I recently heard a Hidden Brain podcast that changed how I think about money.
The show talked about "money scripts" — the narratives we hold about money, and how it subconsciously informs how we approach financial decisions. These scripts often serve to hurt ourselves most. For example, if you believe that everyone with money is greedy and evil, you’re more likely to make bad financial choices today. If you think wealth is a reward for hard work, you’re more likely to make decisions at the expense of others and your community.
This week I’m at GreenFin 22, the GreenBiz event that focuses on mobilizing capital to make the world a better place, in terms of the environment, society and governing structures. The intentions are good (we need money to support and grow the world we want), and the criticism is growing (does ESG investing make a difference, or is it just greenwash?)
I understand the drive behind the growing criticism. It’s hard to believe that bankers and investors are going to crack the code to social and climate justice ideals, with images from "The Wolf of Wall Street" and "The Big Short" forming my opinion of the financial community. There’s something distasteful about how finance collapses humanity and the environment into a single bottom line.
Or is that opinion just my own money script showing?
Swimming in the waters of the ESG community at GreenFin, I’ve been thinking about the money scripts of the people in the world of finance and their tension with traditional climate change advocates’ scripts. Indeed, it’s possible that the predominant money scripts within the climate community — that finance is part of the problem — are getting in the way of important conversations with the finance community that could help catalyze financial markets to transform the world.
Climate and finance need a common language
One barrier to average folks to understanding how the financial community thinks is its specific and acronym-heavy vernacular, affectionately dubbed alphabet soup — GFANZ (Glasgow Financial Alliance for Net Zero), ESG (environment social and governance), CDSB (Climate Disclosure Standards Board), IIRC (International Integrated Reporting Council), SASB (Sustainability Accounting Standards Board), FASB (Financial Accounting Standards Board), TCFD (Task Force on Climate-Related Financial Disclosures) — the list goes on.
The language is helpful to people working out how to develop the financial structures needed to address climate change — and serves to exclude those that aren’t part of the club.
Without climate science informing how catastrophic climate collapse will be, factoring in risk will be impossible.
"We can't move the world with our own secret language," said Mindy Lubber, president of Ceres, from the GreenFin main stage.
This communication barrier matters because financial models are only as good as their inputs. Without climate science informing how catastrophic climate collapse will be, factoring in risk will be impossible.
Today, far too many financial institutions see climate as a "reputational risk," meaning they worry about what others think of them, rather than a "transition risk," the hard costs to properties and profits.
Past weather does not predict future climate
If climate-thinking better infiltrates the finance world, it’s possible that financial models will better capture the magnitude of the problem.
Some institutions are working to model climate impacts in financial terms. Reinsurer Swiss Re reported that climate change could wipe our global economy by 18 percent of global GDP by mid century. That sounds dramatic and is higher than predictions of economic contractions from reports past. But does it actually capture the magnitude of climate fall out?
A constant in our understanding of climate chaos is change is happening faster and harder than expected. Our future predictions are based on a past, which is only so helpful as we enter unprecedented times.
The financial community speaks the language of risk. The better the climate community gets at expanding the universe of risk associated with climate change, the better money will point towards investments that don’t exacerbate climate change.