Hero’s Quest: Stewardship
Stewardship with "with all deliberate speed" as a metric toward climate security
Perhaps the least understood ideal — and least fulfilled job — of a fiduciary of intergenerational fiduciary money is the obligation for stewardship. That’s the guardianship of something of value entrusted to a fiduciary’s care, like a long-horizon, 22nd-Century retirement fund for 100-year-old beneficiaries.
That’s a two-part responsibility. 1) Making the minimum returns to keep the fund financially viable for the beneficiaries living in the 22nd Century and longer. 2) Leading, through negotiations and safe choices, a path toward a future that is worth living in… a future not compromised by a lack of stewardship today.
Stewardship fiduciaries, if that is a focus of their decision making or accountability, are rare indeed. Fiduciaries investing retirement funds in fossil fuels that continue and make worse the climate crisis, for example, embody the opposite of stewardship. The antonym I like is impotency, but lawlessness is also good. The opportunity with something like Bank of Nature is to create a fiduciary finance channel that includes stewardship as a performance metric as critical to future beneficiaries as the projected financial yields. And, when those retirees get a better future, we all get a better future.
Here’s my chat with financial philosopher Tim MacDonald to round out our three-part series exploring fiduciaries as heroes of the climate crisis.
Ian Edwards: The language of fiduciaries is, well, dull. No Kardashian is going to hashtag #duty or #stewardship on Twitter and break the Internet. The language is honor-bound, a quality that is distinctly out of fashion. And, it may be disingenuous. I wonder if fiduciaries are not set up to fail on both counts: Long-horizon financial projections are made murkier by increasingly entrenched and overlapping value-killing pandemics like the climate threat. Also, fiduciaries seem to avoid, completely, any opportunity to lead in uncertain times, even to support their future beneficiaries. We spotlight fiduciaries as a new target for near-term climate action, because they have the money, scope and this stewardship mission built into their DNA, albeit ignored.
Just to set the bar, Bank of Nature says stewardship is vitally, critically important in managing a complex society rocked by something like a climate threat. But, the fiduciary sector is not making stewardship a priority. Fiduciaries may not include stewardship as a tenet in their missions. They certainly don’t practice it, if we can generalize. So, Tim, is that a fair analysis of the situation at hand?
Tim MacDonald: Lots of fair points there. But I can’t agree that is entirely fair. Because it leaves us — people — out. It gives us a free pass when most of the blame for where things are right now sits squarely on our shoulders. Humans collectively are reasonable people with relevant knowledge and experience about what modern society needs today in terms of the loyalty and prudence of pension and endowment fiduciaries. Fiduciariaries are duty-bound, and legally required, to do what our common sense tells them it is properly loyal and prudent. They follow our lead. And humans are telling them to go ahead and take the tens of trillions entrusted to them, worldwide, and hand it over to professionals who are expert at gambling on price, but are not expert at financing the social changes society needs right now. So, the first thing is, we have to change our own common sense of what fiduciaries can and should be doing with the fiduciary money they run on our behalf. Then, we have to demand that they change gears. They must stop doing what we have been telling them to do since 1972: that they stop financing enterprise value, or selling price, and start financing enterprise values like climate security.
I don’t actually think that’s dull. I think it is very high drama. Fiduciaries, by our command, fighting for the future we choose? Blockbuster.
IE: Again, to set the stage: Why aren’t fiduciaries taking a lead role in global leadership?
TM: The blame lies with us, as reasonable people whose common sense sets the legal standard for fiduciary loyalty and prudence. We’ve defaulted to speculative markets like Wall Street to move money in ways that are contrary to our long-term safety. We’ve abdicated responsibility. We, so far, agree with Wall Street to let Wall Street be in charge of our fiduciary duty. But, Wall Street is driving us towards climate catastrophe. It’s making worse social strife. We need to demand that fiduciaries, working on our behalf, take back the fiduciary money control. They must invest it directly in enterprises that are creating a future of climate security and away from gigantic corporate conglomerations that are propelling us towards climate catastrophe.
