditions of environmental crisis. Such reconsideration is important, especially in light of the high number of countries seeking support programmes from international financial institutions in the aftermath of the COVID-19 pandemic. Rethinking the targets and conditionalities of these support programmes is a decisive factor for our collective transitioning to a sustainable socio-environmental model in the era of environmental crisis.

The proposed UGVC model aims to enhance our understanding of the negative and positive feedback loops between socio-environmental dynamics in the context of sustainability transition, as well as the costs of maintaining a business-as-usual approach to dealing with the challenges we face. The proposed model does not aim to offer a ‘general theory’ on the relationship between poverty and the environment in conditions of environmental crisis. It rather follows a middle-range approach to knowledge production, aiming to bridge a gap between more systemic approaches to sustainability transition and the need to reexamine how specific policies (unsustainable growth), based on specific knowledge paradigms (neoclassical economics and general equilibrium modelling), under specific conditions (heightened financial stress and/or economic adjustment programmes) are producing lagged effects that not only undermine the very aims of these policies but also threaten sustainability transition and the ecological balance of the planet. In this way, the UGVC is nested within broader schemes that map and conceptualise how human prosperity can be achieved in a world in environmental crisis. Maybe the most important contribution here is Kate Raworth’s doughnuts economics [5,10] that brings under a single analytical model both ecological and social tipping points, thus integrating ecological and social aspects in the definition of earth’s ‘safe operation zone’ [11,12]. As Raworth [10] (p. 1) notes, ‘[h]umanity’s challenge in the 21st century is to eradicate poverty and achieve prosperity for all within the means of the planet’s limited natural resources… [We need to bring] planetary boundaries together with social boundaries, creating a safe and just space between the two’. To do so, Raworth integrates the nine planetary boundaries used in the planetary boundaries literature [11,12], with a ‘social ceiling/boundary’, which consists of twelve internationally agreed ‘minimum social standards’, based on the UN Agenda 2030 on Sustainable Development Goals. Embedded in this holistic socio-environmental approach, the UGVC model zooms in on specific mechanisms and practices that determine the relationship between social and environmental tipping points. Furthermore, we use the concept of multidimensional poverty to stress that, in line with Raworth’s approach, there are multiple and interacting social tipping points. The main aim of UGVC is to shed light on how the dominant crisis response policy paradigm, i.e., how countries and international institutions respond to financial stress and financial crises, threaten our collective capacity to remain within the aforementioned safe socio-environmental operating zone.

The concept of a safe operating zone is central to the literature on ‘planetary boundaries’ [11,12]. The planetary boundaries approach evaluates the state of biophysical and biochemical systems and processes that are essential for Earth to maintain the environmental functions and life-support systems that facilitated the rise of, and are compatible with, human civilisation as we know it today. The main time unit of comparison is geological era, i.e., approximately a period of 10000 years. According to Richardson et al. [12] (p.1), ‘[e]arth is now well outside of the safe operating space for humanity’. In 2023, six out of nine planetary boundaries were transgressed [12]. Within the broader planetary boundaries research paradigm, there have also been empirical studies that have tried to estimate the socio-environmental margins of this safe operating zone. Wackernagel et al. [9] use the concept of biocapacity to examine what natural resources are available to support the social development and poverty alleviation aims set by the SDGs. They find that in ‘2020, the demand of biological resources of all people combined exceeded the amount Earth’s ecosystems produce by at least 56%’ (ibid.: 731). They argue that, as the historically accumulated biological resource stock is depleted, this condition constitutes a ‘material bottleneck for the human economy’, a situation they define as an ‘ecological poverty trap’. The magnitude of the threat posed by this trap to the global sustainability transition is immense, as they estimate that 72% of the human population lives in countries that are at the same time both low-income and in ‘biocapacity deficit’. On this basis, they argue that ‘[o]verlooking resource conditions in efforts to reduce, and eventually eradicate, poverty may have been acceptable or even reasonable in the past when resource constraints where not a limiting factor, but this assumption no longer holds’ (ibid.: p.732). Despite the magnitude of the challenge, Wackernagel et al. suggest that viable transition strategies do exist and a global orderly reduction in resource-intensive economic activities (referred to as ‘dematerialisation’) is possible. The proposed here UGVC approach sheds light on a decisive aspect of such an orderly transition to a sustainable socio-environmental order. Our model is not geared towards estimating social or ecological tipping points and is not based on numerically specified ecological boundaries or (targeted decreases in) growth rates. Our focus is on explicating a key node in our global socio-environmental system that acts and can act as a multiplier both for negative feedback loops and positive synergies in the context of sustainability transition. From an empirical and policy point of view, the next step for the proposed model will be to quantify the actual socio-environmental costs of specific unsustainable growth policies, as well as the benefits of moving to a more sustainable policy paradigm.

We use the next two sections as building blocks to develop our analytical framework. After a brief reference to the current global economic context, Section 2 develops the concept of interacting multidimensional poverty traps. Then Section 3 critically engages with the concept of a poverty-environment trap as well as the emergence of climate change as a poverty trap in its own right. Section 4 develops the UGVC model by articulating how the current conditions of financial stress fuel a vicious cycle between unsustainable economic growth and socio-environmental degradation. The last section discusses how the global economy can break away from its current unsustainable trajectory.

2. Financial Stress and Multidimensional Poverty Traps

The global economy has experienced sustained financial stress throughout the period following the Global Financial Crisis of 2008–2009. By financial stress, we refer to economic conditions in which the servicing of debt or other financial obligations starts to exert significant pressure or leads to a retrenchment in basic functions of governments, corporations, and households. For instance, governments might be forced to reduce public investments or cut back on essential services, such as education and healthcare; firms may scale down production and/or investments, cut back on expenses, and lay off employees; and households may reduce expenses and consumption, postpone educational plans, or, depending on the context, withdraw children from school to contribute to the household’s subsistence.

