RSM’s Series on Positive Change was launched with the aim of informing managers about trends considered to be important in the future, and about opportunities for business to contribute to positive change. The fourth edition on 'Finance in transition' was written by DoIP's Research Associate Dirk Schoenmaker and Willem Schramade and Derk Loorbach.
Prof. Schoenmaker’s latest book, Finance in Transition: Principles for a Positive Finance Future shows that the current economy supported by the global financial system is on an unsustainable path. To transition to a positive future, the financial system has to change its goal function from maximising financial value towards optimising integrated value, which combines financial, social and environmental value.
Presenting guidelines for long-term value
Financial institutions have started to avoid unsustainable companies because of the risks involved (these are referred to as Sustainable Finance 1.0 and 2.0). Now, the frontrunners are increasingly investing in sustainable companies and projects to create long-term value for the wider community (the industry calls this Sustainable Finance 3.0). But it’s not a smooth transition. Short-termism is a major obstacle to sustainable finance, and private efforts are insufficient to overcome the obstacles to sustainable finance.
Usefully, Finance in Transition: Principles for a Positive Finance Future develops and presents guidelines for governing sustainable finance and explores how destabilisation of current structures can be anticipated, and how industry professionals can mobilise for a managed transition towards positive finance.
Prof. Schoenmaker and his co-authors point out that the current pattern of unsustainable economic development is supported by the global financial system, whose goal is to create ever more financial value. To re-direct industry efforts, the authors propose a set of guiding principles for a positive finance transition. They are:
- A transition from financial to integrated value which combines financial, social and environmental value;
- Stewardship based on a direct link between financiers and companies; and
- Capital allocation based on long-term societal value.
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The three co-authors are Prof. Derk Loorbach, Professor of Transition Science and director of the Dutch Research Institute For Transitions (DRIFT) at Erasmus University Rotterdam; Prof. Dirk Schoenmaker, Professor of Banking and Finance at RSM and founder of RSM’s Erasmus Platform for Sustainable Value Creation; and Dr Willem Schramade, an expert in portfolio management and equity analytics for the Erasmus Platform for Sustainable Value Creation.