Sustainable finance: building the organisations we need
By Rob Lake, Founder – Authentic Investor and member of Moxie Future’s Advisory Committee
Why this article?
Sustainable investment and finance are making rapid progress. We know what kinds of investment beliefs, policies and processes we need to make investment and finance sustainable and responsive to the real needs of clients, society and the planet. We know how many trillions of dollars, pounds, euros, renminbi and yen need to be shifted from ‘brown’ to ‘green’. We know what investors should be asking companies and policymakers to do. We have – or we will soon have, in some parts of the world – taxonomies and definitions, regulations and requirements.
Yet amid all this activity we have devoted little attention to a crucial part of the system – the internal workings of the organisations that are conducting the activity and which we need to deliver more of it, faster.
We have looked at the hardware of structures, policies and processes. But hardly at all at the ‘software’ of styles of leadership; values; internal cultures; and the quality of relationships among the people.
Policies, organisational processes and investment decisions are visible in the ‘outside world’, and we think of them as being products of the rational mind. Yet they are strongly influenced by the ‘inside world’ of our values, emotions, memories of life experiences, and assumptions and beliefs that we may not even consciously realise we hold. This is the reality of being human. And since organisations are collections of human beings, this interplay between the rational and the ‘other than rational’ – between the head and the heart – is at the very core of what organisations are all about.
What characteristics might we therefore want investment organisations to display if our objective is that they should provide the most fertile possible soil for sustainability and responsibility? And if as an essential part of this, and as an equally important objective, we want them to be humane workplaces that allow people to flourish and grow?
This article is a first relatively informal attempt to explore this territory, in the hope that it will add a new dimension to the discussion about how to achieve a sustainable financial system.
Looking at organisations that have made the greatest progress towards fully embracing sustainability, I think we can observe three interlinked characteristics that they have in common:
- a strong and clear sense of purpose and values that extends beyond maximising profit, shareholder value or investment returns and embraces true service to clients and society
- innovation and learning – because fully incorporating sustainability into investment decisions and devising ways to finance the Sustainable Development Goals requires both of these in large amounts
- engagement and commitment by employees – because the scale of the challenges we face requires every ounce of energy and passion we can all muster.
What do we know about each of these characteristics: why they matter to organisations and how they can be generated?
Purpose and values
‘Purpose’ has become such a buzzword that reading it might cause you to groan. Yet it has become so widespread in part because, in the words of Professors Dan Cable and Freek Vermeulen of London Business School, ‘research repeatedly shows that people deliver their best effort and ideas when they feel they are part of something larger than the pursuit of a paycheck’.
That sense of ‘something larger’ cannot just come from speeches by the person at the top of the organisation. A real sense of purpose is felt emotionally, not just intellectually. People who experience direct contact with customers and others who benefit from their work are more strongly motivated than those who are simply told by their superiors what the purpose of that work is.
Moreover, a sense of contributing to sustainability and to society also helps to meet fundamental psychological needs for safety, security, and relatedness with others. Doing good makes you feel better!
We are often told, or we come to believe, that our personal values are not welcome in the workplace. A friend at a leading investment organisation who told her manager that one of her overarching goals in her work was ‘to make the world a better place’ was told firmly that she should ‘go and do that before 9.00 am and after 5.00 pm’. However, given the challenges the investment industry faces to demonstrate real service and environmental sensitivity, these values should be seen as assets rather than taboos.
We all hold a range of values, from the selfish to the selfless. The situations in which we find ourselves and the stimuli to which are exposed bring different combinations of our values to the fore. Financial incentives and messages that money and material rewards are the main priorities, or the only ones, direct our attention more towards self-interest than concern for others. If the messages we receive at work about what is important stress a purpose beyond organisational and personal self-interest, our more selfless values will be activated.
Innovation and learning
To meet the challenges of sustainable investment we need very large amounts of innovation and learning. Learning, for example, about how sustainability issues affect companies and markets, or how to measure the impact of investments in relation to the SDGs. Innovation in (among other things) investment structures, company engagement, client communication and relationships, stakeholder dialogue.
