Table Of ContentSustainable Finance
Karen Wendt Editor
Theories
of Change
Change Leadership Tools, Models and
Applications for Investing in Sustainable
Development
Sustainable Finance
SeriesEditors
KarenWendt
CEO.EccosImpactGmbH,PresidentofSwissFinTechLadies
Cham,Zug,Switzerland
MargaretheRammerstorfer
ProfessorforEnergyFinanceandInvestments
InstituteforFinance,BankingandInsuranceWUVienna
Vienna,Austria
SustainableFinanceisaconciseandauthoritativereferenceserieslinkingresearch
andpractice.Itprovidesreliableconceptsandresearchfindingsintheevergrowing
fieldofsustainableinvestingandfinance,SDGeconomicsandLeadershipwiththe
declared commitment to present the theories, methods, tools and investment
approaches that can fulfil the United Nations Sustainable Development Goals and
theParisAgreementCOP21/22alongsidewithde-riskingassetsandcreatingtriple
purposesolutionsthat ensuretheparity ofprofit,people andplanet throughchoice
architecturepassionandperformance.Theseriesaddressesmarketfailure,systemic
risk and reinvents portfolio theory, portfolio engineering as well as behavioural
finance, financial mediation, product innovation, shared values, community build-
ing,businessstrategyandinnovation,exponentialtechandcreationofsocialcapital.
Sustainable Finance and SDG Economics series helps to understand keynotes on
international guidelines, guiding accounting and accountability principles,
prototypingnewdevelopmentsintriplebottomlineinvesting,costbenefitanalysis,
integratedfinancialfirstplusimpactfirstconceptsandimpactmeasurement.Going
beyond adjacent fields (like accounting, marketing, strategy, risk management) it
integratestheconceptofpsychology,innovation,exponentialtech,choicearchitec-
ture,alternative economics,blueeconomysharedvalues,professionsofthefuture,
leadership,human andcommunitydevelopment,team culture, impact,quantitative
and qualitative measurement, Harvard Negotiation, mediation and complementary
currency design using exponential tech and ledger technology. Books in the series
contain latest findings from research, concepts for implementation, as well as best
practicesandcasestudiesforthefinanceindustry.
Moreinformationaboutthisseriesathttp://www.springer.com/series/15807
Karen Wendt
Editor
Theories of Change
Change Leadership Tools, Models and
Applications for Investing in Sustainable
Development
Editor
KarenWendt
ECCOSImpactGmbH
Cham,Switzerland
ISSN2522-8285 ISSN2522-8293 (electronic)
SustainableFinance
ISBN978-3-030-52274-2 ISBN978-3-030-52275-9 (eBook)
https://doi.org/10.1007/978-3-030-52275-9
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Foreword
Why Research and Use Cases About Theories of Change?
Thesheervolumeofarticleson“sustainablefinance”accompaniedbyconferences
andbusinesseventsonthetopicisanexcellentindicationthatthetippingpointinthe
world of finance and investment may be reached: sustainable finance has the
credentials to become the new paradigm in the investment world! A number of
spindoctorshavebeenworkingonthismovementforatleasttwodecades,including
a broad variety of players from diverse backgrounds: The Global Alliance for
Banking on Values has been showing that impact investing is feasible and NGOs
havebeenchasingbanksandwealthmanagers,likeUnfriendCoal,whoconvinceda
numberofinsurancecompaniestodivestcoal.ThinktanksliketheWorldResources
Institute and the Carbon Tracker have been creating awareness about the stranded
costsofcarbonandcarbonvalueatrisk,theinsuranceindustryhasbeenstartingto
divestcoal,investorslikethe100%divestinvestmovement,pensionfundslikethe
Norwegian Pension Fund, multilateral banks, and development finance institutions
have been changing their investment and finance strategies and policies, multilat-
erals like the OECD with its responsible business conduct approach hold OECD
countryplayersliablefortheirbusinessconduct,politiciansmanagedtofindanew
societalcontract,withtheParisAgreement,scientistsprovidedinputandmodelsfor
arevisedportfolioengineering,theRockefellerFoundationcoinedthetermimpact
investing,andmostrecently,alsoBlackrockspokeaboutintroducing.
The question has evolved from “why would we care” and “what are we talking
about” to an impressive granularity of perspectives and approaches in redefining
investment and finance. Paul Polman has repeatedly pointed to the finance and
investmentindustryasthebiggestleverofchangetorealizetheSustainableDevel-
opmentGoals(inshortSDGs).Recently,theEUhaspublishedthefirstpartsofthe
EUActionPlanforsustainablegrowthincludingthetaxonomy,developmentoftwo
low carbon benchmarks, increased reportingrequirements, and its envisaged green
bondscheme.Alothashappenedandmoreisunderway.
v
vi Foreword
Sodoweneedtotalkabouttheoriesofchangeorareweallinthemiddleofthe
changeinaneffectiveandefficientmanneralready?LookingattheEUActionPlan,
it becomes clear that investors need green assets to invest in and that these assets
havetobecreatedbyassetowners.Lowcarbonbenchmarksandinvestors’aware-
ness are still to be created. The UN has estimated the funding gap as large as 3–5
trillionUSDannuallyforinfrastructurealone(includingpower,transport,buildings
andindustrial,communication,agriculture,forestry,andwater).Thefocushasbeen
for too long on investors only, leaving out sustainability-linked finance and asset
owners. ESG has been used a lot as a differentiation tool from other players, but
achievingtoolittleontheground.
