‘With our bottomless appetite for unchecked and unequal economic growth, humanity has become a weapon of mass extinction’: Antonio Guterres, UN Secretary-General.

To say climate change mitigation and biodiversity protection is urgent would be the gravest of understatements. In just 50 years, we have completely offset 10,000 years of climate stability with the planet now experiencing its largest loss of life since the dinosaur era ended.

This is the reality of limitless growth on a finite planet.

With this post, I contribute with yet another article on the growth vs degrowth debate, but this time from an investor perspective. As a practitioner in the field of responsible investing, given the crossroads we find ourselves at, investors need to figure out their role. Because one thing is certain, we’re in the midst of either a trillion-dollar opportunity or a very costly, quite dystopian future.

Growth at all costs

A proposition as real as it is unimaginable, drummed into our collective mind over decades. Words of a different meaning, décroissance, decrescita, decreixement, decrecimiento, degrowth. A simple notion of what is required to put us on the right track, but which is anything but straightforward.

Half a century ago, the Club of Rome published the book "Limits to Growth", which warned that the Earth’s resources would not be able to support the exponential rates of economic and population growth and would collapse before the end of this century. Fast-forward to today and the Greta Thunbergs of this world echoing the same message but with a completely different sense of urgency, only to receive empty promises in return.

Well, that’s not really true is it? Well, close enough at least... We seem trapped by our own insatiable desire for more, somehow paralyzed by materialism, protectionism, and polarisation. Even in democracies, we are unable to make the right choices: research has found that democratic qualities have no significant effects on a nation’s ability to mitigate climate change. Elected officials work through compromise [Insert compromise of choice here], systemic issues, like climate change and biodiversity, do not.

The journey ahead

The investments necessary to, for example, decarbonize entire cities, countries and the global economy run in the trillions of dollars. Research suggests that inaction could cost us US$178 trillion over the next 50 years, and conversely, if global leaders unite in a systemic net-zero transition, the global economy could see new five-decade gains of US$43 trillion. The resulting scenarios couldn’t be more different.

The business-as-usual approach according to Jorgen Randers, co-author of the Limits to Growth book, will entail a decline in well-being because the physical environment is gradually destroyed by the overshoot, with social tensions rising toward 2050. He notes that the most scary aspect of this prospect is that rising social tensions will reduce the capacity of society to act rationally and strongly in the face of adversity. The higher the tensions, the less trust in government, and the lower capacity to put in place needed solutions within planetary boundaries.

The responsible action route on the other hand would, according to Gernot Wagner, see investments that re-channel market forces and spur the right kind of economic growth. Whether the tagline for such an all-out, global decarbonization effort is green, lean, low-carbon, high-efficiency, or smart growth, he doesn’t know, but “Degrowth” it is not. Instead he cites the “father” of GDP, Simon Kuznets:

“Distinctions must be kept in mind between quantity and quality of growth, between its costs and returns, and between the short and the long run.” - Simon Kuznets

Towards a steady state

Free-market capitalism has historically underpinned a tremendous increase in economic prosperity and social welfare, however, societies today face many market failures, or systemic ESG challenges if you will. Recognising that we have a steady-state earth, which is not expanding, we need to question if growth, as currently practiced and measured, really increases wealth.

If we agree that the obsession with growth and GDP (regardless of Kuznets’ intentions) has to stop, what’s the alternative then? Well, there are some positive signs of redesigning these principles, including the implementation of Genuine Progress Indicator (GPI) models, which also accounts for certain negative externalities, or even better, dashboard approaches measuring the health of a society based on metrics such as quality of life, education and life expectancy.

On a more foundational level, there needs to be changes to the underlying system design. In a paper by ShareAction, Economist Katie Kendal (author and originator of the doughnut economics framework) highlights three key groupings which prioritise human and environmental flourishing above economic growth: Steady State Economics, New Economics of Prosperity, and Degrowth. While the boundaries between these ideas are blurred, and approaches are implemented across a range of camps, what they do agree on is that limitless growth is not compatible with a sustainable future in the “safe and just operating space”.

Implications for investors

The finance industry can assist in the sustainable transformation of industries, but change is not something that will just happen, it requires deliberate action across all levels and parties. Below I highlight some of the actions investors should consider in their investment management and asset stewardship:

• Reassess your assumptions: What is your view on the current system design and your role, and where do we need to go next?

• Reframe the narrative: Ensure words and actions line up, e.g. in investment policies and mandate terms.

• Engage your sphere of influence: Lobby for “non-financial” measurement frameworks anchored in social foundations and ecological carrying capacities, and develop shared approaches to “threshold” or post-growth investment model

• Invest accordingly: Understand the degree of impact of different strategies, and let the universal owner perspective guide your approach to return expectations, impact and stewardship.

In a time when ownership is global and disparate, and political division is delaying needed policy action, capital markets play a key role in influencing resource mobilization. Operating as critical systemic intermediaries, it has the capacity to help disrupt existing socio-technical regimes. The question is, what are you doing to bring about the change we want and need to see in the world?

illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.