April 04, 2020

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Challenging Traditional Finance: Mapping The Transition To Sustainability

New measures and principles are challenging traditional finance and lighting the way to investing in a sustainable economy.


 By Hazel Henderson

A whole-system global transition is underway and accelerating as human activities encounter planetary boundaries. Globalization of our technologies of transportation and communication are unleashing disruptive business models while changing demographics and new political forces are now clashing with incumbent industries and elites.

Uprisings challenging aging power structures, old orders and paradigms are spreading from the Occupy movements against austerity in Europe, the youth revolts of the Arab Spring to the demonstrations demanding democratic participation in Turkey and Brazil. New generations are demanding change as they become better-informed and aware of all the positive futures in the faster transition to cleaner, more inclusive, information-rich economies pledged at Rio+20 by 191 countries in July 2012. 

New Leadership in Business, Finance & More 

Accommodating all these forces of human awakening requires new leadership in politics, business, finance, academia and at every level of human societies.

Old-style “strong men” and inflexible elites are being challenged and disappearing. Corporate organization charts are flattening in favor of consensual decision-making and feedback from their employees and consumers. Collaborative consumption patterns, swapping and second hand stores are bypassing traditional business models and retailing. Crowdfunding, peer-to-peer lending and insurance, credit unions, cooperatives and local currencies are bypassing Wall Street. 

Transforming Finance initiatives such as Ethical Markets launched in 2010 while Move Our Money campaigns and the work of the Public Banking Institute and the Schumacher Center in the U.S. have been joined by those in Europe, including the Finance Innovation Lab, BankTrack, the Global Alliance for Banking on Values, the New Economics Foundation, Positive Money and others.

Challenges To Conventional Finance

A direct challenge to conventional finance comes from Carbon Tracker, whose most recent analysis of the extent “toxic assets” and mal-investment of FTSE corporations in fossil fuel reserves forecasts additional wasted investments of over $6 trillion by 2020

Responsible investors are also stepping up to purge their portfolios of fossil fuels, including Portfolio 21 Global Equity Fund and Green Century Balanced Fund, joined by cities, some public pension funds and university endowments challenged by students in the 350.org movement. Independent security analysts’ research has found little effect on the performance of fossil-free portfolios (see HIP Investors new report Resilient Portfolios & Fossil-Free Pensions). 

The U.K. Parliament has launched an inquiry into the extent of such unburnable fossil “assets” and how asset managers account for them. 

The latest SRI approaches are challenging entrenched financial models and their underlying economic assumptions.  The IIRC Consultation Draft, discussed by Francesca Rheannon recently on CSRwire, identifies six forms of capital: financial, manufactured, intellectual, human, social and relationship, natural, and points to intangible assets as comprising the less-examined 80 percent of companies’ value. 

The Principles of Sustainable Insurance recasts risk from narrow conventional models focusing on financial risk to embrace all the systemic risks from those which caused the 2008 crises to climate, loss of ecosystem services, food security and other social threats.

Going Beyond Materiality

Even in these new reports, the obsolete language of the Industrial Era persists in terms such as “materiality” and what is “material” to asset valuation, as I pointed out in my review of The Ethical Economy. These rearview mirror terms were suitable to the past century, predominantly based on production of material goods you could drop on your foot. In today’s Information Age, not only 80 percent of corporate assets are intangible, but some 70 percent of GDP-measured national product in OECD countries is now in services. 

These quiet paradigm shifts toward measuring sustainability need to be communicated to students looking for positive alternatives for their futures as well as all those millions of well-informed young protestors worldwide now demanding change.

Ultimately, our societies need to move beyond “economism” and its narrow financial models and GDP national accounting to basing investments and all decision-making on Life’s Principles and Earth Systems Science, as we do in our Principles of Ethical Biomimicry Finance™.

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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