Even before the outbreak of the COVID-19 pandemic, progress made in Sustainable Development Goals (SDGs) related to poverty, hunger, and education was faltering [13]. Thus, the pandemic crisis broke out at a moment when socio-economic vulnerabilities were already on the rise. The war in Ukraine came on top of the pandemic to unleash another multidimensional shock wave, involving a global food and energy crisis, an inflationary shock, heightened geopolitical rivalry and instability, a further decrease in global economic growth prospects, and a threat of delaying global decarbonisation. The confluence of these shocks with a period of rapid monetary tightening in most advanced economies created one of the most challenging environments for global development in recent economic history. Although a widespread domino of outright debt crises has been averted, the persistent heightened financial stress for over a decade has resulted in economic hardship and socio-political instability. Close to 60% of the 68 low-income countries are now at high risk of or already in debt distress (more than double the number in 2015); 3.4 billion people live in countries that spend more on debt payments than on health or education; public debt is at historical high levels in both advanced and developing economies; developing countries’ external debt has quadrupled during the last two decades, and in 2023 it was equivalent to 99% of their export earnings (whereas the respective threshold in the IMF-WB Debt Sustainability Framework (DSF) for low-income countries is between 10 and 21%) [14,15]. 39% of the countries globally experienced a 40% increase in the share of their government spending going to interest payments between 2010 and 2023, while close to half of the countries (46%) globally experienced at least an increase of 20% in their interest payments. The severity of the financial stress and its impact has been significantly more pronounced for developing countries (Figure 2a). Yet, in the context of ‘great stagnation’, the impact of financial stress has been global. For instance, significant increases in governmental spending going to interest payments between 2010 and 2023 are observed in several G20 countries such as Turkey (53% increase; +5.47 pp), the United States (47%; +4.54 pp), Mexico (44%; +4.79 pp), Indonesia (36%; +3.29 pp), and India (27%; +4.95 pp) (World Bank data 2025). The respective increase in China was substantially above 100%, with some estimates pointing to 320% [16]. At the time of writing, the World Bank data series did not include data for China. Drawing on data from the Chinese Ministry of Finance, a recent study by the Centre for Strategic and International Studies [16] estimates that public expenditure on debt interest payments in China rose by 321% between 2013 and 2024. Statista (2025), using data from the same source, reports a 154% increase between 2016 and 2024. Shifting our focus from income groups to world regions helps us to illustrate the substantial financial pressure in South Asia, where the majority of the world’s extreme poor population lives, Sub-Saharan Africa, Latin America, but also in North America after the COVID-19 pandemic (Figure 2b).

Heightened financial stress reactivates poverty traps, i.e., vicious cycles that entrench and prolong the root causes of poverty. In development economics, a frequently used definition of poverty traps is that of Azariadis and Stachurski [17], who define them as a ‘self-reinforcing mechanism, which causes poverty to persist’—an approach expanded by Barrett and Swallow [18] and Barrett et al. [19] (Haider et al. [7] offer a literature review on the concept of poverty traps across different disciplines, along with a persuasive argument for moving beyond a narrow economic approach to poverty traps). Below, we discuss how financial stress impacts different aspects and domains of poverty. To do so, we utilise the Multidimensional Poverty Framework (MPF) developed by the Oxford Poverty and Human Development Initiative (OPHI) and the United Nations Development Programme (UNDP). The MPF approaches poverty beyond its monetary aspects by assessing deprivation across a wide range of social development domains such as health, nutrition, child mortality, education, and basic living standards such as access to cooking fuel, sanitation, drinking water, electricity, housing, and ownership of assets [20]. We use the concept of multidimensional poverty traps to capture and examine the impact of financial stress on different forms of socio-economic deprivation, as well as how these different forms of deprivation interact to exacerbate poverty and its implications, beyond mere fluctuations in monetary income (for the concept of ‘multidimensional poverty’ see [21]).

Financial stress leads to an increase in monetary poverty, i.e., an increase in the absolute number of people living in extreme poverty (poverty headcount) and close to the extreme poverty line (poverty gap). As a result, the ability of an increasing segment of the population to secure food is hindered, and hunger and malnutrition increase. In many cases, paradoxically, these conditions coexist with large increases in food production intended for export markets (

Table 1. Selected UGVC trends in low-, lower-middle-, and upper-middle-income countries in the post-GFC period (2010–2023).

Selected Multidimensional Poverty Indicators
Interest payments (% of revenue)	Poverty headcount at $3.00 a day (%)	Poverty gap at $3.00 a day (2021 PPP) (%)	Prevalence of under-nourishment (%)	Forcibly displaced people (million)
Maternal mortality ratio (per 100,000 live births)	Immunisation, measles (% children 12–23 months)	School enrolment, primary (% gross)	Government education expenditure (% gov. expend.)	Access to electricity, rural (% of rural population)
Selected Unsustainable Growth Policy Indicators and Respective Environmental Footprints
Adjusted net savings, excl. PM damage (% of GNI)	Ores and metals exports (% of merchandise exports)	Cereal production (Mt)	Total fisheries production (Mt)	International tourism, number of arrivals (million)
Forest area (% of land area)	Adjusted savings: net forest depletion (% of GNI)	Annual freshwater withdrawals, agriculture (% of total fw withdrawal)	Global reported natural disasters, 1985–2023 (Source EM-DAT)	Global trends in civil unrest, 2013–2018 (Source: IEP)

Notes. In each box, the first line, from the top, refers to low-income countries; the second line, in the middle, refers to lower-middle-income countries; and the bottom line refers to upper-middle-income countries. The period covered is 2010 to 2023 (or the latest year of available data). A single red dot (or shorter line) indicates data availability for only one year (or for a shorter period). Source: World Bank 2025 (unless otherwise stated).

