Mitigating system-level challenges


Key impediments remain to mitigate climate change, the loss in biodiversity, social inequalities, poverty, and other grand societal challenges. Below we describe some of the critical impediments:

  • In many countries around the world, there is a lack of mandatory disclosure requirements for non-financial data. As a result, companies may not disclose their ESG information, or if they do, they disclose it in a non-standardized way. The lack of available and reliable standardized information complicates the assessment of companies’ ESG performance, the efficient allocation of capital financing projects, and the tracking of progress toward the achievement of the United Nations’ Sustainable Development Goals (SDGs) such as the mitigation of climate change, conservation of biodiversity, as well as the alleviation of social inequality and poverty. 
  • While several efforts toward standardized ESG disclosure are currently being undertaken that have implications for the attainment of the SDGs, most ESG reporting frameworks (e.g., the broadly recognized Sustainability Accounting Standards Board framework, the Global Impact Investment Network’s IRIS+ System, etc.) ask for information confined to the firm or portfolio level. That is, the disclosed data is insufficient to capture the totality of corporations’ and investors’ impact on the broader (environmental, social, and economic) system. For example, companies may outsource or divest entirely their emission-intensive business activities or investments on which they report and merely account for their own direct emissions or those of the firms in their portfolios, failing to capture progress or lack thereof in overall emissions (recent efforts in carbon accounting aim to address the issue of indirect corporate emissions). Accordingly, even if all companies were to disclose their ESG (firm-specific and portfolio-level) performance following a standardized framework, the information provided is unlikely to help track progress toward the overall achievement of the SDGs.
  • In a related challenge, the abundant corporate and portfolio-level data points currently available frequently bear only tangential relationship to the national and economic development data-points that the United Nations has developed as indicators of milestones of progress toward specific SDGs. This mismatch complicates corporations’ and investors’ frequent assertions of “alignment” with the SDGs. 
  • In order to foster the financing of a more sustainable world, new measures need to be identified―and frameworks need to be developed―that appropriately capture companies’ impact on the broader (environmental, social, and economic) system and help track progress toward the achievement of the SDGs. Moreover, some of the SDGs include the measurement of intangible values (e.g., biodiversity, social equity), which are difficult to quantify. In addition, if unaddressed, the long-term impacts of the challenges highlighted by the SDGs are deeply uncertain.
  • Similarly, we need a more general understanding of how the full range of systemic environmental, social, and economic risks (e.g., loss of biodiversity, global loss of access to fresh water, social and economic inequality and attendant political instability, forced migration, etc.) impacts investing and business practices, the likelihood of such risks to persist in coming decades, the degree to which corporations and investors can and should contend with this full range of systemic risks sooner rather than later, and the emerging relationships that will develop between corporations, investors, civil society, and government in contending with such risks.
    SIRI Diagram
  • In addition to improving their own environmental and social business practices (and those of their portfolio companies, respectively), we need a better understanding whether and to what extent investors and corporations act as stewards of systemic change and actively engage with policymakers to mitigate system-level challenges.
    SIRI Diagram

Critical factors are needed to mitigate system-level challenges. They include i) the adoption of a system-focused approach, taking into account how business and investment practices impact the broader (environmental, social, and economic) system and, vice versa, how the system impacts business and investment practices; ii) the development of better measures to track progress toward the mitigation of system-level challenges; and iii) the creation of public-private partnerships to fill the financing gap, using development funding to increase private sector investments in addressing these challenges.

SIRI Diagram

This nexus between corporations, investors, policy, and system-level challenges is the focus of the Sustainable Investing Research Initiative. Its research activities will be complemented by new courses and related activities, convenings and policy-oriented publications to educate the next generation of leaders, communicate insights from academic research to the investor community, inform policymakers, and ultimately impact the practice of sustainable investing. In particular, it will focus on the following five pillars:

  1. the development of better measures to track progress toward the mitigation of system-level challenges;
  2. the fostering of academic scholarship;
  3. improving dialogue by convening and hosting leaders from academia, policy, the public and private sector;
  4. the development of new courses and other educational activities to educate the next generation of leaders in policy and business; and
  5. executive education to inform and train investment and management professionals, including leaders from policy, business, and NGOs.

These pillars aim to complement, inform, and mutually reinforce each other in helping to finance a more sustainable world that ensures the long-term health and resilience of individuals, communities, the natural environment, and economies.