Creating global financial systems that value people and planet

In 2023, New Constellations collaborated with Megan Lucero, Emma Shaw and JRF’s Emerging Futures Programme to conduct a series of interviews with people across the financial system. We wanted to explore whether we should run a New Constellations journey into the kinds of financial systems that could enable a future where people and the planet flourish. Though we decided not to run a journey, the conversations illuminated possible pathways of enquiry. What follows is a whistle-stop tour of the various ways people are thinking about this.

Our starting point in these conversations was the complex, interlocking environmental and financial challenges that are now part of everyday reality, and what kinds of reform and innovation would really meet the moment. Most people we spoke to agree this polycrisis means addressing growing levels of wealth disparity, and looking at bolder ways of resourcing the transition to a better future.

The interviews yielded a snapshot of the present times, a partial but nonetheless sobering one. Times in which the pace of wealth accumulation is accelerating and showing no signs of stopping. Times in which the existing system of rules and regulations, such as accounting standards, stimulate problematic patterns of behaviour that intensify capital accumulation and investment in forms of human activity that are depleting and destabilising our planet and communities. All of this adds up to prevent the distribution of resources towards the deep transitions we must all undertake.

Tackling wealth distribution

A number of interviewees were focused on tackling extreme wealth and the societal calculation of who gets what and how, one that is mediated through our financial and taxation systems. Others spoke of the Great Wealth Transfer (over the next 20-30 years, trillions of dollars will be passed from baby boomers to millennials) and advocated for a return to more redistributive heartlands. This would activate the levers of taxation around wealth and inheritance to counteract the rate of accumulation and resulting inequality. These are measures that enjoy strong public support despite much weaker political will.

Other interviewees advised that we have to look at pre-distribution, creating ways to prevent accumulation in the first place, by expediting the transition to employee-owned companies or different property and land ownership systems. Many people spoke of the necessity of shifting cultural norms within communities and generations of wealth-holders such that divestment of wealth is considered alongside further accumulation of wealth. Some have chosen to influence the ‘wealth defence complex’ so that the rising generation of wealth holders has access to advisers who are willing to break out of rigid patterns of advice.

Reforming the existing financial system

A second group of interviewees was principally concerned with reform of the existing financial system. Particularly the contractual obligations and incentives that almost entirely govern the collective behaviour of those operating within the system, whether investors or managers of wealth. If we were to change these obligations and incentives we would change the flow of capital and, as one person remarked, "we don’t have decades to build an alternative from scratch”.

Suggestions ranged from puncturing the widely held belief that fiduciary duty dictates obedience to the maxim of shareholder primacy. It doesn’t. To the adoption of true cost accounting, pricing in full social and environmental costs, something that would make the current forms of business of over 60% of the S&P 100 index unviable. One interviewee referenced ongoing work at Oxford and Harvard Universities to rewrite accounting standards, or what they called “the boring stuff that Brits are good at”, as something they thought could fundamentally alter corporate behaviour at a global scale over the course of 5-10 years.

Others spoke of the potential of rewiring the major indices to create new patterns of incentives and disincentives for certain types of investment, one interviewee’s work on a new 1.5 degree compliant corporate bond index was one example, but the greatest leverage would come from existing indices shifting in design and, in turn, inducing huge-scale behaviour change across the system. Some others spotted potential in redefining the formal and binding categorisations of risk, such as restrictive risk buckets used by pension funds, to allow for more patient, higher-risk investments.

Environmental catalyst for change

The increasing severity of climate and ecological breakdown was highlighted by others as a major catalyst for change. Many saw a reckoning with true risk brewing, something that has started in the insurance sector and is gaining pace. The real risks and associated costs of natural disasters, major disruptions to principal staple crop harvests and complex supply chains have not been priced into today’s calculations. Nor has the true cost of action today versus the far greater costs of action tomorrow. The $6.9 trillion investment needed over the next 15 years to address climate alone (the investment needed to restore the degradation of soil and biodiversity, address material shortages and address inequality would require far more) is dwarfed by even conservative estimates of what will be needed in the future if massive investment doesn’t come through now.

Nicolai Tangen, CEO of the Norwegian Sovereign Wealth Fund, recognised climate change as an increasing financial risk, remarking: “Climate is about as political as gravity, it’s just not political.”

For those focused on building and creating the new, there has been design innovation in the types of funds that can support radical, long-term work. This has explored different types of blended funds based on much longer-term horizons (such as 100 years). These combine different types of investments (philanthropic, state, private, individuals using assets as collateral, and so on) that each have different risk profiles, rates of return and time-frames for investment. The overall fund could then work much more holistically in relation to a given place or system.

It's not enough, we must change how we value things

Do any of these meet the moment alone? Certainly not. Could they do so together? All of the above could significantly help. But one interviewee challenged the very idea that different ways of slicing and dicing stacks of capital or changing capital flows could ever deliver the transformation needed.

