Danny ChenCapital market is an imperfect solution; however, 3 major reasons that make it better than other alternatives.
- Focus on Humans: The capital market is designed by humans to solve human problems.
- Encourage Meritocracy: Competition is encouraged to allocate resources efficiently and effectively.
- Advocate Democracy: A transaction is made with freedom of choice that both parties agree.
It has worked well for the past few decades until human-made pollution overloaded our earth's ecosystem. For stakeholders who want to solve the sustainability problem, how do we make the balance between the business profits with sustainability impacts?
The relationship between business and impacts varies, depends on the industries, product/services, locations, resource requirements and the business purposes, etc. Most of the time, it’s not a “either….or”, but a spectrum.
Business profits can be derived from the unit sales. The more units are sold/rented, the higher the profits. As for impacts, the minimal impact unit is our main focus. For each unit sold/rented, how many units of minimal impacts created?
The correlation between business and impacts ranges from
#1 Strong unit sales lead to stronger positive impact outcomes
#2 Strong unit sales make low to no positive impact outcomes
#3 Strong unit sales result in bigger negative impact outcomes
In the ideal situation, #1 is the best-case scenario where all stakeholders involved are happy, whereas #3 should be discouraged and transferred to other options. As for #2, the situation is widely seen in our current society with several stakeholder confusions.
- Investors: Maximize the Business Profits
- Philanthropists: Maximize the Impact Outcomes
- Customers: Purchase Doesn’t Solve My Problems
- Beneficiaries: Not Able to Support through Purchases
People who are familiar with the business world often argues that organizations in #2 should focus on profit only and ignore anything that will distract the profit focus. After all, the capital market encourages meritocracy, the competition will encourage businesses in #1 solve the negative impacts from #3.
Fair enough, but problematic. The root cause is that our traditional capital market design “only” considers the human needs, not the Earth ecosystem. As a human, we need the Earth's ecosystem to support our basic survival needs.
Climate change becomes the problem when most of our businesses in the traditional capital market are in #3, where the Earth ecosystem pollution is not their business. It degenerates the long-term social stability.
To make changes, we need to reflect the negative Earth ecosystem interruption into our capital market design. So, the impact outcomes is aligned with business profits. Before the Earth ecosystem costs is fully integrated into the capital market, businesses in #2 are encouraged to setup their conditional impact business model with minimal annual profits, so that the positive outcomes are able to fulfill.
Diversity is the fundamental imperative of dynamic meritocracy, which strengthens our capital market resilience and stability. Organizations in #2 that consider impacts in decision making processes is not a distraction, but a imperative step to build up our capital market resilience with the best long-term human society interests. At the end of the day, in a world with polluted water, and insufficient food, no matter how rich you are, money is useless.