IE: Climate inaction is partly wrapped up in language that obscures. That’s intentional. We mix up what is meant by what might be inferred. Inferred meaning is sexier because it allows for baseless challenges and drama. So, I want us to spend some time on what we mean by stewardship, with the hopes that we can shield it from a doubt offensive. What is stewardship in terms of fiduciary money?
TM: Prudent stewardship of fiduciary money requires the fiduciary owners of that money to exercise the power that money gives them. They must negotiate with enterprising visionaries directly (and not just to speculate, derivatively).
Value is a difficult word, wrapped up in dollar signs. Values, on the other hand, probably cost dollar signs. Too often, fiduciaries default to “Values are too expensive” when they are focussed on quarter-by-quarter value.
Enterprising visionaries are focussed on the values of social and environmental justice in how they conduct commerce. That includes climate security and real endgame sustainability and, as we say at Bank of Nature, paying nature to make more nature.
Negotiation is key. They can invest deals with all kinds of environmental and social priorities while making their “sufficient” financial minimums for the long-term health of the fund. That is the recipe for stewardship. What they can and should be negotiating for is to prioritize enterprise cash flows for:
Fair trade throughout their supply chains
Accountability to society through compliance with the spirit as well as the letter of the law, business ethics and community engagement
Paying nature to make more nature
Fair pay, benefits and conditions for workers
Fair dealing with customers and competitors
Fair sharing between enterprising visionaries and their financiers, fiduciary and otherwise. At the Bank of Nature, we stipulate that nature is a lender, worthy of repayment, interest, fees and penalties.
IE: What is stewardship in terms of crises like the climate threat?
TM: Energy is a great focal point for this. Anthropogenic climate change is a consequence of our decision, as society, to rely on the combustion of fossilized hydrocarbons to power our prosperity. To avoid climate catastrophe we have to change our energy choices. That means we have to restructure our global economy away from fossilized hydrocarbons. A recent publication by the World Economic Forum admitted that “business as usual” cannot steward us through an orderly restructuring of the global economy. We argue here that fiduciaries can. We can demand that fiduciaries finance a globally coordinated restructuring of our global energy supply by commissioning new energy supply choices sized and timed to offset the decommissioning of existing fossilized hydrocarbons supplies.
IE: What is stewardship in terms of the future? And how does that overlap with fiduciary money and climate?
TM: Prudent stewardship means factoring impacts on the future into financing decisions we make today. Fiduciary money has a fiduciary duty to be there in the future, which means a future that will be worth living in. This is the exact opposite of the ethos of corporate finance. Its mantra is “do the best we can for ourselves today, and worry about tomorrow tomorrow”. That’s one reason it is wrong for us to be turning our fiduciary money over to third-party asset managers who are experts in shifts in market prices but are not experts in what we actually need from our fiduciaries.
IE: How are fiduciaries demonstrating stewardship to ensure a better future for those beneficiaries?
TM: Right now, they’re not. There is some movement towards divesting from fossil fuel companies in protest against climate change. Many voices are calling for shareholder activism to demand that so-called investee companies value what has become known as ESG - environmental, social and governance - priorities in the way they do business. But these heroes of income security are failing thus far to really step up, and become the heroes of climate security and real endgame sustainability that their beneficiaries, and all of us, need them to become.
IE: We struggle with the moral imperative for society to wake up tomorrow suddenly committed to the need for big changes — characterized by huge sacrifices. At Bank of Nature, we focus on changes that are not about taking away, but about adding in. We call it a proxy for nature that is a peer to global government and industry that opens a third way to a better climate-secure future that has vulnerability to calls for action. It’s paid for by trillion-dollar fiduciary money. How do you see pensions and endowments leading, in the day-to-day, toward a future worth living in?
TM: When we imagine taking Bank of Nature beyond a big ideas exercise in applied imagination that challenges conventional thinking, we are designing the support structures fiduciaries with big money will need to be good stewards.
So we point to our new professional association, Fiduciaries for the Future, in leading programming for professional development, certifications and such. We’d focus on the technical aspects of what we call evergreen equity payback financing structures - financial modeling, due diligence, documentation.