). These conditions pose an immediate threat to human lives and the ability of poor people to survive poverty. Yet, they also have enduring poverty and development implications. For instance, malnutrition affects child development and leads to the development of lifelong disadvantages, both mental and physical; factors that exacerbate and prolong poverty in the affected communities. In a classic poverty trap vicious cycle dynamic, poverty leads to malnutrition that leads to ill-health that perpetuates poverty.

Access to and attainment in education are also negatively affected, with significant increases in the number of children out of school, especially in poorer countries. Under conditions of financial stress, households prioritise securing food and income, making schooling/education one of the first casualties (Table 1). Given that education is one of the most secure pathways out of poverty, this destruction of human and knowledge capital has a pervasive long-term negative effect for development at both individual and country levels [19,22,23].

Financial stress leads also to reduced access to health and needed sanitation, both due to reduced public provision and reduced capacity by affected communities to access such provision. In the short run, this translates to an increase in deaths, such as in terms of maternal and infant mortality rates, an overall decrease in population’s health and productivity, and increased susceptibility to infectious diseases (Table 1). In the long term, this adverse impact on health and sanitation, increases the costs and reduces the effectiveness of dealing with chronic diseases; it also reduces the resilience and preparedness of the health systems to prevent or deal with health emergencies (e.g., epidemics), which have been widespread, especially in developing countries over the last decades [19,22,24,25,26].

Another key factor that is negatively affected by financial stress is access to electricity [22]. Reduced access to electricity affects negatively a range of important social development domains, from national economic growth rates and household incomes to access to basic necessities such as safe clean water or clean household air [27,28]. Here, too, the adverse effects (livelihoods, income, health) are not only immediate, threatening poor people ability to survive poverty, but trigger long term negative effects related for instance to ill health. For instance, according to WHO (2022a), household air pollution—primarily caused by the use of polluting fuels and technologies in homes—was responsible for an estimated 3.2 million deaths in 2020. Household air pollution is also linked to a wide range of health conditions, including heart disease and cancer. According to the latest data, in 2022,685 million people did not have access to electricity at all, while 2.1 billion did not have access to clean fuels and technology for cooking [29].

The adverse socio-economic dynamics mentioned above contribute also to the worsening of economic, gender, and racial inequalities. Marginalised segments of the population experience the impact of the above effects (reduced income, health, education, energy) to a much larger degree, exactly due to their already marginalised and precarious conditions. Consequently, social precariousness, marginalisation, and discrimination are exacerbated, making it harder to create pathways out of poverty [19,30,31,32,33,34].

Finally, under conditions of financial stress, the state itself has reduced capacity to deal with the aforementioned poverty traps and their implications. As a result, the interaction, negative feedback loops, and consequences of the above poverty trap dynamics are exacerbated, making the return to a sustainable socio-economic recovery path more difficult and costly [13,35,36]. The literature on financial crises uses the concepts of scarring and hysteresis to describe exactly these long-term negative impacts in affected countries [37,38,39].

The above effects are more pronounced in developing countries and especially low-income countries, where both access to finance as well as institutional and governing capacity are limited. There is, however, significant diversity within income groups and regions, and high-income countries are not immune to such adverse effects, especially in the context of economic adjustment programmes [40]. For instance, comparing 2010 with 2022 (or latest available year), we see that the percentage of the population living in multidimensional poverty (national definitions) has increased in countries such as Germany, France, the Netherlands, and Norway, but decreased in Poland, Mexico, and Thailand (World Bank data, 2025). Sri Lanka, Lebanon, and Pakistan (all lower-middle-income countries) were the three countries that have been spending on average the highest amount of their revenues for debt interest payments during the period 2010–2023 (47.4%, 36.8%, and 35.4%, respectively). Between 2015 and 2022, Sri Lanka experienced a 93% increase in the percentage of its population experiencing food insecurity (moderate or severe), while the respective increase in Lebanon was 172% (from 2018 to 2022) and in Pakistan 218.4% (from 2015 to 2022). During the same period, food insecurity in Bangladesh, another lower-middle-income country was decreased by 5.2%.

3. From Multidimensional Poverty Traps to the Poverty-Environment Trap and Beyond

The existence of a vicious cycle between poverty and environmental degradation was brought to the forefront of the definition of sustainable development with the ‘Brundtland Report’ in 1987 [2]. Financial stress increases unemployment/poverty, and increased unemployment/poverty increases the pressure on environmental resources, as more people are forced to rely more directly on them. This increased pressure leads to an overuse of physical resources, which has as a result the reduction in their productivity, due to factors such as soil degradation and mineral depletion (see also, [19] (p. 313), [7]). To cover this shortcoming in productivity, further pressure is put on the natural environment, only to result in ever-diminishing returns, which exacerbates both poverty and environmental degradation and leads to a poverty-environment trap.

The global dimension of this trap is hard to overstate. In 2022, almost 84 percent of poor people lived in rural areas, and rural poverty dominated all world regions [41]. The overwhelming majority of these populations depends for its survival on the quality, productivity, and availability of its surrounding natural resources—what is usually referred to as ecosystem- or resource-based livelihoods [42]. Therefore, any decrease in the productivity or availability of these natural resources has a decisive impact on poor people’s ability both to survive and escape poverty.

Yet, the relationship between poverty and environmental degradation is complex and assuming that poor communities are responsible for environmental degradation would be an inaccurate oversimplification. Many studies have indicated that the causal relationship between poverty and environmental degradation is complex and context-specific, and therefore populations classified as poor do not cause or threaten to cause environmental damage [43,44]. In many cases, the opposite is true. Populations that culturally and socio-economically depend on nature have sustainably managed and protected their natural habitats, and constitute a unique source of knowledge and experience of how habitats threatened by human activity or climate change can be protected [6,45,46]. As put by Barbier [21] (p. 647), the gross ‘perception of a ‘poverty-environment trap’ as a two-way process in which poverty drives rural households to degrade the environment, and a deteriorating environment subsequently worsens poverty, needs to be revised’. This does not mean that a poverty–environment trap does not exist or is not prevalent in specific contexts, but it does mean that this relationship encompasses a broader set of intervening factors and dynamics that determine the outcome of this relationship. Such factors include the pre-existing human and physical capital and asset ownership, access to credit, availability of coping strategies and alternative income sources, and local/national institutional support structures.

