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.
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.
To incorporate social and environmental value into financial decision-making, there are three key necessary actions.
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.
Georgina Murrin is a Sustainability Analyst in Itriom’s London Office.
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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.
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