The past three years have seen a surge in sustainable investing. Motivated by the intensifying climate crisis, investment firms and their clients increasingly opt for funds that demonstrate Environmental, Social, and Governmental practices known in the industry as “ESG.”
There’s even a framework for evaluating ESG-friendly funds, which often outperform traditional counterparts. For SFI Trustee Katherine Collins, Head of Sustainable Investing at Putnam, the ESG framework is a good start. But it fails to address a fundamental question: “What happens when you take a system that is highly mechanized and focused on very short-term feedback and collide it with a system that’s long-duration in nature, has a totally different system of feedback, and supports all life as we know it?”
Collins believes the “machine” of finance is just beginning to tune itself to the importance of sustaining the environment on which it depends, but lacks the right tools to do so. To that end, Collins and ACtioN member Putnam Investments are co-hosting a Virtual Topical Meeting May 27-28 to explore how complexity science can inform sustainable investing. The meeting will bring investors together with leading climate and complexity scientists to discuss “The Complexity of Sustainability and Investing.”
In addition to Collins, who is Vice-Chair of SFI’s Board of Trustees, other SFI speakers will include External Professor Jessika Trancik and Science Board co-Chairs Simon Levin and Dan Schrag. Schrag, a climate scientist who served on President Obama’s advisory council for science and technology, notes how rare it is for investors to seek out scientists for advice on sustainability. “Why aren’t investors calling me every day to ask about the climate?” he remarked.
One of the group’s objectives is to explore what mathematics might look like for sustainable enterprises. “Most of the math of finance is inherently extractive and zero-sum in its calculating,” Collins explains. And current frameworks sometimes “miss the forest for the trees. For example, there are ways for a well-run company to score highly on the ESG framework, even if its product is inherently wasteful and unnecessary — like a sustainably harvested version of the “Thneed” from The Lorax. Some companies, by contrast, produce great products but are not well managed. Beyond exploring better mathematics for evaluating sustainable investments, Collins hopes the group will have time to ask how such tools could be used to address “the problem of improving the interface between systems of money flow and the system of the Earth we’re living on.”
“We have this golden moment where there’s urgency to act in a more complete and thoughtful way, and an openness to take in new inputs and protocols. The goal of this meeting is to make sure we are doing something wise and not something merely clever.”