#6: Our second report from the front lines addresses another set of frequently asked questions about SCI
New Paradigm, More Questions
Using the laws of nature to guide human sustainability and shifting the focus of responsible investing to system change generates many comments and questions. In today’s post, we discuss a few more we came across in recent weeks.
They are:
Can there be a sustainable company in an unsustainable society? 😬
We’re already doing SCI! 🏆
Do companies that block systemic changes intended to achieve sustainability get low SCI scores? 👍
Can there be a sustainable company in an unsustainable society?
It depends on how you define corporate sustainability. If it means prospering over the long-term without harming the environment and society, the answer is no, for two reasons:
Unsustainable human systems and society will not prosper over the long-term because they are unsustainable. As a result, there can be no long-term corporate prosperity.
Flawed economic and political systems compel all companies to harm the environment and society. If corporate sustainability means causing no harm, there can be no sustainable companies under current systems.
Throughout history, all flawed human systems changed, usually by collapsing quickly. Rapidly growing problems show that humanity almost certainly has entered another phase of rapid system change. Humanity could become sustainable, and thereby enable the existence of sustainable companies, in two ways – voluntary and involuntary.
Keeping systems the same will guarantee involuntary system change (i.e. collapse). A severely degraded human society could become sustainable at this point when reality compels people to abide by nature’s laws. Or we could voluntarily change our systems before they collapse, and thereby avoid severe disruption and massive investment losses.
Companies do what systems demand. Humanity is unsustainable largely because reductionistic systems unintentionally compel harmful behavior from companies and others. Sustainable systems demand sustainability. Companies are compelled to act in a fully responsible manner (by not harming the environment and society).
SCI uses the powerful capital markets to incentivize the corporate and financial sectors to work for sustainable systemic changes. Top-rated SCI companies are ahead of peers on impact mitigation and system change. But they are still not sustainable. As noted, this is impossible for any company to achieve under current systems. SCI leaders aggressively mitigate negative impacts and collaborate with others to drive systemic changes that enable full impact mitigation.
This discussion mainly relates to the corporate sector. Many indigenous communities, small-scale farmers, and other groups are sustainable in the sense that they do not harm the environment and society. But human society collectively is highly unsustainable, as shown by rapidly growing problems. Therefore, even sustainable groups might not survive, unless humanity overall becomes sustainable. SCI is intended to provide a very powerful tool for driving human sustainability and system change.
We’re already doing SCI!
It’s true, some asset managers already address certain aspects of system change. Limited system change metrics have been in ESG models for over 20 years, such as campaign finance, lobbying and media campaigns. ESG research firms and asset managers sometimes assess how companies seek to promote or block policy reform.
But this work is clearly not enough. Environmental and social conditions often rapidly declined, despite current responsible investing becoming mainstream. Far more sophisticated and comprehensive approaches are needed.
To illustrate, system change overall must be understood before corporate system change efforts can be accurately rated. The SCI process works as follows:
SCI uses the Global System Change framework to assess companies on system change performance.
The framework describes sustainable society using the laws of nature, and the systemic changes and actions needed to achieve it.
This enables the optimal corporate role in system change to be identified. Aspects of this become metrics in SCI rating models.
As discussed in earlier posts, system change is at least 80 percent of the sustainability and SDG solutions. System change is only a small focus in current ESG models. These models do not rate companies on how effectively they drive necessary systemic changes and actions. SCI greatly expands the focus on system change. This provides far stronger incentives for companies to implement system change strategies.
Do companies that block systemic changes intended to achieve sustainability get low SCI scores?
Yes, definitely! System change performance is an excellent indicator of management quality because it is the most complex management challenge. Many qualities are needed to achieve leading system change performance, including collaboration skills and superior vision. System change leadership strongly indicates superior management quality and stock market potential.
As documented in many ESG studies, companies that do not understand the value of reducing negative environmental and social impacts consistently underperform in the stock market. Companies that do not see the need for system change, or lack the skills to effectively drive it, also are likely to underperform. So yes, poor system change performance, such as using campaign finance and lobbying to block system change, yields low SCI ratings.
Keep an eye out for our next post series starting next week. There we will tackle the What, Why and How of System Change. In our view this is THE most relevant discussion for sustainable, responsible and impact investing at this point in history!