Poverty–environment trap effects become pronounced in periods of socio-economic shocks and heightened financial stress. Even critics of the ‘poverty–environment trap’ thesis, agree that in times of socio-environmental and economic shocks, poor and especially assetless households, the livelihoods of which depend on natural resources, have no many alternative coping strategies other than intensifying the use of the natural/common pool resources available to them (e.g., land, forest, marine and coastal areas, water), thus depleting their productivity, and triggering the vicious cycle dynamic of the poverty–environment trap discussed above [19] (p. 313), [23] (p. 1187), [43,44,47,48].

The broader environmental context in which such socio-economic shocks take place has itself been changing. The increase in the frequency and intensity of natural disasters and extreme weather events give rise to climate change and the environmental crisis as a poverty trap in its own right. Here too, the effects on poorer populations are more severe, exacerbating existing patterns of chronic poverty and inequality. The majority of poor households around the world depends for its survival and income on resources directly impacted by natural disasters, e.g., crops, soil/land, forests, marine environments, wildlife, and therefore the impact of natural disasters is more direct and devastating for these households. Moreover, poor households typically live at high-risk, vulnerable-to-extreme-weather-events areas due to lower land and housing prices, and their housing is typically of lower quality too. This applies to both rural and urban poor households (see, [48] (p. 7), [49] quoted in [42]). Thus, they are more exposed/vulnerable to adverse natural events such as flooding, landslides, land erosion, and soil salinisation. Such extreme events and natural disasters have also significant indirect impacts, such as increases in food prices, that are bound to hit harder poor and precarious communities, both in rural and urban areas (see the literature review in [42] (pp. 544–545). Furthermore, most of the assets owned by poor households are maintained in physical form (e.g., houses, land, cattle, crops, machinery/tools vs. deposits), and thus they are less diversified and more likely to be wiped out in the event of natural disasters. These assets are also typically uninsured, and poor households have limited access to financial markets for liquidity provision—consequently there is no clear pathway to recovery from natural disasters without substantial external support (national or international). Therefore, the new environmental crisis context intensifies the multidimensional poverty traps discussed above, exacerbates global inequalities, and entraps ever larger segments of the global population in poverty [48] (p. 7); see also, [50] (p. 7), [23] (pp. 1178–1180). Moreover, the ever-increasing costs of dealing with the destructive consequences of natural disasters intensify the strain on public finances and debt sustainability in affected countries (see below).

The channel through which financial stress impacts environmental degradation is not limited to the intensification of natural resource use within the context of poverty–environment traps. Financial stress has a ripple effect across all economic sectors, generating outcomes that exacerbate the root causes of these traps and their consequences. Under financial stress, governments are forced into fiscal retrenchment. They have less money to invest in needed socio-environmental resilience, climate adaptation, and disaster preparedness; less capacity to enforce environmental legislation and protect existing environmental assets and ecosystems; and less resources to deal effectively with natural disasters when they occur, which augments the destructive consequences of these disasters (e.g., reduced equipment and resources when dealing with wildfires). At the same time, in order to deal with balance of payments and fiscal deficit pressures, governments employ or intensify economic growth practices and incentives that have both short- and long-term adverse environmental impacts. Such practices include mining and other export-oriented natural resource extraction, monoculture farming, or environmentally adverse land use changes. Thus, on the one hand, resilience is reduced, due to limited investment capacity, and on the other hand, key drivers and effects of the environmental crisis such as deforestation, soil erosion, floods, biodiversity decline, etc., are enhanced through unsustainable economic growth strategies.

Respective adverse environmental dynamics are observed in the corporate sector, where under financial stress, firms tend to prioritise cost-reduction over health and environmental standards, neglecting, postponing, or slowing down investments in newer and cleaner technologies. This brings back or reinforces polluting and environmentally wasteful practices. For instance, corporations may attempt to reduce their costs by reducing resource recycling or not using/replacing production filtration systems. Similarly, under financial stress, households may reduce or move away from ‘ethical‘ and ‘green’ consumption patterns. In specific contexts, households may also retreat to environmentally damaging activities, such as illegal logging for heating/subsistence, or other cost-cutting polluting practices, such as using firewood for heating in urban settings (for a literature review on the impact of financial crises on the environment, see [51]).

4. The Unsustainable Growth Vicious Cycle

The above analysis makes clear that the current conditions of financial stress present a significant global challenge to sustainability transition. At a socio-economic level, they entrench a wide range of multidimensional poverty traps, with long-term implications for global development and stability. At an environmental level, on the one hand, financial stress hinders the implementation of policies and investments needed to enhance the resilience of our socio-environmental systems, and on the other hand, it leads to policies that increase vulnerability and/or actively damage the environment. Combined, these adverse socio-economic and socio-environmental dynamics create a strong vicious cycle. Socio-economically destabilising poverty and inequality dynamics lead to unsustainable economic growth policies, i.e., policies that generate economic growth and income flows in the short term but have adverse environmental effects that fuel the drivers and consequences of the current environmental crisis, such as natural disasters and extreme weather events. The latter, in turn, reduce economic growth capacity and increase financial stress—due to slower growth rates and increased costs for dealing with natural disasters and extreme weather events—sustaining the ‘need’ for unsustainable growth policies. In this vicious cycle, increasing debt levels need to be served by decreasing economic growth rates in a destabilising, downward socio-environmental spiral. In brief:

financial stress => unsustainable growth policies => environmental crisis => financial stress

