The Complexity of Sustainability and Investing: Difference between revisions
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Classical economic theory suggests that growing demand for assets with “sustainability credentials” will enable firms to decrease their borrowing costs by increasing the sustainability of their operations. In theory this incentivizes firm leaders to employ more sustainable | Classical economic theory suggests that growing demand for assets with “sustainability credentials” will enable firms to decrease their borrowing costs by increasing the sustainability of their operations. In theory, this incentivizes firm leaders to employ more sustainable practices and affords an advantage to firms that, ceteris paribus, decrease their environmental impact. In practice, there are several impediments to this approach. For example: | ||
# It is difficult to understand the environmental impact of any individual firm. | # It is difficult to understand the environmental impact of any individual firm. | ||
Revision as of 21:42, 28 January 2020
SFI ACtioN Topical Meeting
May 28, 2020
Putnam Investments
Boston, MA 02110
Classical economic theory suggests that growing demand for assets with “sustainability credentials” will enable firms to decrease their borrowing costs by increasing the sustainability of their operations. In theory, this incentivizes firm leaders to employ more sustainable practices and affords an advantage to firms that, ceteris paribus, decrease their environmental impact. In practice, there are several impediments to this approach. For example:
- It is difficult to understand the environmental impact of any individual firm.
- It can be difficult to compare or rank the environmental impacts of unrelated “cross category” activities.
- It can be difficult to predict the strategies that economic agents will evolve in response to altered incentives.
Complexity science offers an alternative theoretical construct to better understand (i) the nature and impact of climate change, (ii) the probabilistic and nonlinear ways human intervention can affect climate change, and (iii) the impact and implications of different schemes to score and reward behavioral changes intended to improve a firm’s environmental sustainability.