To do that, a full-scale rethink would be needed to enable the financial system to recognise and protect the things that we really value. A system that would need to recognise, in where and how it ascribed value, how common goods are created, sustained and cared for by many different people, each with a unique and differentiated claim to a part of the overall value created for the planet and society. And with contractual obligations to and with each other.

Instead of looking at the value of the ‘natural services’ a river gives us within the logic of our existing anthropocentric financial systems, what if we saw the river or tree canopy or mycelial web as an asset that could be reflected on our financial books. Or, as agents among many others in the web of life. In this sense, a financial and contractual system would reflect the myriad relationships and interdependencies through which value is created and should be held.

We are experiencing a time-lag between what we are currently able to ascribe value to within our existing financial system, and what we will need to ascribe value to as we move through the transition. Our attachment to financial value at the cost of what we really value is looking increasingly foolish in the face of our existential need for clean air, water, healthy soil, tree canopies and mycelial webs, for collective mental health and societal resilience. All of these are dependent on, and inter-related with, the larger earth systems that govern life on this planet. And they are currently under threat following the ongoing excesses of what Yancey Strickler has called ‘late stage financial fundamentalism’.

Building a new financial system from scratch

The question I have been asking myself, and continue to do so, is how we would build a financial system from scratch if we knew what we are facing in the next 50-100 years. What are the principles that we would want to root this in - perhaps ones of care and repair, of supporting earth systems to be in balance, of rewarding distribution, of taking enough. Perhaps ones that are more akin to those we find in the natural world. A brilliant piece of research by my colleagues Jo Barratt and Rithikha Rajamohan discerns the principles by which fungal networks actually distribute resources between them to create a self-sustaining and resilient ecosystem. Here’s a blog describing the experiment; more will be shared as part of our learnings from the Mycelium Fund and you can sign-up to receive those here.

Underlying values drive systems

It’s easy to dismiss this line of thought as utopian and deluded. It could never happen, there’s no time, what’s the point. What we have learned over the last 5 years of work at New Constellations is it is imperative to examine the deeper set of values in which our existing systems are rooted, and out of which they’ve been designed. Because it is this underlying set of values that act as a base code or algorithm that dictate in whose interests the system should operate and the outcomes they are bound to pursue. The existing system is very good at doing the job it has been given. But, in its current form, it has reached its own sell-by-date because it was not designed for, and therefore cannot accommodate or sustain, the pathway of transitions that are now needed. I would argue that, if we look at things honestly, such an assertion is now also as political as gravity. It is not political and yet remains treated as a highly risky, political no-go area. The political risk will decline faster than we think, so get ahead of it.

There is too great a gulf between the ameliorative measures that we are currently considering and what’s really needed to shift the flow of capital. Multi-billions will be moved and invested in the coming years. So where are the joined-up conversations across sectors and silos as to how that is done and the value set that underpins it? What do we value, really? Are we having conversations and designing innovations that start there? Once we’re clear on that, how can our financial system recognise value and protect that which is valuable, including our global commons? Who is prepared to take the risk of being first-movers, who is prepared to work with others to do this, and what is the appropriate reward for that risk-taking?

There is potential for hugely valuable work across the full spectrum of the areas summarised here but, for me, it’s this line of enquiry that I would urge JRF and others to support and take. And this enquiry has demonstrated a widespread hunger for just that.

Acknowledgements

Thank you to everyone who generously contributed to this series of interviews:

Bridget Kustin (Director, Ownership Project 2.0: Private Capital Owners and Impact), Daniel Chandler (Programme on Cohesive Capitalism, London School of Economics), Dominic Hofstetter (TransCap), Gary Stevenson (ex- financial trader/GarysEconomics), Géraud de Ville de Goyet (Barking and Dagenham Giving), Indy Johar (Dark Matter Labs), Jake Hayman (independent), Jennie Winhall (Co-founder, System Shift and the System Innovation Initiative), Jeremy Oppenheim (Systemiq), Leslie Johnston (Laudes Foundation), Lyndon Burford (blockchain researcher and Visiting Research Associate, King’s College London), Lily Macfadyen Tomson (Jesus College, University of Cambridge), Melissa Mean (We Can Make), Paul Fletcher (Greater Share), Rachel Sherman (Michael E. Gellert Professor), Rebecca Gowland (Patriotic Millionaires), Ruth Potts (Schumacher College), Sarah Teacher (Impact Investing Institute), Stefan Binder (Resource Transformation, Germany), Stephan Chambers (Marshall Institute at the London School of Economics and Political Science), Steve Waddell (advisor to the Rockwool Foundation), Chris Brown (IGLOO), Tim Davies-Pugh (Power to Change), Timothy Church (ex-McKinsey Investment Office CEO), Tom Adeyoola (Extend Ventures).

You can read about the key findings from those interviews in: How can the Great Wealth Transfer enable people and planet to flourish?