This vicious cycle leads to a poverty–environment trap 2.0. As discussed above, the concept of a poverty–environment trap denotes a condition where poverty leads to the unsustainable use of resources, which in turn exacerbates indebtedness and entrenches poverty. The ongoing environmental crisis presents a systemic shift for this traditional concept of a poverty–environment trap. The use of 2.0 signifies a significant independent impact of the environmental crisis on the vicious cycle between poverty and the environment. Under current conditions, what we considered as local environmental effects have a much greater ability to have regional and global implications, contributing to global environmental tipping points and/or the transgression of ecological planetary boundaries. They can produce knock-on effects able to trigger abrupt and/or irreversible changes in the planet’s ecological balance. In this context, the environmental crisis can produce environmental degradation and ecological system collapse in a self-contained mode, regardless of human activity. Similarly, the existing intensification of the frequency and magnitude of natural disasters and extreme weather events present a socio-economic challenge of an unprecedented scale (see below), both for individual countries and the global economy as a whole. In this way, the environmental crisis emerges as a global poverty trap in its own right, and the concept of a poverty–environment trap 2.0 aims to signify this fundamental global shift.

Building on previous work of ours [52], we introduce the Unsustainable Growth Vicious Cycle as an analytical framework that brings together the mode of interaction and negative feedback loops between financial stress, unsustainable growth policies, and the environmental crisis. The framework aims to throw into sharp relief the way in which these phenomena interact and pose a threat to sustainability transition at global level. Using the current conditions of heightened financial stress as our starting point, we identify five key stages in the UGVC model (see Figure 3).

First, financial stress increases poverty and inequality in all their forms. In monetary terms, more people come closer to the poverty line (precarity), fall below the poverty line (poverty headcount), or their position below the poverty line deteriorates (poverty gap). In non-monetary terms, all aspects and implications of multidimensional poverty, such as access to education, sanitation, health, and electricity deteriorate. These effects are especially pronounced in low- and lower-middle-income countries [22,53], but significant effects are also observed in high-income countries (see Table 1; for health-related effects in OECD countries, see [26]). As mentioned above, the impact of these adverse effects is not only contemporaneous, but they activate poverty traps with significant long-term negative implications for the affected populations (ibid.; [7,19,37,54,55]).

Second, these substantial socio-economic pressures trigger a range of changes in priorities, policies, practices, and behaviours across economic sectors, including the government, corporations, and households. Governments’ initial response to financial stress or financial crises is usually based on two pillars. First, aiming to reduce fiscal deficits, they decrease spending, usually starting with cutting down public investments. This has immediate adverse social and environmental effects, such as exacerbating the adverse poverty and inequality dynamics, reducing capacity for environmental monitoring and law enforcement, and reducing resilience and preparedness for dealing with the effects of the environmental crisis. Second, aiming to restore growth, gain foreign income, and address imbalances in their balance of payment, they attempt to increase exports. This is usually accomplished through the intensification of environmentally damaging activities, such as mining and other export-oriented natural resource extraction, monoculture farming, environmentally adverse land use changes, or unsustainable tourism (Table 1). The income and growth rates achieved in this manner come at an exorbitantly high cost in the medium and long term due to their resulting ‘externalities’, in the form of social and environmental degradation. To capture these effects, we use the concept of unsustainable economic growth, that is, policies and practices that boost economic growth rates in the short term, but result in significant negative socio-environmental damage and costs in the medium- and long-term. In this way, unsustainable economic growth becomes the critical link between financial stress and the environmental crisis.

These adverse shifts in the public sector are accompanied by respective adverse shifts in the private sector. Households and firms, in order to re-balance their finances, reduce or abandon environmentally beneficial practices and/or engage in practices with direct negative environmental impacts. For instance, in the context of regional financial crises in Asia, researchers have observed a range of environmentally damaging trends: increases in untreated factory wastes and related increases in the contamination of rivers and deterioration in water quality; slowdown in investments in newer and cleaner technologies; less spending on energy efficiency measures by households; pressure on forests via activities related to firewood, timber, and agricultural land use; environmentally detrimental expansion in fisheries; expansion of large monoculture plantations (e.g., palm tree) that is also a significant deforestation driver in the region; and lax enforcement of pollution regulations (e.g., [56,57,58,59]). Although high-income countries are more resilient in the face of heightened financial stress, they are not immune to adverse effects, such as illegal logging, illegal sewage spills by corporations, water contamination, etc. (indicatively see [40,51,60,61,62]).

Third, as a result of the above developments, social and environmental resilience and, correspondingly, natural disaster preparedness are decreased, while environmental degradation in sectors related to the ongoing environmental crisis increase (Table 1). Unsustainable growth practices may generate income flows, helping with balance of payments and debt sustainability pressures, but they do so at an exorbitantly high cost in the medium and long term. First and most importantly, unsustainable growth policies exacerbate the drivers and consequences of the environmental crisis, creating, as discussed above, a new insurmountable poverty–environment trap 2.0. The ever-increasing frequency and intensity of natural disasters and extreme weather events drive more people into poverty, worsen inequalities, and consume an ever-larger portion of the national income of affected countries, especially the most vulnerable ones. This increases budget deficits and public debt, and decreases growth and productivity capacity, worsening the conditions of financial stress that necessitated the unsustainable economic growth policies in the first place. Through this vicious cycle, the environmental crisis emerges as a global poverty trap. At the same time, financial stress triggers a wide and diverse series of new downward spirals that come to augment medium-term fiscal vulnerabilities. For instance, increased precarity/unemployment has significant adverse effects on public health at the same time when households’ access to health becomes more difficult and governments implement spending cuts in the health sector. Beyond the significant, immediate costs in human lives and productivity, the weakening of disease monitoring and prevention capacity leads to higher and longer-lasting costs for disease treatment in the future [24,25,26,55,63].

