Are you ready for Learning-by-Doing?

The problems we are blogging about are "wicked". There are no elegant solutions to be found and implemented, and our current problems are symptoms of even bigger ones.

UKSIF and NSFM are thinking of introducing more of the change agents who are grappling with these systemic issues to techniques that help people learn more quickly and/or deeply from the work they are doing. Some people will prefer to take the tools and use them with a trusted critical friend, others will prefer to work in small groups that meet regularly for an agreed period.

Some of us might want to focus on Mike Hulme’s challenge in his new book Why We Disagree About Climate Change. He believes that we should move on from seeing climate change as a wicked problem to: "us[ing] the idea of climate change to rethink how we take forward our political, social, economic and personal projects over the decades to come … as resource of the imagination … it may teach and empower us to embark on different projects from those that come easily to us".

Targets to budgets: bridging the divide between science and finance

Scientists are thinking more about how they communicate to decision-makers on climate change. Prompted by frustration over a lack of action despite compelling evidence, some are calling for a ‘common climate language’.

This is very welcome. The difficulty of translating the possibilities and probabilities of scientific projection to the certainties and time frames used by capital markets is a significant barrier to these markets fully integrating climate change.

A new study published this week may point to one way of tackling this.

The study, led by Myles Allen of Oxford University grimly finds that the world has already burned half the fossil fuels necessary to bring about a 2˚C rise in average global temperatures.

With this research, his team argues for the current range of targets and timetables on climate change to be re-framed as an available budget (‘we can only burn another x tonnes of carbon’).

This got me wondering…

...would a shift of narrative from targets to budgets help investors and their regulators understand the impact (and possibilities) of climate change?

Whilst this might be dismissed as trivial semantics, such shifts – as pointed out in this piece - may be the key to ‘greening our brains’.

Beyond regulation: PIRC and Aviva Investors on ownership and capital market reform

I am more and more convinced that apparently robust interventions like improved regulation will deliver effective ownership and sustainable capital markets only if there is associated cultural change. This is not an argument against regulation – but it is an argument against regulation alone.

It is good to see a range of proposals now coming forward on responsible ownership and capital market reform – but one test is how they will change cultures and norms so that new behaviours are “what we believe in doing around here” rather than “what our compliance department says we have to be seen to do”.

Anita Skipper, Corporate Governance Director at Aviva Investors and Alan MacDougall and his colleagues at PIRC have both just published thoughtful contributions to the debate.

Introducing PIRC’s “Manifesto for corporate governance and capital market reform”, Alan says “Too many institutions fail to take their ownership responsibilities seriously, therefore post-crisis reform must consider their role too. There can be no return to business as usual.” The manifesto aims to “stimulate debate and spark further ideas, but most importantly to begin the process of pulling together ... radical but realistic policy reforms”. PIRC is seeking comments on its suggestions.

Anita’s piece “Corporate governance and the economic crisis: what can shareholders do differently?” appears in Aviva Investors’ The Investors Journal (Volume 3). (NB. To get access, just click either “I am a private investor” or a more appropriate category.)

She highlights barriers to good governance including “Lack of client interest”, “Human behaviour” and “Managing conflicts of interest”. Her solutions include “More client focus on governance” and “Focus on culture”.

Importantly, she says “With the right corporate culture in place, companies, boards and fund managers are more likely to make the “right” decisions, irrespective of any weaknesses of accountability, regulation, accounting standards and conflicts of interest.”

Do the multiplying plans address the challenge?

We’re seeing a lot of new plans at the moment, from Nick Stern’s new book to the CBI’s roadmap to a low-carbon economy.

An easy way to start checking whether these reflect our need to "shift our cultural assumptions to fit our circumstances and move into a more fulfilling, lower-energy world" is to keep the Transition Timeline scenarios in mind. These scenarios look at what might happen if we DO recognise the science of climate change, but DON’T change our culture, and the economic and other institutions that reflect it (Hitting the Wall) and vice versa (The Impossible Dream).

An opportunity for accountable capitalism

Government proposals on financial market reform will be published before the summer, said the financial stability section of yesterday’s budget report.

I hope these take on board the recommendations in a recent paper by David Pitt-Watson and his fellow authors of “The New Capitalists”. “Towards an Accountable Capitalism” has been published in a couple of versions – as a “Private Sector Opinion” by the International Finance Corporation’s Global Corporate Governance Forum and as a paper for IPPR’s Tomorrow’s Capitalism programme.

It highlights that “a successful economy is not just about the tensions between two separate poles: regulation or market. An economy which works effectively is like a political system which works effectively: It has checks and balances, accountabilities and responsibilities, information flows and cultures. Of course regulation is important. But there are five central principles beyond regulation on which a successful financial system depends. These are:

• That the entities in it are responsible for their actions.
• They will be responsible if they are accountable.
• Those who call them to account will need relevant information.
• That information must be independently prepared.
• And just as a healthy political system hinges on the scrutiny of vigilant citizens, a successful financial system will need the oversight of vigilant market participants."

Regulation alone will not deliver tomorrow’s sustainable capital markets. “Towards an Accountable Capitalism” offers an important steer on much of what is needed as well.

A historic but limited contribution

Today’s UK Budget Day was a historic occasion as the Chancellor announced the first ever carbon budget figures. It was even held on Earth Day. And it is good news that the HM Treasury budget web site includes a section on “building a low carbon recovery”.

Green Alliance was cautiously optimistic, calling it “Only a small step for mankind, but a big leap for HM Treasury” but the BBC asked “Green tinge or blue rinse?”.

BWEA seemed happiest, particularly due to the announcement of a deal offering up to £4 billion of European Investment Bank funding for renewables. The Renewable Energy Association offered a more restrained welcome highlighting that the proportion of stimulus funding allocated to green investment remained below the 20% recommended by Lord Stern on the information available.

The general reaction? Still a long way to go. And personally, however hard I try, I still feel under-whelmed by the announcements compared with the scale of the challenge.

Values are back...

...and don’t just take my word for it.

Stephen Haddrill of the ABI highlighted this to investors.

An appeal to values is heard in the wider debates about the crisis and the way forward. Prime Ministers Brown and Rudd debated, in the words of the former, ‘a world of shared global rules founded on shared global values’ on the eve of the London Summit.

The disjuncture caused by the current crisis has forced many to reflect critically on the values which underpin the system and form the basis of trust.

Values clearly matter – our judgements and decisions on how to act and live are based on them. Our economic and social systems require them as a foundation stone for building trust and confidence.

These themes are discussed in an excellent piece by Amartya Sen, ‘Capitalism Beyond the Crisis’ in which he challenges the proponents of a ‘New Capitalism’ such as Sarkozy and demands a new understanding of older ideas. He invokes the work of Adam Smith to explain how the crisis is partly generated by an overestimation of the wisdom of market processes and exacerbated by anxiety and lack of trust (see also ‘Adam Smith’s market never stood alone’).

I am hopeful that we can, in Sen’s words, ‘go beyond short-term solutions and contribute to producing a more decent economic world’ with greater regard given to the long term social and environmental impacts of our action.