Crucially, this learning has to be about changing the organisation’s identity – its sense of who it is and what it’s for, its purpose. Doing the existing job better – just generating returns for beneficiaries or clients, or delivering profit to shareholders and financial rewards to employees – is not enough. Organisations have to learn how to do a different job – how to change their identity. As the organisational consultant John Atkinson puts it, ’this is a qualitative change in how people are in relationship with each other, how they decide what matters, how they respond to new information and new people’. Change like this does not happen overnight. It is a long process – as we are seeing with sustainable finance.
Among the critical building blocks of a learning organisation are:
- psychological safety: confidence that if we speak up with new ideas, we will be listened to and taken seriously, not dismissed and belittled
- recognition of the value of diverse perspectives and worldviews
- leaders who actively question and listen to employees, signalling that they do not have all the answers and that everyone matters
- systematic knowledge sharing – e.g. via efficient cross-functional responsible investment teams with a clear understanding of their purpose
- a clear focus on the development and growth of employees at all levels.
Engagement and commitment
There’s a lot of work to do in sustainable finance. The challenges are big and time is short – less than twelve years to keep global warming to a maximum of 1.5 degrees C. This means we need maximum engagement and commitment by everyone – not just people with ‘ESG’, ‘responsible’ or ‘sustainable’ in their job title.
Engagement and commitment come when what psychologists call our ‘seeking system’ – the part of our brain that craves exploration and learning – is activated. What keeps the seeking system happy? Here are few examples (taken from Alive at Work, by Professor Dan Cable):
- encouraging people to bring their ‘best selves’ and their ‘real selves’ to work – to show the qualities and characteristics we display when we are at our best, including who we are in our lives outside work. As the CFA Institute says in its work on diversity and inclusion, ‘It is a powerful outcome when people begin to see their shared humanity through something as simple as sharing a story or experience. Storytelling promotes connected, authentic working relationships’.
- framing change as a chance to experiment and learn, rather than the imposition of something new and alien from outside. (And to me this rings very true indeed in the world of ESG.)
- helping employees experience the impact of their work. Activating the seeking system is not just about intellectual understanding; it’s about a sense of emotional connection with a purpose. As Cable puts it, ‘Leaders can help [people] experience purpose rather than trying to issue purpose’. Portfolio managers meet clients, certainly. But how often do they meet ordinary pension fund members? How much do they know and understand about their lives? How emotionally connected with them do they feel?
Drawing it all together – leadership
‘Leadership’ is almost as over-used a word as ‘purpose’. But leadership matters. A lot. A leader’s style and tone, the messages she sends, the expectations he creates, what s/he welcomes and rewards vs. what he/she discourages and prohibits, her/his degree of self-awareness: all these help to shape the organisational culture within which sustainability will flourish or fail. And this is about what leaders do day-to-day within their organisation, not just what they say on conference platforms.
What approach to leadership is most likely to foster the organisational characteristics we have explored here and to enable the investment industry to progress faster towards sustainability? The discussion here suggests that we need leaders who:
- authentically express their values and their sense of purpose in life: leaders who demonstrate that they are human and care, so that their employees can be human and care too;
- see the ‘bigger picture’, understanding how they and their organisation affect sustainability issues and are affected by them, and where they fit within environmental, social and financial systems;
- can put themselves in others’ shoes, displaying empathy and compassion;
- draw on these capacities to create an inspiring purpose for their organisation, founded on service beyond the self – to clients and society;
- see commercial or organisational challenges as opportunities for growth and development;
- welcome and encourage the expression of values by employees;
- seek and respond to input from staff, and embrace diversity in all its forms.
As I said earlier, this article is a first attempt to sketch out some of the qualities we might need in investment organisations that are equipped to deliver faster and more effective change towards a more sustainable and fairer investment industry and financial system.
This is a discussion that needs the contributions and creativity of us all – whether or not our job title includes the terms ‘ESG’, ‘responsible’ or ‘sustainable’.
To stimulate that debate, we are holding a breakout session on Purpose, Values, Leadership and Culture at the RI Europe conference on 11 June 2019. To play your part in shaping that session, you are invited to complete a short survey on your experience in your own organisation of some of the issues explored in this article. We will discuss the results of the survey at the conference. Click here for the survey – which will take no more than ten minutes of your time.
This article first appeared on responsible-investor.com in two parts on 15 and 16 April 2019.