Fourth, the negative feedback loop between financial stress and socio-environmental degradation leads to reduced access to and/or increased borrowing costs from international capital markets. Countries that are more exposed to extreme weather events and natural disasters already pay a premium when they borrow from financial markets. Higher exposure to natural disasters means higher sovereign risk and thus higher borrowing/refinancing costs [64,65]. Unsustainable growth policies, by boosting the drivers of the environmental crisis, indirectly also boost the borrowing costs of the affected countries—the more vulnerable the country, the higher the increase in borrowing cost. This translates to less fiscal space, less growth potential, and overall, less capacity to invest in needed resilience infrastructure and disaster preparedness that aim to decrease the socio-environmental impact of natural disasters and extreme weather events [64,66]. For the Vulnerable Twenty (V20) group, this climate vulnerability borrowing premium has, on average, been estimated at 117 basis points (1.17%), an increase close to 10% in interest costs [67]. For a group of 6 countries in Southeast Asia, one of the most climate-vulnerable regions in the world, during 2002–2018, Beirne et al. [64] estimate the average effect of vulnerability to climate change on sovereign bond yields at 152.9 basis points, with the greatest impact being in the case of Vietnam at 727.5 basis points. Equally important, this and other studies find that strong institutions (e.g., rule of law, control of corruption, civil liberties, political rights) and other resilience-related indicators (e.g., government effectiveness, disaster preparedness, GINI and HDI index, access to electricity, etc.) mediate/moderate the impact of climate vulnerability on sovereign borrowing. The positive effect for the V20 group has been estimated at 67 basis points on average (ibid.). To put it simply, building resilience lowers the borrowing costs of (climate vulnerable) countries. Yet, under the current conditions of financial stress, the opposite is taking place. Resilience and preparedness are decreased, and vulnerabilities increase, making access to capital markets more difficult and expensive.

Fifth, the increase in socio-environmental vulnerabilities and decrease in fiscal space lead to more inequality, social dissatisfaction, and social unrest. The ‘rise of the extremes’ that dominate global politics in the period after the Global Financial Crisis of 2008/09 is, at least partly, a manifestation of this dynamic (see [68,69]). In yet another negative feedback loop, social dissatisfaction and unrest lead to political instability and consequently slower economic growth (e.g., [70,71]), further exacerbating financial stress. This fuels the vicious cycle between unsustainable growth policies, socio-environmental degradation, and the environmental crisis.

The challenge to sustainability transition presented by the above vicious cycle will grow bigger as intensifying natural disasters and extreme weather events claim more fiscal space and generate more popular dissatisfaction and unrest across the globe. According to the well-established International Disaster Database (EM-DAT), published by the University of Louvain and used as source by the World Bank, the estimated global cost of natural disasters was increased from $698.6 billion in the 1990s, to $893.1 billion in the 2000s, to $1877.9 billion in 2010s. For the period 2020–2023, the estimated cost already exceeded $1056 billion (Figure 4) [72]; see also [73].

The safest way to slow down the intensification of the effects of the environmental crisis is to move away from unsustainable growth practices and invest in sustainability transition policies and infrastructure. Yet, a policy context of fiscal retrenchment makes this impossible, and attempting to transfer the cost of adjustment on those less able to bear it (both within and across countries) has created a backlash. Under conditions of deteriorating living standards, a return to ‘old certainties’, ‘easy solutions’, and ‘heroic national narratives’ resonate with ever-larger parts of the global population, as evident from elections in systemically important economies such as the US (2016, 2024), Brazil (2018), and the EU (European Parliament election in 2024). We are also seeing internationally growing pockets of popular backlash against low-carbon and green transition policies—from the gilets jaunes movement in France, to farmers across Europe, to heat pumps protests in Germany [74,75,76]. If such challenges and frictions are encountered in rich countries, what room is there for sustainability transition policies in developing countries, where almost 85% of the global population live?

5. Breaking out from the Vicious Cycle

The proposed UGVC approach points to a deteriorating dynamic in the relationship between financial stress, unsustainable growth, environmental crisis and social dissatisfaction. This reading is in line with most recent socio-environmental studies. Indicatively, according to the World Meteorological Organisation [77], greenhouse gases emissions have reached the highest levels in the last 800 000 years; each of the past 10 years were individually the 10 warmest years on record; over the past 8 years, each year has set a new record for ocean heat content; seven of the ten most negative annual glacier mass balances occurred in the last 9 years. Similarly, according to the Independent High-Level Expert Group on Climate Finance, the response to the climate crisis is a main driver of the growing financing needs and gap for meeting the SDGs ([78]; for a recent review of estimates, see [79]). The main issue here is that, so long as our policies for addressing economic stress ‘produce’ environmental crisis, we will never manage to escape either of them. We need to deal with these two challenges (economic stress and environmental crisis) in an integrated way, and, considering the magnitude of the resources required, we can only do so effectively at a global level. On this, OECD [25] (p. 14) notes

Unless adequate financing is provided to tackle [the feedback loops between these challenges]…, negative trends such as climate change, reduced human capital or excessive debt accumulation will self-perpetuate. The high short-term costs of investments in education, clean energy or infrastructure are necessary to yield long-term economic benefits and break those vicious circles.

Our analysis shows that to break away from the vicious cycle between financial stress and environmental crisis, we need to intervene early on, aiming to reduce financial stress and support resilience-enhancing, sustainability transition policies [see also IPCC [80] (pp. 24–26)]. Such an early intervention will avert financial and budgetary stress from morphing into multidimensional poverty traps. Consequently, the negative impact on key development areas such as income, hunger, education, health, and access to electricity will be minimised, and the negative feedback loops between the respective poverty traps will be averted. In this way, human capital and development capacity can be protected. Along with avoiding the reactivation of poverty traps, reducing financial stress would create policy space for countries both to avoid unsustainable growth policies and to invest in resilience and sustainability transition, thus creating new sustainable growth pathways. This would globally reduce key drivers of the environmental crisis and its consequences.

