Imagine a world not driven purely by pursuit of economic growth. A world where our economies and businesses exist to meet our needs, but not at the cost of the Earth and our societies. A world where holistic measures are used to measure success, and where the human spirit of endeavour is not bound by a simple, three-letter acronym: GDP.
For years, gross domestic product has been the God-head of mainstream economic thinking and policy, and it is undeniable that for a lot of people around the world (though not for all) it has led to increases in living standards.
However, our hunger for eternal and ever-faster rates of growth has come at a cost. We have (and continue to) force our climatic systems to change by burning materials; which, let’s be frank here, are probably better off staying in the ground (or at least not being squandered as fuel). We continue to cause land and water pollution (via our linear, take-make-dispose economies), disrupt natural ecosystems and reduce their biological diversity, and continue to increase levels of wealth inequality across the globe.
Is it time, then, to despair? Not quite. There is growing movement of individuals and groups, not only calling for real, systemic change, but also providing developed alternatives to our current economic systems. While conversations within these movements are continuing, and while there are differing opinions on the specifics, a common theme among them is the idea of boundaries (and especially the idea of staying within them), as well as the need for metrics other than GDP to be used in policy and business decision making.
Doughnut Economics, for example, is a proposed economic model centred around notions of meeting the basic needs of boundaries, without exceeding planetary boundaries. The post-growth movement is similar, with arguments here calling for reduced levels of economic activity to ensure we operate within an environmentally safe operating space, while ensuring human needs continue to be met.
Now, while there is far, far more to these movements than the above, here I want to focus on something a little more specific - where would investment managers fit into a post-growth society?
Personally, I am of the belief that, even in a post-growth world, there will still be a need for financial markets to facilitate the flow of capital, and a demand for pensions, savings product, and opportunities for investment. As such, I don’t believe that investment managers (and other financial institutions for that matter) will be closing their doors, for good.
That doesn’t mean; however, that how they operate will remain as it is today. Instead, it will be the job of managers to identify companies, and funds containing companies, that can continue to work in a postgrowth world. There will be companies that are not positioned to do so, and so will need to be either avoided or engaged with. There will be those that sit comfortably in a post-growth world, and will provide a steady income for investors. Finally, there will be trailblazers who innovate, do things differently, and flourish, and thus prove excellent opportunities for investors.
To identify these companies, consideration of ESG factors is likely to be even more important; companies engaging in activities that contribute to boundaries being exceeded are unlikely to survive without radical evolution during a de-growth period. In a post-growth world, those which can meet the needs of our societies in a truly sustainable (or even regenerative) manner, will be better positioned to perform well financially.
Furthermore, we may also see that managers and other financial institutions have to prove they can play an active role in achieving and maintaining a post-growth world, if they are to maintain their social (or even regulatory?) license to operate. After all, as stewards of capital, managers can choose how this is directed - the question is, “where?”