Finance Transition Dialogue #2: Exploring Regeneration
In the second of our three-part dialogue on moving beyond ESG, our participants focused on what a truly regenerative financial system should achieve. We asked Jerome Tagger, CEO of Preventable Surprises, our partner in the Finance Transition Lab, to summarise the key ideas that emerged from our deliberations.
We invited Finance Transition Lab participants to explore how a regenerative business system would work, its objectives and underlying principles. The responses each in their own way centered on the place and role of investors in economic, ecological, and social systems, and put techno-fixes in a larger context, e.g., the social purpose of finance. From there, the ideas flowed.
Many observed that finance simply is too powerful, taking precedence over all other considerations. But changing the place of finance would require higher order conversations, about culture and values, as necessary foundations for political decisions and technical solutions (with positive and reinforcing feedback loops as the solutions prove beneficial to society). This echoed comments from the first dialogue (and repeated here) about current ESG or impact practice driving marginal changes while strengthening the current system.
So how does one foster such conversations about culture and values? To a degree, they take place in the media every day. But they are polarized and lack concrete anchoring for decision makers. Three ideas:
finance decision-makers should build a sense of responsibility, if not by being affected by the issues themselves, then by being immersed in the sort of environmental data that explains the realities of climate change and transition. Do we need tools to give teeth to the idea of responsibility, such as skin in the game or regulation?
“Localizing” problems: for example, localizing food production – itself a contribution to more sustainable food supply chains – could force depolarization by requiring stakeholders to develop economic solutions and problem-solve together at a meaningful geographic scale.
strengthening agency – equipping all well intended individuals with ideas and solutions on how to be drivers of change from their personal and professional vantage points.
A regenerative core
When these conversations on culture and values turn to practicalities, most people observe that a regenerative financial system would put externalities at its heart – with regulation, performance incentives and taxes, pricing and risk premia designed accordingly. This might entail measuring things differently, moving away from GDP at macro level to capture more dimensions of reality whether natural capital, inclusivity, or wellbeing. Perhaps more importantly it would change the interpretations of fiduciary obligation (and with it legal systems), as well as the mindset with which individuals approach their savings to become “good ancestors” and take responsibility for multiple generations.
This might in turn lead to more radical transformations of institutions and power structures: new investment vehicles that more readily share outcomes and decision making, or even, as some participants suggested, the end of equities, or, accompanied by technological changes, the end of intermediation and invisible sources of power such as banks.
This summary does not fully account for all the ideas and nuances of the dialogue; this will be done elsewhere. But it throws down the gauntlet on the changes the financial system needs. It also invites a few questions: can such transformation happen within a timeframe compatible with reversing environmental degradation? Can investors be the agents of this transformation, or do others need to lead? Could they, for example, set aside their career demands to speak publicly about the radical changes afoot? More broadly, what is needed to facilitate the transformation they envision? These, the conditions of success, will be the object of our third dialogue in September 2021.
Finance Transition Lab is a North Star Transition initiative, focused on a regenerative approach to finance and the global system of business. The Dialogues are part of the first phase of Finance Transition Lab, and feature a mix of over fifty global participants from across financial institutions and the broader business system. The Dialogues are being carried out in partnership with Preventable Surprises and the Climate Action Unit at University College London.