The key point here is that a front-loaded supportive intervention has the capacity to create a virtuous socio-environmental cycle. Instead of a decline in socio-environmental resilience, supporting investments in needed climate adaptation, mitigation, and natural disaster preparedness can increase employment, enhance human capital, improve access to key infrastructure (e.g., water, sanitation, domestic markets), improve human health, and avoid negative future health impacts. Building resilience will also result in lower human, natural, and monetary costs from extreme weather events and natural disasters when these occur. As mentioned above, enhanced socio-environmental resilience is also positively associated with lower borrowing costs and easier access to global capital markets. This creates more fiscal space, which could be used to enhance progress towards meeting the Sustainable Development Goals (SDGs), enhancing further socio-environmental resilience (for a relevant simulation exercise see the ‘SDG Push’ scenario in IF-UNDP [81]).

At the same time, avoiding the adverse socio-environmental implications caused by unsustainable growth means also avoiding contributing to the causes driving the current environmental crisis. This could contribute to a reduction in the frequency and severity of extreme weather events and natural disasters (or at least reduce the rate of their increase), thus reducing the overall global and local costs of dealing with the effects of the environmental crisis (see also IPCC [80]). This would also help in reducing the rate of breaking ecological thresholds and tipping points that lead to hard-to-reverse or irreversible environmental effects. The reduction in the increase in natural disaster-related global costs will also free up more resources for supporting the SDGs and the transition to sustainability. Figure 5 attempts to capture this virtuous cycle effect of a decisive early policy intervention, aiming to disrupt the current unsustainable growth vicious cycle.

To sum up, the delay in dealing with the financial stress that engulfs the global economy, especially developing countries, amplifies the magnitude of socio-environmental problems and the respective socio-environmental traps that need to be dealt with. This increases the cost required to deal with these challenges and decreases the overall impact and effectiveness of the attempted interventions when they happen. Further research is needed to quantify these costs in an integrated way. Yet, studies that estimate the costs of dealing with climate change are indicative of the significant scale of costs and resources involved, as well as the importance of intervening sooner rather than later. A meta-analysis of existing studies on the cost of delaying action to stem climate change estimated that ‘a one-decade delay in addressing climate change would lead to about a 40% increase in the net present value cost’ [82]. In a similar vein, based on simulation analysis, the IMF [83] has argued that a front-loaded ‘green investment push’ would reduce the net global cost of managing the transition to sustainability and ‘in the medium term…would place the global economy on a stronger and more sustainable growth path by avoiding serious damages from climate change and the risk of catastrophic outcomes’ (ibid. 106).

The vicious cycle between financial stress, unsustainable economic growth, and the environmental crisis poses a clear and direct threat both to global development and the environment. Disrupting this vicious cycle requires a robust global policy intervention. The longer it takes to implement this intervention, the more entrenched the poverty traps and unsustainable growth effects will become, and therefore the more resources will be required with diminishing effectiveness per ‘resource unit’. Furthermore, the greater the delay of intervention, the higher the risk that socio-environmental tipping points will be crossed, with hard-to-estimate and hard-to-reverse social and ecological implications.

This section indicates that the gap separating a vicious from a virtuous cycle of socio-environmental development may not be insurmountable. Yet, for this to happen, we may need to employ path-breaking practices and thinking. The UN Agenda 2030 of Sustainable Development Goals offers a clear road map and targets for transitioning to sustainability. Therefore, a defined global policy framework for a front-loaded global policy intervention is there—what is lacking is the funding to support such an intervention and the mechanisms to deliver it. The final section provides reflections on two key changes in global policy-making that could help make this possible.

6. Concluding Remarks: Global Governance for Sustainability Transition

6.1. Integrating Global Governance Structures

Managing successfully our transition to sustainability depends on our ability and willingness to integrate global structures, institutions, and policies that deal with financial crises with those dealing with the environmental crisis [84,85]. This is more important than ever in the current global conjuncture, when an increasing number of developing countries are requesting financial assistance and/or financial support programmes from the IMF, the World Bank, or other multilateral development banks. In this context, we cannot afford to uphold the dominant ‘fix-the-economy-first’ policy paradigm. This paradigm has been generating ‘economic adjustment programmes’ that often worsen the socio-economic problems they aim to tackle and reduce socio-environmental resilience. Continuing with this paradigm under the current conditions would be disastrous. We cannot treat ‘fiscal consolidation’ as a separate policy realm, independent from socio-environmental considerations. The current financial support programmes by the IMF and other multilateral financial institutions should be viewed and implemented as ‘sustainability adjustment’ programmes aligned with the SDG framework [52,86]. In this framework, ‘adjustment’ at the level of policy should be approached and dealt with as a multidisciplinary issue, requiring formative input from researchers and policy-makers across diverse scientific and policy fields.

Two aspects are important here. First, after the COVID-19 crisis, almost half of the UN member states (at least 90 out of 193) have formally requested some form of financial support from the IMF [87]. The way in which this ‘wave of adjustment’ will be managed will determine the outcome of our collective transition to sustainability. The environmental input in these adjustment programmes should not be reduced to an environmental impact assessment of predetermined economic adjustment targets and policies. Greater involvement and input from different UN agencies are needed at all stages of economic support programmes negotiation. Put differently, participation in these negotiations should no longer be the sole prerogative of IMF officials; instead, a broader range of expertise should be included, such as that available in the UN Environment Programme (UNEP) and the Intergovernmental Panel on Climate Change (IPCC). We need to see IMF, UNEP, and IPCC teams working and setting targets as a single team in the planning and negotiations of support programmes, and we need to see them engaging much more with local populations and knowledge.

Second, in the current global financial architecture, the IMF-WB Debt Sustainability Framework is the main framework used for determining the degree of both financial risk/stress and financial support/relief that is needed for countries in crisis. Recent steps taken by the IMF to integrate climate change risks in its DSF modelling are welcome but not sufficient to guide and facilitate the needed transition to sustainability (see [88]). The target here is not to achieve debt sustainability at any cost (semper primus), but to develop a new type of debt sustainability analysis on the basis of the need to meet the SDGs. For the latter, we need to integrate SDG attainment into debt sustainability analysis itself. This would allow us to assess better what risks are involved in specific countries and the significance and magnitude of the poverty traps that must be overcome, in order for a sustainable socio-environmental growth path to be achieved.

