Rethinking Finance: Principles for Building a New Climate Just Economy
Freddie Kerr
and Mridhu Khanna
November 23, 2021

The current global economy is built to be extractive, prioritizing consumerism, growth, and profit maximization over the health of people and the planet. The primary goal of the corporate elites running the world economy is to accumulate wealth and power at essentially any cost. Unsurprisingly, this economic structure garners profit by exploiting local communities and their environments. The communities most vulnerable are those with the least amount of political-economic power and resources to defend themselves.

While subverting the voices of workers and peoples living on the frontlines of climate change, the current system is further concentrating power and wealth in the hands of transnational corporations, including major corporate polluters and the top one percent. For instance, the influential fossil fuel lobby brought 503 delegates to the latest COP conference in Glasgow—two dozen more than the largest country delegation. Dubbed the most exclusive COP ever, the conference failed to establish the necessary course correction to keep warming limited to the 1.5℃ target favored by the scientific community and the climate justice movement. Corporate polluters do not want meaningful action to limit the emissions of greenhouse gases (GHGs). Instead, they use their large financial resources to fund lobbyists who will shut down any attempt at governmental regulation to limit the expansion of corporate wealth. 

Our current system clearly causes climate change, violates human rights, and reinforces extractionism. The world needs a new, climate just economy centered on sustainability, justice, and equality rather than endless capital accumulation. Such a new economy should stress people-focused principles, such as stakeholder governance, to ensure the system is rooted in enhancing the lives of everyone—not just a few. Most importantly, it should use money as a tool for advancing social and environmental justice. While this may sound utopian, there are already proven models based on these principles and methods in action that can provide an alternative to the current capitalist system. 

Profit, Impact, and the Role of Money

Under our current economic system, investment goals can be categorized along a linear spectrum. On one end of the spectrum are traditional investing strategies that incentivize the accruement of as much wealth as possible. Traditional philanthropy, on the other end, counteracts this approach by striving to maximize beneficial societal and environmental impacts.

Investors decisions’ range from impact only to finance only considerations. Chart from Medium  

Recently, some investors have become interested in moving more towards the middle of the spectrum in the form of socially responsible investing. Touting subsections of this category (such as impact investing) as possible solutions to the climate crisis, these advocates believe investments can be used to both help the creditor and the environment. 

Yet our system is not built to serve the collective good, especially in terms of environmental protection. In this sense, Environmental, Social, Governance (ESG) Investing, Impact Investing, etc. truly represent false solutions, or policies that look to solve climate issues while perpetuating social, economic, and racial hierarchies. This is evidenced by the current state of the world today. According to a 2020 survey by the U.S. Forum for Sustainable and Responsible Investment, impact investing already makes up $1 out of every $3 under professional management in the U.S. If impact investing really was the solution, we would see a healthier world taking action on climate change. Instead, we have a global pandemic, raging wildfires and severe droughts, and deepening economic inequality.

Evidently, the current investing system confines the role of money to a distinct spectrum. In order to facilitate a new economy, we must break out of this framework entirely. In our new system, money will exist outside of ideas like the profit imperative. It will be used as a tool, governed by principles oriented to the creation of a fair and just new economy.

Principles of a New Climate Just Economy 

As we take on the challenge of creating a new climate just economic system, we will need strong principles that promote a commitment to people and planet. Below are three principles that challenge the dominance of corporate power and the polluter-industrial complex and create the foundation for a far more democratic and emancipatory relationship with money. 

  1. Stakeholder Governance

In our current economic system, decisions about the use of capital rely almost solely on investors and shareholders. Maximizing returns on these investments is the sine qua non of the system. However, these same investors arguably have a less significant financial stake in an investment than the borrowers and stakeholders of the transaction. A failed investment for the typical large investor would make a far smaller dent in their overall financial security than for the individual, business, and/or community whose livelihoods depend on the success of these ventures. To remedy this inequity, the new climate just economy should be centered around stakeholder governance: a democratic process of decision making where investors and borrowers are equally involved in determining the direction and terms of investments. This kind of governance structure can take many different forms, but at its core it should channel the benefits of capital investments to borrowers and communities, rather than maximizing the financial return for shareholders.

  1. Community-Centered vision 

Implementing stakeholder governance leads directly into the second principle of a community-centered vision, where the long term goal of an investment or project is centered around powering the growth of social (or communal) assets.  This begins with the new climate just economy promoting the more equitable circulation of money rather than the accumulation of private wealth. Money needs to work  for communities, meaning we need to stress more investment in strengthening local institutions and infrastructure. By doing this, money will remain in our communities and power the transition to a more just and sustainable development model, in stark contrast with the current economic system that facilitates the transfer of income to corporate elites and distant centers of finance.