Also,theEUislookingatbothsidesnow:totheinvestorsandtotheassetowners
inordertoacceleratethegreentobrownratio.
At the moment it appears that all efforts bundled together will not take us to
achievement of the goals fast and consistent enough. As an example we look at
recentstatementsbymembersoftheClubofRome.“Despiteallgoodeffortsfrom
Sustainable Finance experts, so far, the underlying global challenges have not yet
beensufficientlyresolvedandapproacheshavenotbeenabletosteertheworldtoa
more sustainable development path”, says Olivier Jaeggi, Founder and CEO of
ECOFACT. Early September 2015, investors met with the Club of Rome and
Prof.JørgenRanders,co-authorofLimitstoGrowthandauthorof2052:AGlobal
ForecastfortheNextFortyYears,inBerlintoengageinadialogueaboutthe“next
forty years”. He was shockingly pessimistic. In his view, no relevant progress had
beenmadeoverthepast36–43years.Onereasonmaybethattheeffortshavebeen
tooidiosyncraticandtooscattered andmeasures andmeasurementsnotconsistent.
Anotherreasonmaybethatthinkingisstillinoldmodels,ratherthaninecosystem
approachesandcirculareconomythinking.Perhapswearestillworkingwithwrong
models, which are not fit for providing us clear guidance on the impacts of our
decisions?Aholisticapproachappearstobestillmissing.Areourapproachesreally
fullyassessmentbasedordowetrustsomeeasyKPIs?Dowereallyconsiderallthe
relevantvariablesanddowehavequantitativemodelsabletoshowustheimpactsof
various decision practices and paths correctly. Is sustainability at the core of the
activities or just an add-on filter at the end of our “systemic” assessment? Can we
sketchoutpathwaysonhowtransformationworksandhowitfails?
Withits17SustainableDevelopmentGoals,theUNhasabandonedtoaccumu-
latemoreproblemknowledgeandhasturnedthepagetodescribethesolutions.With
its 17 Sustainable Goals (SDGs) the United Nations (short UN) has defined the
“what”oftheglobalsustainabilityagendabutnotthe“how”.Thesocietaltransition
trajectories and transformation knowledge need additional study, in particular the
creationoftransformationknowledge—onhowtoachievethegoals—thecreationof
transformationknowledgeisstillinitsnascentstages.Thispublicationcontributesto
thediscussioninvariousways.Firstitbreaks thechallenge downinvariousareas.
Newpathwaysneednewcollaboration,newnetworks,andecosystems.Aquantifi-
cation and clear description of the impacts of any decisions made contributes to
transparencyindecision-making.Aswearealreadyusingresourcesbeyondplane-
taryboundaries,growth(oftenseenasthekeyinabatingpoverty)needstohappen
Foreword vii
withoutadditionalresourceusage.Henceadecouplingapproach,decouplinggrowth
from resource usage, is a relevant topic. We need intelligent technologies, a trans-
parentcirculareconomy(potentiallybasedonblockchain),easeofaccesstofunds
for entrepreneurs, and sound management procedures, but also clear investment
guidancefromtheESGcompaniesleadingthefield.
TheParisAgreementforeseesabreakdownofthe1.5degreetargetinnationally
determinedcontributions(NDCs).TheEUisattheforefronttoleadthewaywiththe
creationofaframeworkitseekstoshareandapplywithothers.
Alotneedstobedoneinthesphereofsustainabilityriskintegrationinfinancial
decision-making, and on the need for a change in banks and insurers’ prudential
treatment of assets with a favourable environmental and social impact. Likewise
asset owners need to know about how a sustainable asset looks like and what it
entails. Internal management systems and change management procedures are
relevantinordertoallowassetowners,multinationalcompanies,andsmallerplayers
toincreasetheirgreentobrownratioquickly.Thefieldforcreationoftransformation
knowledgeislarge.Aclearintegrationofoutside-inrisktocomplementinside-out
risksisrequiredinordertodealwithtopicslikeclimateadaptationrisk.
TheEUhascreateditsInternationalPlatform onSustainableFinanceforPublic
Authorities(exchange,compareinitiatives,institutionallearning,bestpractice).This
seemstobethefirstusefulsteptocreatemoreconsistencyandcoherenceinthefield
of sustainable finance. Another benefit is that this approach makes sustainable
financeaccessibletoacorporateaudience.
