During the 2008 financial crisis we were faced with one single systemic risk. Fifteen years on, we are having to deal with an ecological crisis, a rapidly growing gap between poor and rich, and spiralling debt for households, companies, and governments, as well as a war in Europe and political tensions around the globe.
“The current global situation can be described as a polycrisis with multiple, long-term crises simultaneously culminating into a moment of systemic risk, with each one complicating the solution of the others”, says Stegeman. “Policymakers do not know where to start to fix this. And there is no easy fix because we cannot go back to our pre-polycrisis world. That world was fossil-fuelled and geared towards efficiency and perpetual growth; it brought us into this position in the first place.”
Resilience and transition
“To get out of this polycrisis, we must find a new way to look at the future of our society and economy, explains Stegeman. “And because of the situation that we’re in, the solutions - the within-system fixes - of the past to stabilise the economic system have become useless. If we want to avoid a total collapse, we must make ourselves, our economies, societies, and financial system, more resilient and in the process transform them into sustainable systems that respect the environmental and social boundaries of our planet.”
Such a transformation consists of multiple transitions. But to get there we first must make our system more resilient. Resilience – the capacity of a system, be it an individual, a forest, a city, or an economy, to deal with change and continue to develop – should be valued more as an essential element in the economic system needed to first shelter against the polycrisis and thereafter as a prerequisite to transition. Especially if the transition starts from a fragile state, it can only work if humans, societies, and ecosystems are resilient enough to deal with disruptive changes.
Transformative investments
The financial sector plays a crucial role in this transformation. “We need to get away from the asset management capitalism of the big asset managers in this world, focused only on growth and short-term returns. The economy has become more financialised than ever, and therefore all the more prone to ‘boom and bust’, explains Stegeman. “Our longer-term message to investors is that investments should be aligned with the principles of resilience, transformation, and long-term value creation instead of short-term risk-return profiles”, says Stegeman. “The transition choices of what should be phased out (breakdown), what needs to be converted to contribute to a transition and what needs to be built up must also be made by investors to get a transition going: it is not (only) about directing capital to new technologies and helping companies to transition. It is also taking capital away from stranded assets. It is about making conscious, forward-looking investment choices and reconnecting with the real economy, based on greater consciousness of the untenability of the system. And the sooner that happens, the faster a transition will go.”