Views and Analysis

From greenwashing to "green-making", or how words become actions

In the age of "ecological homo economicus", economic growth and protecting the planet will undoubtedly come to represent two sides of the same coin. We explain how, by applying a systems perspective to finance in the coronavirus pandemic.

The world is currently in the midst of a health crisis, the likes of which have never been seen before. Microscopic in size, the COVID-19 virus has forced us to revive and restructure our entire human system to deal with the resultant catastrophe. The effects of lockdown restrictions have been widely debated and are still being measured. For example, the stock market collapse in March 2020 coincided with our atmosphere and air becoming cleaner.

This served as a reminder that human activity has a negative impact on the environment on the whole. In the first lockdown, this collective, pandemic-induced pause gave the earth space to breathe.

Post-coronavirus, should we look back on this as a historic moment in time, when things were already at crisis point? Is now the time in our public and private companies, and more broadly in society, to revive and review pre-existing and potential measures that promote respect for the environment?

Greenwashing: A change on the surface  
The term "greenwashing" is used to describe a shift to what some consider to be pseudo-ecological action. The idea encapsulates the responsibility we all share in terms of human progress and climate change. In light of the impacts of climate change witnessed in recent decades, the term also stresses the need for genuine action to protect the environment.

In the context of this issue, how can we express the gulf that sometimes separates actions and purported values? Derived from the field of social psychology, cognitive dissonance theory may help to answer this question. Based on this concept, the environmental "veneer" is equivalent to a state of mind that is simultaneously aware "the earth is in danger", but that also continues to harbour preconceived ideas or incorrect assumptions. These misconceptions are often underpinned by a fundamental contradiction between addressing environmental issues and economic growth in itself.

Green-making: A change at the core
In ensuring climate issues and the energy transition fit optimally within businesses' strategic visions and rationale, it can be said that the challenge lies in switching from "why" to "how". Put simply, the problem hinges on the mechanics of change and its triggers. Consequently, we seek to understand this process from a systems thinking approach that relies on the so-called "Palo Alto" school concepts of first- and second-order change.

The advantage of this framework is that it facilitates a better understanding of a problem's complexity. Doing so grounds the problem in a specific context, moving away from simple linear logic and into a more holistic and interactional view. The distinction between first-order change (that which "occurs within the given system which itself remains unchanged") and second-order change ("one whose occurrence changes the system itself" by incorporating a new aspect) thus prompts us to classify greenwashing as a first-order change and "green-making" as a second-order change.

From homo economicus to the "ecological homo economicus"
More than a simple adjustment, second-order change is characterised by a change to the system itself, through an internalising process of environmental criteria in this case. This type of change inevitably comes at a greater cost, since the system's homeostasis and its underlying rules must be overcome.

That said, crises can prove golden opportunities to tackle a crucial problem and steer the system into a different realm of logic. This is the case with the global pandemic, which is rooted in the ongoing reshuffle, or rather, breakdown of the borders separating human society and the untamed natural world. Likewise, the climate crisis is another example, which can be viewed as the worsening result of an inversely proportional relationship between environmentally irresponsible human activity and the planet's regenerative cycles.

This noticeable imbalance in this relationship at present can only be a catalyst for change. It will undoubtedly serve as a driver of significant restructuring in the overall way in which our society, businesses, consumption patterns and relationships with the environment are managed.

Furthermore, the lockdown period has both forced and encouraged a similarly wholescale reassessment of how we operate and consume. This interruption has thus given rise to new realities that can and should take centre stage, providing the right conditions for new ways of living to emerge. In this respect, our definitions of what is "essential" and what is "superfluous" will also be reconsidered and corrected.

The illusion of a wholesome planet brimming with infinite resources is now being shattered, as the overexploitation of these natural resources is becoming increasingly evident. It could be said that lockdown has helped to cement new habits that are a better suited to tackling the critical challenges of today.

In the minds of many, post-coronavirus life embodies the idea of a new world, a new era or a new cycle.  Translated into a context of economic cycles, this new phase of life would take the form of financial logic that has embraced climate-friendly standards. The core tenet of such logic might be summarised as follows: "That which becomes profitable and sustainable in the future is anything that contributes to real climate action."  

A new equation thus takes shape, whereby economic or financial gain and the fight against climate change become interwoven and compatible from that point on. In this new world, homo economicus would then evolve into "ecological homo economicus" — a responsible and collective form of humankind that has assembled and embedded an ecological aspect into its strategic economic and financial decisions.

Finance will be green or be gone…
Leaving aside each creative, system-specific solution, a shift towards green finance investment solutions seems not only logical but natural in this unchartered territory. Driving change in the face of the current climate crisis is therefore a fundamental responsibility. It is a commitment that is on the cusp of becoming an intrinsic part of all economic activity, regardless of today's legislative and regulatory developments or those of tomorrow.

While, at present, a growing number of businesses engage in grandstanding about environmental compliance, they will soon be forced to take the next step and place environmental sustainability at the very core of their economic and financial strategies.

The same applies to governments and public authorities, who can also no longer make pro-climate statements while continuing to sponsor and subsidise activities that cause environmental pollution and destruction in the long run.

In the age of "ecological homo economicus", economic growth and protecting the planet will undoubtedly come to represent two sides of the same coin. With this in mind, green finance provides a framework and a methodology that can generate income and create wealth for everyone in an environmentally responsible way.

Embracing this paradigm shift by placing it at the heart of our business will ensure we are one of the frontrunners of tomorrow.

Lionel Aeschlimann, Managing Partner and CEO of Mirabaud Asset Management

Hamid Amoura, Head of Responsible Investment

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Lionel Aeschlimann

Managing Partner and CEO of Mirabaud Asset Management