In this volume, we have diligently assembled the best practice use cases and
emergingtopicsinthefieldofsustainabilitythatworkundertheumbrellaofatheory
ofchangeandweraiseanddiscussinconsistenciesandoffertop-notchsolutionson
sustainabilitymeasurement,decision-makingquantification,alternativeassets,alter-
nativefinance,changemanagement,andtheroleofcreatinganecosystemandoffer
foodforthoughtfornewbusinessstrategies.Isthevolumeexhaustive?Itcannotbe,
asthetopicsareemergentandsolutionsinthemaking.However,thiscompendium
offers a wide range of best practice models and solutions to pave the way in the
creatingprocessoftheoriesofchange.
Cham,Switzerland KarenWendt
Preface
Synthesis of Rational and Emotional Decision-Making
The following three articles focus on rational theories of change—rational both in
the sense of the word “calculable” and in the sense of using the reason which of
courseisrelated.Notonlyintheageofcomputing,ourrationalmindsusenumbers
to explain the world around us, to weigh the consequences of the options at our
disposal,andtosupportourdecisionswithevidence.Rationaldecision-makingisa
commonthreadinourhistory,traceablebacktotheRomansandbeyond.
However, the critique of reducing humans to their reason and to numbers is
equally old and permeates all eras. Not only does modern neurology place great
emphasisontheirrationalityofourdecision-making,ironicallysupportedbystatis-
tical studies of decisions in lab settings. Also, philosophies emphasizing rational
thinking,fromPlatotoKanttonamejusttwoeminentrationalminds,havealways
beenchallengedbymoremysteryorempiricallyorientedphilosophers.
Is there a place at all for a theory of change based on rational decision-making
givenalltherationalevidenceshowingthatourdecisionsaresteeredbyemotionsto
alargeextent?However,dowereallyneedtochoosebetweenaquantitativeanda
qualitative approach, between thinking and feeling, and between numbers and
storytelling? Are not fundamental large-scale transitions supported by both mind
andemotion?
We will pick three large-scale changes that required the cooperation of many
decision-makers against their own short-term vested interests: the peaceful end of
apartheid in South Africa, the pre- and postwar introduction of Western social
securitysystems,andthefastanddecisiveworldwidesubstitutionoffluorocarbons
(CFC)tohaltthedepletionoftheozonelayer.Inallthreecases,themoralpressure
wasforcefullycomplementedbyastrongelementoffearsharedbymanyactorsand
decision-makers:lossofreputationandinvestments,thecommunistalternative,and
theimminentthreatofskincanceratanunprecedentedscale.However,inallthree
cases, data and calculations ensured that the changes could be achieved at an
ix
x Preface
affordableprice,openingnewopportunities,andmostimportantly,thattheoptionof
businessasusualwasnotthesafestandmosteconomicaloption.
Good and sustainable change requires both reason and emotion, numbers and
narratives, qualitative and quantitative. The more connected, the more sustainable
thechangeis.Afterall,weworkbestwhenourpartsofthebrainworktogether,not
againsteachother.
A Theory of Change Underlying Rational Approaches
The theory of change underlying “Sustainable Impact through Simulation and
Action Leverage” (SISAL, first article in the series) generally applies to rational
approacheswithexplicitlinkstothequalitativeworld.Itisbasedonthreepostulates:
1. Individualandcollectivecommitmentarisesfromtransparencyabouttheeffects
ofactions.
From the perspective of an involved community, better transparency of
interconnectivities enables us to have a better understanding of the effects of
decisions. This leads to broader commitment for sustainable solutions. Perceived
dilemmasbetween individualprofitandsocietalbenefitareoftenaconsequenceof
thewaycomplexquestionsarecast,consideringonlyoneperspectiveorchannelof
transmission.Transparencywillhelpovercomesuchperceivedtrade-offs.
Example: Since centuries, the interdependencies between alp farming activities,
mechanismsinnature(soil,weather,plants),andeconomicdevelopmentshavebeen
wellknown.Respectingtheseinterconnectionshasassuredtraditionalalpfarmingto
provideabasisforlivingthroughoutcenturieswithoutdestroyingthefragilealpine
pastures.
2. Weneedlevelplayingfieldsthatdonotputthepersonsactingsustainablyatan
unduedisadvantage.Apoliticalandsocietaldebatesetsthegoalsandleavesthe
pathways open to reach them. Transparent analysis provides the technical
answersonfeasibilityandexecution.
Regulatorsandlawmakersplayanimportantrolebycreatingalevelplayingfield
with rules that do not put the person or entity deciding and acting sustainably at a
disadvantage, for example via the attribution of externalities caused. These rules
need to consider desired and potentially undesired effects as well as limited
resources. In political and societal debates, we often lack an open and transparent
agreement on the desirable outcomes. Instead, assertions on the feasibility of
assumedly common goals inhibit the required progress. However, as soon as an
agreementontheintendedoutcomeshasbeenreached,dataanalyticsandcomputer