6.2. Funding the Boost

The slow progress in meeting the SDGs, as well as the gap between attainment and targets, gradually lead to discussions for the need of ‘more realistic’ targets and timetables. This is a dangerous path to take in a context where the implementation of SDGs is the only available global policy framework for reaching a sustainable socio-environmental path. In the current context of unprecedented common global challenges and geoeconomic fragmentation, the short five-year window leading up to the 2030 target provides a strong basis for advocating an extraordinary, time-defined (one-off), non-debt-generating, global, SDG-related funding initiative. Two widely discussed and tested policy instruments can be used to this end.

First, the issuance of Special Drawing Rights (SDRs) of $700 billion–$1 trillion annually for the remaining 4 years of SDG implementation. To be fully effective, this SDR issuance should be credited directly to a funding facility supporting SDG attainment mostly through grants and not be allocated and controlled by the IMF member states according to their quotas. Such an arrangement would have the capacity to serve the purpose of a just and inclusive global transition to sustainability. It could also function as a vehicle for facilitating a ‘loss and damages’ international settlement, aiming to revive and enhance a ‘new multilateralism’ for sustainability transition. A significant advantage of a new and time-specific issuance of global reserve assets (such as the SDR), as a global strategy for breaking away from the vicious cycle discussed in this paper, is that it is based on increasing rather than directly redistributing existing global resources, thus reducing potential friction points between countries (for two recent, SDR-related proposals see [89,90]).

Second, the use of debt relief as an SDG-enhancing instrument (based on SDG Target 17.4). This instrument does not have to be independent from the SDR/reserve asset issuance instrument. Yet, it could and should create further room for meeting the SDGs and advancing the transition to sustainability. The experience from the Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI), as well as from the (non-)functioning of the current G20 Common Framework for Debt Treatment, should inform policy implementation in this area [for two concrete debt-relief related proposals, see the ‘Stiglitz–Guzman–Diwan–Kessler–Songwe proposal’ [91] and the ‘Debt Relief for Green and Inclusive Recovery (DRGR)’ [92].

The aim of the above funding arrangements is to provide the critical boost needed to activate multiple positive feedback loops and self-reinforcing synergies essential for transitioning to a socio-environmentally sustainable path. Yet, all the above actions require a momentum and level of multilateralism that is currently lacking. If anything, the wars in Ukraine and the Middle East, along with the new US administration, have created new global faultlines and divisions. Supporting the SDGs seems to be the best insurance policy that we have for containing global instability and avoiding environmental collapse. In this context, to be effective, the above proposed policies should not be narrowly construed or implemented as unconditional ‘technical fixes’. Instead, they should serve as the foundation for a new global settlement akin to the post-war Bretton Woods Conference in 1944 or the San Francisco Conference in 1945, where the UN Charter was finalised and signed. The extraordinary SDG funding support proposed here should be politically leveraged through new forms of collective conditionality at a multilateral level. For instance, SDG grant funding and debt relief could be made conditional for countries reaching ‘zero dispute’ agreements with their neighbouring countries, thus fostering a new wave of historical settlements and peace accords worldwide, facilitated by the UN legal order and institutions. In this context, new radical ideas should be considered, such as a collective defence obligation for all UN member-states participating in this new global settlement (akin to NATO’s article 5). Promoting such a historical global settlement for a just and inclusive global transition to sustainability appears to be the best way to generate the multilateral momentum needed to reverse global disintegration dynamics and ensure our collective transition to sustainability. In the current context, such a proposal sounds as unrealistic as it is aspirational. Yet, it is indicative of the magnitude of global socio-political changes that need to take place if the planet’s ecological balance is to remain a credible target, and if sustainability transition is not to be cast aside by a new race of global re-armaments and geopolitical confrontation.

7. Conclusions

Heightened financial stress forces countries to adopt economic policies that exacerbate the drivers and costs of the ongoing environmental crisis. Short-term fiscal consolidation is prioritised at the expense of sustainability transition, neglecting the risk of disrupting the ecological balances that sustain life on our planet. This occurs at a time when more material wealth, money, and technology are available than at any other time in our collective history. How have we been trapped in this paradox and why do we stay on this course despite overwhelming evidence that it presents an existential threat? We sought to contribute to these questions by exposing, at least partly, the structure of incentives that governs this unsustainable socio-economic model, along with the multitude of negative feedback loops and downward spirals that sustain it.

The main aim of this paper was to offer a conceptual framework that explicates what the problem is, and why it will not go away without a significant change in the dominant crisis response policy paradigm. Further empirical research is required for the proposed UGVC model to be validated. We need detailed case studies to elucidate the complex relationship between the different factors and dynamics included in the model, and the role and estimated impact of country-specific characteristics in reducing or exacerbating the described negative feedback loops; characteristics such as inequality, human capital, socio-political stability, and governing capacity and quality. We also need new meta-analysis of the existing evidence, as well as new estimations, on the impacts of different unsustainable growth practices at different levels (country, regional, income groups, resource endowment groups, etc.). This will allow us to quantify the described effects and produce new estimates on the impact and costs occurred by specific unsustainable growth practices for sustainability transition.

The current world order of unstainable economic growth is gradually disintegrating, leading to socio-environmental degradation and global instability. The transition to a new sustainable economic growth paradigm remains both the key condition and central stake in achieving sustainability. Rethinking the sources of economic growth is a critical step towards such a new growth paradigm. In this context, the UGVC draws attention to a specific, yet significant, aspect and driver of unsustainable growth. The environmental consequences of the dominant financial crisis response policy paradigm. Rethinking this paradigm is a key step for moving to a sustainable socio-environmental path.