In this episode of the Masters of Beautiful Achievements, I sit down with Professor Willem Schramade to explore how natural science systems and a biological perspective can transform our approach to finance, corporate governance, and value creation. Together, we dive deep into the limitations of traditional economic models and the urgent need for a more holistic, systems-based mindset in business and investing.
Rethinking Finance: From Linear Models to Living Systems
Professor Schramade, a finance expert with a background in business economics and sustainable value creation, shares his journey from traditional investment analysis to integrating sustainability into financial decision-making. Through real-world examples—like mining companies suffering massive losses due to environmental missteps—we see how social and environmental factors directly impact business valuation.
We challenge the dominance of linear, econometric models in finance, which often ignore context, non-linearities, and the interconnectedness found in natural systems. Much like in biology, we recognize that diversity and resilience are essential for long-term success, while monocultures—whether in agriculture or financial modeling—invite systemic risk.
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Shaping the Future with Sustainable Finance
In today’s economic landscape, traditional financial models are being challenged by new, sustainable approaches. Schramade, a professor of finance, highlights the limitations of old-school financial models that fail to account for the dynamic and complex nature of today’s environmental challenges. According to Schramade, these models often overlook the non-linear and interconnected aspects of ecological and social systems. He argues for a biologically inspired perspective, encouraging financial leaders to think more like biologists than economists.
The Need for Holistic Value Creation
Schramade stresses the importance of integrating sustainability into financial analysis, focusing on an approach that combines economic, social, and environmental values. This method not only provides a comprehensive view of a company’s impact but also helps in identifying pathways for future growth that are both financially viable and sustainable.
The Power and Pitfalls of Corporate Governance
We explore the evolution of corporate purpose, contrasting the US-centric focus on profit maximization with the more socially embedded expectations of European companies. We reflect on how historical models of relationship banking and community investment have given way to short-termism and spreadsheet-driven decision-making, often at the expense of social and environmental value.
It’s important for us to focus on integrated value creation—balancing financial, social, and environmental outcomes—and to consider new governance structures, such as steward-owned companies, to safeguard our mission and long-term impact.
Embracing Redundancy, Resilience and Diversity
Drawing inspiration from biology, we highlight how natural systems thrive on diversity, redundancy, and adaptability. In contrast, our relentless pursuit of efficiency in business can stifle creativity and leave us vulnerable to shocks. By shifting toward systems thinking, we can analyze our entire value chain, recognize externalities, and design for resilience rather than just efficiency. Schramade highlights the advantages of diversity and resilience. Nature thrives on diversity, and financial models can benefit similarly by integrating diverse perspectives and strategies. Redundancies in biological systems ensure resilience, a concept he argues should be adopted in financial planning to guard against unforeseen market fluctuations.
Breaking the Mold of Traditional Finance
Traditional finance often emphasizes short-term gains, disregarding the long-term impacts on the environment and society. By contrast, Schramade advocates for a finance system that prioritizes long-term, integrated returns. He points out that most sustainable investing currently focuses on making profits while considering sustainability factors, rather than driving genuine positive change.
Bridging the Gap: From Awareness to Action
For sustainable finance to move from theory to practice, Schramade emphasizes the importance of shifting mindsets within organizations. He cites examples of success, such as steward-owned companies and long-term investment strategies that align with sustainable values. By reimagining corporate governance and embracing broader value creation perspectives, businesses can align more closely with ecological models, ensuring longevity and sustainability.
Actionable Insights
- Challenge the Models: Let’s not accept traditional financial models as the full answer. We can use them as inputs, but always consider the broader context and potential for systemic change.
- Think Holistically: We should integrate financial, social, and environmental value in our decision-making. Frameworks that make these impacts visible and tangible can help.
- Foster Diversity: Let’s avoid monocultures in both business models and thinking. Encouraging diverse perspectives and solutions strengthens us all.
- Embrace Stewardship: We can consider governance structures that protect our mission and long-term value, such as steward ownership.
- Take Initiative: Let’s not make our roles smaller than they are. Even small actions can drive change within our organizations and industries.
Further Resources
Professor Schramade recommends exploring the free MOOC on sustainable finance and downloading his latest book, “Corporate Finance for Long-Term Value,” for a deeper dive into these concepts.
Conclusion
This episode is a call to action for all of us—business leaders, investors, and policymakers—to move beyond outdated models and embrace a systems-based, biological perspective for a more sustainable and resilient future. By integrating ethics, purpose, and holistic value creation, we can build organizations that thrive not just financially, but socially and environmentally as well. The evolution of finance towards sustainability is not just a trend but a necessary transformation. In a world where the stakes are high, and the challenges multidimensional, integrating sustainability into finance is crucial for creating a future that is not only profitable but also equitable and resilient.
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The Masters of Beautiful Achievements podcast series is where Alexander Prinsen explores natural science, innovation, systems thinking and leadership. As systemic innovation consultant at scopematters.com he helps organizations accelerate to save costs, do good and operate within the planetary boundaries.
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