TCR Article

“We  publish this important summary article by our partner and colleague Frank Dixon, MBA, who takes ESG and CSR analyses to the now vital level of addressing necessary systemic changes …especially  needed for transition management in finance.

We adopted  Frank’s TCR model as a key  component of our suite of global standards.  Frank also  serves on our illustrious global Advisory Board.

~Dr. Hazel Henderson, Editor”

System Change Opportunity in the Financial Sector

Frank Dixon July 4, 2017

System change is by far the most important sustainability issue in the financial sector. Climate change and virtually every other major environmental and social issue only can be resolved through systemic changes at the sector and overarching system levels. The capital markets strongly influence corporate behavior. Over $20 trillion dollars are invested in the global socially responsible investing (SRI) market. Investor interest was a main factor compelling nearly all large companies to implement sustainability strategies.

The same mechanism can to used to drive system change. As institutional investors and other capital markets participants realize the critical importance of system change and take it into account when making investment decisions, companies will be compelled to engage in it. Investment funds based on system change performance have the potential to produce far greater environmental and social benefits than any other type of SRI or impact investing. Corporate system change ratings can be used to produce many types of investment products that provide superior financial returns. This article summarizes the system change opportunity in the financial sector and how investors can capitalize on it.

System Change

Modern economic and political systems were developed from a reductionistic perspective that ignores much of reality. These systems unintentionally place business in conflict with society. Companies usually are required to put profits and shareholder returns ahead of the environment, customers, employees and all other aspects of society. Very generally speaking, companies only can mitigate about 20 percent of tangible and intangible, short-term and long-term, negative environmental and social impacts in a profitneutral or profit-enhancing manner. Beyond this point, costs usually go up. If companies continue down this path of voluntary corporate responsibility, they will put themselves out of business.

Flawed systems compel all companies, without exception, to degrade the environment and society. System change is about 80 percent of the sustainability problem and solution. But it gets relatively little attention compared to company change. Nearly all environmental, social and governance (ESG) ratings, SRI funds and corporate sustainability strategies are focused on unilateral efforts to mitigate negative environmental and social impacts.

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