We are creating a Department of Climate Science within Bank of Nature to bring prudent fiduciary stewards into regular conversation with transdisciplinary thinkers to help them “keep their fingers on the pulse” of what you call, correctly, the Human-Nature partnership. That is the economy in which we live. And, we imagine a Department of Climate Justice, to use the force of social science and law, when it becomes necessary, to keep actors in the economy — including pension and endowment fiduciaries — in line with the evolving standards of culturally relevant and prudent stewardship.
We use climate as a way of talking about our whole way of being planetary people living in a planetary economy on this one shared planet. Accountability to the common sense of reasonable people is also an important part of the dynamics of prudent stewardship. We imagine pension and endowment fiduciaries engaging regularly in curated conversations with everyday people living their everyday lives who want to build the right, planetary economy.
IE: Sustainability is a vague idea, but we have figured out reporting mechanisms that substantiate progress in being less bad to the environment. Fewer emissions, for example, and waste stream improvements. Bank of Nature is a work of applied imagination. I imagine that stewardship can have equal or better transparency, accountability and public relations rewards. How do we make stewardship into a metric-based call to action that we can track? Or, do we?
TM: There is a bit of wisdom that is very popular within institutional bureaucracies. “What gets measured, gets done”. The act of measuring has the effect of focusing our attention. So, it matters what we are measuring. Right now, all our measurements are made in numbers and growth in numbers: Net Present Value (NPV), share price (the ticker tape), Net Asset Value (NAV, a sum total of the tickets tape symbols for trading prices within a portfolio of trading positions), Gross Domestic Product (GDP), Global Growth. These are all ways of reducing our experience of being humans living well in society and nature, to a simple number, or sequence of numbers, in the fanatical and fantastic belief that if the number goes up, we are all doing better as people. What gets reduced out in these equations? Humans. And society. And Nature. ESGers want to re-infuse Humans and Society and Nature back into those numbers, while still keeping the numbers. That is not going to work. We need to stop measuring prosperity as if it is a quantity, and starting seeing it as a quality of being, of human in society in nature. Fiduciary Finance will let us do that by replacing numbers with words. Fiduciary Duty has to be measured in qualities, not quantities. There is not more or less fiduciary duty. It is not a quantity. It is a quality. That’s why language is so important to the work of Bank of Nature. We all have to learn new words and a new language for talking about prosperity, not as a number but as a quality of being. I don’t know what that new language will become, when we get to the point of measuring, but I like the idea that it might be Peace: Earth peace; peace with ourselves and each other, peace with our future; the peace of surpluses sufficient to their time and place shared sufficiently in their time and place… The way we measure peace? By counting the instances of nonpeace. Of conflict. And scarcity. And deprivation. And desolation. They should be in retreat.
IE: To cap off this series: Can fiduciaries, as heroes of the war on climate inaction, pay for climate security? And, what compels them to do so if they remain reluctant?
TM: Yes, fiduciaries do have the power to pay for climate security, in the sense that they have the Mission, the Duty and the Scale to collaborate with big thinkers, enterprising visionaries and everyday people, CEOs and politicians, to organize and finance a globally designed and orderly restructuring of our global energy supply networks. To start. This will be a massive undertaking. Unprecedented in all of human history. But, then again, all of human history is the story of humans doing unprecedented things!
The duty we keep talking about is a duty under the law. So, if our fiduciaries are too reluctant to lead at such unprecedented scale, we can sue them at law, for breaching their fiduciary duties. We call this the Untaken Safer Alternative, borrowing from the established rule in the law of torts, that if you act in a way that causes harm to others when there was another less harmful way, you can be held liable for the harm you cause. If fiduciaries choose to continue with business as usual, speculating instead of negotiating, or choose to avoid negotiating for climate security, then maybe we can hold them accountable at law, or get a judge to order them to step up and do their duty “with all deliberate speed”.
For readers, you can connect with Bank of Nature here. We welcome comments, challenges, questions and improvements. Bank of Nature is a design initiative that explores the potential for a proxy for nature as a way to remake our economy and future to enhance our future threatened by climate inaction. Fiduciary money is an existing, ample way to pay for climate action.