How investors can reform markets and help combat climate change
Some years ago, we had an ESG lightbulb moment. For all the good we managed to achieve through our micro-level corporate engagements, they would be meaningless if we failed to address existential market failures at the macro level.
The answer was to find a way of helping to reform the market: the playing field on which various financial participants act – from pensioners and savers, to institutional investors, banks and asset owners, to regulators, credit ratings agencies and index providers. But achieving this is no mean feat. To make it happen requires diplomacy, as well as deep systems knowledge and understanding – of how complex financial markets are, how it constantly evolves and changes, and an awareness of the dangers of unintended consequences.
As Donella H. Meadows, American environmental scientist and author of Thinking in Systems: A Primer, explains: “A system is a set of things – people, cells, molecules, or whatever – interconnected in such a way that they produce their own pattern of behaviour over time. We know a tremendous amount about how the world works, but not nearly enough. Our knowledge is amazing; our ignorance even more so. We can improve our understanding, but we can't make it perfect.”
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