Co-sponsored by ACtioN Member Putnam Investments, this meeting took place in 2-hour sessions on May 27 and May 28, featuring Daniel Schrag, George Serafeim, Jessika Trancik, and Simon Levin.
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 afford an advantage to firms that ceteris paribus decrease their environmental impact. In practice, there are several impediments to this approach. For example:
1. It is difficult to understand the environmental impact of any individual firm.
2. It can be difficult to compare or rank the environmental impacts of unrelated “cross category” activities.
3. 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.