On the 30th May 2016, Professor László Zsolnai (Professor and Director at the Business Ethics Center at Corvinus University of Budapest) visited Oslo together with Rebecca Oliver, Deputy Head of Future Earth Hub Stockholm. They are among the main developers of Future Earth´s Finance and Economics Knowledge-Action Network - a broad collaboration between researchers and societal actors aiming to improve the understanding of sustainability through the lens of business, economic and financial systems.
An important key challenge for Future Earth´s Finance and Economics group will be to link and learn across organizations, institutions and countries to catalyze both research, analysis and action with the potential to drive deep systemic change. There is considerable knowledge and capacity in sustainable finance, insurance and investment within the Norwegian community, and Norwegian organisations are well represented in many global initiatives. We were therefore delighted that representatives from Finance Norway, Sparebank 1, CICERO Climate Finance, KLP, the Norwegian School of Economics and Capgemini could meet with us at Finance Norway and share their experiences and insights regarding the key challenges and where they believe research and the financial sector can work together to produce knowledge with impact.
Linking the macro with the micro
With recent macro-level developments, e.g. The Paris Agreement at COP 21 and the Sustainable Development Goals, the impetus for investment in sustainable economies has been growing intensely, particularly during the last year. Furthermore, these global agreements will guide many policy makers and businesses in the years to come. It’s therefore critical that Future Earth´s finance and economics work links with these macro-level visions. Future Earth researchers can play a key role in providing valuable insights into the role of the targets and visions and how these can be met, as well as the implications of failing to meet them. However, researchers can´t do these things on their own, they must connect and collaborate with investors, businesses, and policy makers working in the real and financial economies.
Climate change – The market itself is shifting
KLP, Norway´s largest life insurer and a leading sustainable institutional investor globally, has seen signs that recent developments in the climate change area e.g. policy, regulations, institutional investor pressure, new competitive technologies, and initiatives such as RE100, are beginning to disrupt and reshape the market itself. Many incumbent energy companies, for example, have begun preparing for a very different future, as well as investing heavily in carbon capture and storage development.
The need for economic system innovation
There is a critical need to reassess today´s mainstream financial and business models. Ecological overshoot is currently a real risk. We have already transgressed four of the nine planetary boundaries and business is responsible for much of that. Our current system largely releases investors and businesses from being held accountable for the social and ecological damage they cause. They don´t make the connection between their investment behavior and how it drives further environmental and social degradation. As one participant said: “There is an urgent need to reset the incentives and connect parties more, we need to realize that the things that are happening are not acts of God, but acts of humans.”
In fact, some of the insurance industry representatives at the meeting reported they are already seeing the impacts of climate change in Norway within their industry, with some saying “the future is already here.”
In addition, many of our current economic models rely on discounted cashflow (i.e. a calculation of future business income) and it is getting increasingly harder to predict if these cashflow calculations will be valid in the future. Drivers such as climate change impacts, water scarcity, extreme events, biodiversity loss, war and migration, and technological disruption mean that today´s models may soon be outdated.
Sparebank1 was recently involved in the Norway203040 project commissioned by the Norwegian government. The need for new business models was a key focus in their discussions. The sector needs economic researchers to help them develop new models and identify the drivers in the new economy. For instance, they need to know what the new models will look like and how can they be validated.
Ongoing dialogue is essential
New sustainable finance and business models must be based on science, but the only way to know if new instruments are really shifting us towards sustainability is to work with researchers. It´s therefore critical that Earth scientists, other natural scientists and social scientists contribute with knowledge and participate in creating new business models.
It´s also important to remember that sustainability will be a moving target over the decades and centuries to come, so its critical that researchers continue to be involved and evolve as the context shifts. Future Earth´s finance and economics work aims to ensure this happens and to link between already well-established communities and ensure that transdisciplinary work in this area gets attention and funding.
The value of delivering information how, when and where it´s needed
We heard two world leading examples of how delivering information how, when and where it´s needed can help drive real progress.
Finance Norway have been involved in an adaptation and resilience project with local municipalities who are trying to prepare for climate change impacts in their region. Local policy makers needed information about risk to help them calculate the risks in certain areas, so Finance Norway coordinated and distributed loss insurance data targeted to their region. This work is now part of an EU pilot project focusing on how to make cities more resilient. An understanding is emerging as to how insurance companies´loss data could help drive real progress in adaptation. For instance, new similar projects in the transport sector are exploring how to prepare effectively for extreme events.
Secondly, CICERO has provided over 60-science based opinions to different types of issuers, including multilateral development banks and municipalities on the environmental impacts and benefits of green bonds. CICERO Climate Finance, a light touch advisory centre was recently launched at the Norwegian stock exchange. The work is advised by a board with representatives from the world's biggest investors including NBIM, BlackRock,the World Bank Treasury, and leading green financial actors like AP2, SEB, Storebrand, and others. In setting up the centre, CICERO got clear feedback from investors that they needed a bridge between the investment universe and climate science. A key focus of the centre will be taking the science and reports already out there and translating them for investors.
Change the system´s goal!
Ultimately, Future Earth´s Finance and Economics Knowledge-Action Network is looking for leverage points where transdisciplinary research and collaboration with society can make non-linear impact and catalyze systemic change. Many of the current initiatives discussed at the meeting, e.g. UN Principles for Responsible Investment and the UN Principles for Sustainable Insurance, divestment movements, institutional investor leadership, the UNEP Financial Inquiry, are already operating at high leverage points in the system. But according to Donella Meadows (2009) the goals of the system are critical, as they define the very purpose of the system and influence everything else. Changing the goal of the system is the highest leverage point for system change; therefore, addressing the goals of the system and metrics of success will be vital in aiming to transform towards sustainability.
The discussions at Finance Norway generated valuable discussions on the types, rates and scales of transformations that are called for in response to global environmental change. There is clearly still great potential for collaboration between researchers and actors in the finance and economic sector, and we are very grateful that key representatives from the Norwegian sustainable finance and insurance industry took this first collaborative step with Future Earth. The valuable insights from the discussions will be incorporated in the development of the Finance and Economics Knowledge-Action Network, as well as within initiatives within Future Earth Norway.