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Who owns the elevator? Thinking about Principles of Sustainable Finance

Together with the financial sector, the Erasmus Platform for Sustainable Value Creation aims to enhance knowledge of sustainable finance. Dieuwertje Bosma, project manager of the platform and ethicist looks at finance from a philosophical angle.

In this blog she writes about the launch of the book Principles of Sustainable Finance on 4 February 2019. The book elaborates on an apparently simple idea: add environmental and social dimensions into your investment decisions. But how simple is that in reality?



It’s 4 February 2019. I am at Circl, a circular building in Amsterdam that embraces circularity. With strict policies for waste, resource management and energy use, Circl is designed to run its operations as sociably and as sustainably, and with as little impact, as possible. Even the name of the building represents this: superfluous vowels did not make the final edit when it came to deciding what would be written on the frontage.

Simple solutions for complex problems

I see denim-coloured fabric behind the ceiling tiles in the building. An employee tells me that these are recycled pairs of jeans, used to insulate the building. When I want to order a drink, I see an employee with a T-shirt that says: ‘Do you have a question? Tap me on the shoulder please’ on the back. I tap the employee on the shoulder and learn that he has a hearing impairment. I hear one of his colleagues explaining to a customer that the elevator is not owned by Circl. Instead Circl pays per use, and the elevator actually belongs to its manufacturer, who now has an incentive to recycle it once it has reached the end of its useful life. I wonder: does it sometimes only take a different perspective to solve the wicked sustainable challenges we face?

A perfect fit for a book launch

This location appears to be the perfect fit for tonight’s occasion: the launch of the book Principles of Sustainable Finance, written by Willem Schramade and RSM Professor Dirk Schoenmaker. It’s a book that gives a complete overview of everything there is to know about sustainable finance. And it is the first of its kind in a European context.

Sustainable finance?

The book answers the question of how the financial sector can contribute to a sustainable future. The answer is simple.

Stop taking only financial metrics (F) into account.

Start implementing environmental costs (E) and social costs (S) and values in your metrics too.

An investor’s point of view

Why? It’s easy. The E and S are barely taken into account right now, but that does not mean that they do not exist.

In fact it’s on the contrary. The risks that come with climate change, further depletion of the Earth’s resources and depriving its inhabitants are growing every day. It is only sensible to look forward and assess investments on their ‘state of preparedness’ for the transition to a sustainable future.

In simple economics terms, here’s the idea in a simple formula:

Old formula: Value = F

New formula: Integrated value = F + E + S

Simple concept, but complex in practice

Much like the Circl building, the concept of sustainable finance has an intuitive appeal. Why then is it so hard to actually implement it? Once you dive deeper into everyday practice, the level of complexity rises considerably.

Even within a relatively small environment like the Circl building, there are dilemmas. How can it deal with the CO2 emissions caused by people travelling there by car for example? Likewise in the financial sector, there are also still a lot of obstacles to overcome. How can you make environmental and social issues measurable? Can you put a price tag on employer wellbeing? And what about the profitability of sustainable investments?

Education

These were exactly the topics discussed during the book’s launch. The hurdles are not yet overcome, but it is important to shift our beliefs. Students studying finance and investments today will be the ones that shape the future of the financial sector. That is why it is so important to educate them properly about sustainable finance.

We’re making a start. There are free online teaching materials that have been developed and made available to accompany Principles of Sustainable Finance.

A great starting point

As Prof. Dirk Schoenmaker said during the presentation: “…the [financial] markets were good at achieving goals, not necessarily at setting these goals.” In other words: we need a new understanding of what we hold to be valuable. The linear economy is at the end of its lifecycle, and it is time to get it recycled. This book is a great starting point for further discussion.

More information

This is a blog from the Erasmus Platform for Sustainable Value Creation at Rotterdam School of Management, Erasmus University (RSM). The Platform aims to enhance knowledge and debate on sustainability in the financial sector. Curious to learn more? Please see our webpage to find out more.

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Platform for Sustainable Value Creation blog