  1. New Value Idea

The last principle asks us to change the way we conceptualize value in the context of investment returns. The farthest our current system goes to separate value from profit is through philanthropy, where the goal is to make the largest societal impact. But with the new climate just economy, we are presenting a new kind of value; an idea of “return on investment” where the notion of return is expanded from its typical financial definition. In fact, the return generated is not a commodity but rather a living system value—a gain that cannot have an assigned price. In traditional investing, the return is usually considered the financial benefit an investment provides the investor, while the impact is the social benefit it has for others. But with the new value idea, essentially the benefit to an individual, business, community, and/or society in general is seen as the return itself rather than just an impact. This challenges the dominant notion that profit and return are mutually exclusive from impact, and expands the perspective of what an investment can accomplish. 

Models of a New Climate Just Economy 

Building a new climate just economy is a tall order but it becomes less daunting when we look at other successful alternative models of ownership and investment. We start to see how these alternative models can be transitory, functioning within our current capitalist system and neoliberal ideology while challenging the extractive forces of corporate capital. They demonstrate how the integration of new economic principles with actionable models can start to shift power dynamics away from the exclusive accumulation of wealth and towards meeting the needs of the planet. Here are a few examples of models that are thriving on new economy principles:

Buen Vivir Fund: In their most basic form, revolving loan funds are self-replenishing funds that use principal and interest payments from current projects to fund future projects. The Buen Vivir Fund, a revolving loan fund focused on supporting grassroots groups, has implemented a governance structure where investors and borrowers are equal voting members in a monthly decision-making general assembly. This structure promotes a system where on-the-ground expertise from borrowers begins to hold far more value, becoming an integral component of making sound investment decisions. 

Community involvement is touted as fundamental to successful climate, social, and economic justice policy development. Yet, in reality, this often becomes more of a formality than an institutionalized practice. By enforcing the shareholder governance model, the Buen Vivir Fund has begun to close the ideological gap between investors and borrowers, dispelling the incorrect notion that those who have put up the funds will make the smartest decision about how to be successful. 

Seed Commons: As a national network of local loan funds with $15.2 million invested over its lifetime, Seed Commons “brings the power of big finance under community control.” The fund aggregates capital from a national network and then distributes it to local partners who have relationships with and knowledge of the served communities. Funding is also deliberately provided to cooperative-owned and democratically-controlled enterprises with access to non-extractive and community controlled finance. 

Its position as a national organization allows Seed Commons to absorb far more capital than most local funds, but its organizational structure devolves all authority to the local level through its partners. The integration of community and worker ownership, localized authority, and technical support from the national organization to the local level means that shareholders become far more accountable to the wider community.

Image from Seed Commons

Seed Commons has a national network of local loan funds and partners, allowing the organization to aggregate funds from a national arena but distribute through local channels where the needs of the community and businesses can be most genuinely met. 

Our current system does not provide the support (financial, legal, regulatory, and more) for disadvantaged communities to build wealth and break the cycle of generational poverty that has been perpetuated by an exploitative economy. As a result, the guiding principles of a new climate just economy must build governance structures and values that are not only transformational, but actually emancipatory so that the systems of the new economy free people from exploitative power relations, protect the climate, and are regenerative for communities.  

Establishing the Landscape for a New Economy 

These models provide a snapshot of how a complete system can function within the new climate just economy. But in order to accelerate opportunities like these, we also need to create a framework that can support and maintain such an undertaking. 

Part of building this framework will require addressing both the ideological and regulatory sides of risk in the world of finance. For instance, modern portfolio theory, which has been accepted as the main approach to investment since the end of the twentieth century, holds that markets are efficient, meaning they do not create any sort of economic instability. Yet the real-world application of this has been far from what the theory suggests. Consumer sentiments are now hitting a 10-year low based upon concerns over the country’s economy, the state of the global climate crisis, and growing income inequality. So to end the reign of modern portfolio theory, we have to reclaim and reform what we know as the fiduciary duty held by both money managers and investors. A fiduciary is a person/organization that acts on behalf of another party, so to “reclaim” the duty of these managers is to change the regulations and thoughts surrounding their job description and execution.

In the meantime, momentum around the adoption of Green New Deal (GND) policy is building across all levels of government, from federal GND for cities and public housing legislation proposals, to newly elected city mayors who have run on a GND platform. In order to pursue the implementation of new climate just economic models and systems at scale, communities will need access to financial support. Funding sources from the state can help fulfill this need, providing public funds for capitalizing more localized solutions like loan funds and community investment trusts. While many of the organizations implementing these models have received funding from philanthropic organizations or impact investors, public funds can be a more democratic and sustainable source of funding. 

Our forthcoming report will aim to first demonstrate the destruction that our extractive capitalist capitalist economy inflicts on the climate and society. We will aim to provide a framework for building a new climate just economy by laying out a series of principles that create a foundation for transformative change. We will highlight and analyze models that challenge existing corporate power structures and illustrate alternative models that can serve in the transition towards widespread systems change. Finally, we will outline overarching regulatory, policy, and ideological shifts that can help make the new climate justice economy possible at scale. 

It is now time to move us away from the extractive and exploitative nature of a capitalist system and work towards a new climate justice economy where wealth can be circulated for the common good of all people.  

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