3 climate finance shifts I suggest
As I had been raving wild against the finance & investment community last few days – some over here and a lot more with my finance friends (am surprised they still are that :-)) – here are some thoughts on some fundamentals the future world of climate finance & economics could use.
This arose because my finance friends challenged me to come up with something rather than just complaining that the current investment & incentivisation paradigms are useless for climate action.
Here is a list of my “fundamental fin shifts” which, if applied well, could change the landscape of climate finance, economics and action.
Thought 1: FOR INVESTORS: Instead of using NPV (net present value of future returns, and it cousins such as IRR) as a metric for investment, the world of investors should shift to 𝑮𝑭𝑽 (Gross future ecosystem value of current investments). The gross value for the ecosystem should also capture positive and negative cascading environmental effects of current investments, which is why I term it Gross – & not Net.
Thought 2: FOR CORPORATES: The price of a stock (equity share, for instance), should a function of both earnings (E = present and estimate future earnings) as well as G, which captures the current and future 𝒈𝒊𝒗𝒊𝒏𝒈𝒔 that the corporate has for the environment (this thought is to some extent covered by ESG, but not sure if ESG has strong enough correlations to stock price).
Thought 3: FOR PROFESSIONALS: Everyone’s salary (and that’s EVERYONE) in any industry should have a C factor included, in which his/her salary will be the “normal” salary multiplied by C, where C can be any number between 0.5 and even 100 (why not!), and the value for C is arrived at depending on how well the professional has performed on climate action.
Investors: 𝐆𝐅𝐕 instead of NPV
Corporate: Price of stock = f (corporate earnings, ecosystem 𝐠𝐢𝐯𝐢𝐧𝐠𝐬)
Professionals: Climate Salary = Normal salary*𝐂(limate performance factor)
None of the above is an overnight idea, but as my friends challenged me to point out a paradigm for climate finance/economics revamp, I coalesced many things I had been thinking about into this post overnight.
None of the above is easy of course, but then…
See my LinkedIn post on this topic