The power of systems thinking: incorporating social and environmental data for informed financial decision-making

Delving into utilising data from social and environmental systems to significantly improve financial decision-making.

This approach goes beyond traditional risk and return analysis and embraces a systems-thinking perspective, which has demonstrated its effectiveness in economic and strategic outcomes. Systems thinking is a holistic approach that examines the interrelationships and dynamics of a system’s constituent parts over time, within the context of larger systems. By adopting a triple-bottom-line approach that considers social, environmental, and economic factors equally, we can approach decision-making from a systems-thinking standpoint.

Why is a system thinking perspective important?

Incorporating social and environmental data enables a comprehensive assessment of risks and opportunities beyond financial metrics. By considering broader socio-environmental factors like climate change, resource scarcity, labour practices, and community engagement, previously overlooked risks and opportunities come to light. For example, integrating climate-related risks ensures the consideration of long-term impacts, unlike conventional approaches that overlook future risks influenced by climate change or resource scarcity.

Forum for the Future’s five key capabilities of systems thinking emphasise the opportunities it presents. For example, “system diagnosis,” underscores the need for a holistic view to understand how interactions between different parts contribute to outcomes that are greater than the sum of their parts.

In the context of sustainable finance, systems thinking allows us to comprehend complex sustainability challenges and identify interventions that drive meaningful change. It encourages a holistic view, a ‘growth mindset’, and better analysis of the relationships between investments and societal outcomes, enabling the identification of actionable areas for creating change. Moreover, it promotes collaboration, engagement, and interdisciplinary approaches to address today’s nuanced and complex challenges.

This is illustrated in a comparative study between two banks, that found that the bank that integrated systems-thinking approaches into their organisation was “ahead of their counterparts” increasing the organisation’s effectiveness and long-term returns. By understanding the systemic implications of social and environmental factors of investment decisions, leaders can navigate the complexities and dilemmas that arise in the pursuit of a more sustainable impact.

What actions are necessary to incorporate socio-environmental factors?

To incorporate social and environmental value into financial decision-making, there are three key necessary actions.

  1. Enhanced data collection and disclosure: by standardising frameworks and metrics for social and environmental data, we are ensuring reliable and comparable reporting.
  2. Integration of all dimensions of capital: adopting a systems-thinking approach involves valuing financial, natural, human, social, and manufactured capital. This comprehensive perspective prevents neglecting important aspects such as social and natural capital, which provide key information on long-term returns, risks, and opportunities.
  3. Incentivising sustainable investments: Governments and regulators should introduce incentives like tax benefits and preferential financing to encourage investments with positive social and environmental outcomes.

 

Implementing these actions shifts the financial system toward sustainable decision-making that considers social and environmental dimensions alongside risk and return. In turn, leading to a more holistic approach to sustainable finance, grounded in a long-term systems-thinking perspective. Ultimately, it fosters more informed and sustainable decision-making, promoting responsible and sustainable economic development.

About the author:

Georgina Murrin is a ESG Analyst in Itriom’s London Office.

About Itriom

Itriom is the global impact platform helping leading families shape a better world.  Itriom’s platform enables families to refresh and redesign their values, aligns them with the right UN Sustainable Development Goals, combining them in an agreed purpose and a Family Impact Charter.  Itriom’s platform supports the development of impact initiatives and whilst providing discrete and secure spaces for peer-to-peer messaging and collaboration. Itriom’s core practices in Leadership, Geostrategy, and Sustainability benefit clients by developing strategies to engage and support the Next Generation in building a lasting legacy of which families can be proud. 

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Alizah Beg

ESG Consultant

Alizah is an ESG Consultant and researcher. She supports Itriom developing sustainability related products and services, helping our clients identify potential opportunities for creating positive environmental, social and sustainable impact.

Georgina Murrin

ESG Analyst

Georgie is an ESG Analyst and researcher. She researches trends, develops insights and reports, and writes insight articles on sustainability and ESG related topics to ensure Itriom’s clients are up to date on the latest policy, progress and initiatives to inform the platform and help our clients maximise their positive impact.

Tim Boughton

Senior Partner
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Renowned family office thought leader, Tim works with UHNW families to ensure they are fully equipped to deliver their legacies inter-generationally and effectively.

Dr. Herb Castillo

Associate Partner
Practice Leader – Sustainability

Dr. Herb creates methodologies and frameworks for managing, measuring and assessing sustainability performance. His work identifies where maximum impact can be made.

Simon Hulland-Lucas

Senior Partner
Practice Leader – Geostrategy

Simon harnesses research, liaison and networks globally to identify opportunities for Itriom, building the knowledge needed to deliver intergeneration legacies for UHNW families.

Matthew Millard-Beer

Managing Partner
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Matthew is Founder & CEO of Itriom, providing solutions and a global platform for Ultra High Net Worth Principals and their families to engage in unifying purpose, enduring legacy, and sustainable impact.