The Case for Mark-to-Planet Finance
As climate and sustainability issues move to center stage, global finance must fully embed impact and sustainability criteria alongside the core elements of risk and return. Companies and investors should therefore adopt an approach that links the global economy and financial system to the needs of the planet and people.
PARIS – At times, it can feel as if the superstructure of today’s global financial system has always existed and always will. Yet we tend to forget that the current set-up – let’s call it the Neoliberal Paradigm – did not come down to us on stone tablets from heaven, but was developed over time by a contingent process of intellectual innovation and shifting power dynamics and political constraints.
In the nineteenth century, companies and financiers focused almost exclusively on returns, exploiting the planet as they expanded across the globe. In the twentieth, investors became better – or at least more explicit – in assessing the risk associated with different levels of return, and the financial system became much more sophisticated as a result. Today, with climate and sustainability issues moving to center stage, global finance must fully embed impact and sustainability criteria alongside the core elements of risk and return.
From now on, all financial models should include all of these factors. This will have far-reaching implications and will require us to change our mental models, too. Instead of continuing to rely solely on long-established mark-to-market accounting rules, we should adopt a mark-to-planet approach that links the global economy and financial system to the needs of the Earth and people.