True Sustainability Means More Than the Environment
Margot Kane, Chief Investment Officer at Spring Point Partners, argues that lasting climate solutions require addressing wealth inequality and empowering marginalised communities.
‘Sustainability’ is generally interpreted in corporate and ESG parlance as related to environmental sustainability rather than societal, but the reality is, you cannot solve one without the other.
I believe that our greatest opportunity to meet environmental goals and adapt with minimal trauma to climate change involves centring human flourishing in our pursuit of sustainable solutions. One way to do this is to consider solutions to economic inequality as intrinsic to making progress on human contributions to climate change at the societal level.
The term ‘sustainability’– often attached to a job description, investment strategy or corporate initiative – has come to mean primarily solving for impacts upon the physical environment: in short, aligning with the ‘E’ in ESG. Meanwhile, human-centred and societal impacts are relegated to the generally shakier, messier metrics and less-researched ‘S’ in ESG, which is accorded a lighter weight in ESG indices and corporate initiatives given a lack of tangible data and an inability to observe – or admit – transparent connections to these outcomes.
Meanwhile, two of the most important societal impact measurements, which determine outcomes in areas like health, education, civic participation, employment – are the twin factors of wealth and income inequality. It turns out that wealth inequality and environmental degradation are highly geographically correlated, and likely have a causal relationship.
Unlike income inequality, which is broadly tracked by measures like the Gini coefficient, wealth inequality has relatively recently been recognised as a key determinant of human resilience and wellbeing.
A 2023 Brookings Institution report laid out this issue, drawing from the work of economist Thomas Piketty: “Wealth inequality within countries is typically much higher than income inequality. It has followed a rising trend across countries since around 1980, similar to income inequality. Higher wealth inequality feeds higher future income inequality through capital income and inheritance.”
Much has been touted about the flows of capital with ESG mandates in recent years, the majority of which has carried the torches of governance and environmental sustainability over social. At the same time, of the three main sources of capital that fuel economic activity – government funding, capital markets, and philanthropic capital as a subset of private capital – none have consistently prioritised economic inequality in sustainability funding efforts.
Top-down approach
The perspective that humans are primarily the problem, instead of central to any solution, is perhaps the original misstep of the environmental conservation movement.
Philanthropy in the US has long funded environmental conservation initiatives that view human activity as a problem to be controlled. While organisations have garnered critical wins through this approach, protecting highly vulnerable habitats and species, they are limited by the relatively small dollars and short attention span of philanthropy. They have also fostered cultural backlash, often from proximate communities who depend upon protected areas for their livelihoods.
Similarly, the top-down approach of governmental regulations has proven critical to controlling for, and incentivising against, the offloading of harmful environmental outcomes upon common goods and society at large, particularly concerning powerful actors like large corporations that are difficult to hold accountable by affected communities.
However, top-down regulations face limitations in terms of both reach and enforcement, and they can generate significant political backlash – see the rallying cry in recent US presidential elections of “Drill, baby, drill!”
As a notable example, the 2023 passing of the Inflation Reduction Act with funding subject to the Justice40 initiative is a landmark, as both the largest US government spend on carbon reduction and the first that prioritises a significant portion of that spend within underserved and lower income communities. However, the now-dominant GOP has made evident its intent to claw-back these funds, and no new funding along these lines can be expected in the near term.
Billionaire and venture capital-backed (and tax credit-fuelled) innovation in climate and ‘deeptech’ is likewise essential to commercialising innovations that can accelerate our adaptation and a clean energy transition – but will take a very long time to materialise into improvements in the daily life of most of us. In the meantime, they will exacerbate wealth inequality, so long as these innovations are owned by the very wealthy few. While we may get a climate ‘Hail Mary’ out of this activity, it is not going to solve for the sustainability of human society and our impacts upon the planet writ large any time soon – especially as any solutions are likely to be available first to wealthy nations and communities who can afford them.
Supporting those most in need
What I wish more investors considered is that sustainable solutions will need to address both human flourishing and environmental improvement to fully harness the human potential for collective action, which we all know we need to address the climate challenge ahead of us.
While we are all affected by our environment, the most vulnerable communities are disproportionately lower wealth and lower income and face imminent daily challenges to their survival, such as housing and food insecurity, safety concerns, and lack of access to healthcare, all of which understandably can limit their interest in elevating environmental priorities – or to vote for leaders who do so. Where wealth inequality is more severe, that set of human needs is an even greater barrier to generating collective action. Collective action requires a shared trust that we all care about each other’s outcomes – a challenging, if not hypocritical, sell when wealth inequality is so starkly delineated.
Approaches to sustainability that take into account both human flourishing – as measured through improvements in income and wealth inequality – as well as environmental sustainability are often siloed in the area with the lowest levels of funding and narrowest activity: climate justice.
This is the opposite of what investors and funders should want, when we know that the most durable and effective solutions to environmental challenges are likely to involve actively engaging and empowering the most proximate and impacted people to be the co-architects and implementers of said solutions – and they generally result in greater economic activity and opportunity for all. This type of approach may be even more essential in a regulatory environment where top-down environmental regulatory fiats are actively undermined or are recalled, and the future of regulation-driven markets (such as a carbon tax) are weakened.
Positive examples in this address environmental challenges while also intentionally addressing economic inequities and prioritising governance, by centring the leadership and initiative of the people from communities who are most vulnerable from an environmental perspective. For example, Indigenous traditions have long linked communal governance with models of resilience and regeneration; models like Navajo Power and Working Power ensure that the most impacted communities have some form of governance input or influence as well as a piece of any economic gains that emerge from the clean energy transition.
As another example, when manufactured housing communities are owned by their residents under cooperative models instead of by private equity investors, they have both greater autonomy and financial reserves to invest in climate mitigation efforts, which are particularly pressing to them as their land is generally located in more vulnerable locations. In 2021, Cambridge Associates published a helpful example of how institutional investors could layer climate justice in multiple asset class allocations.
Investors who take an intersectional approach to economic and environmental opportunity, and who centre the most impacted communities to lead on climate solutions, may lead us to some of the most durable and promising solutions – solutions which are truly sustainable, because they align behavioural shifts that adapt our environmental footprint with long-term societal shifts that benefit everyone in the long term.
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