In the global climate ecosystem, finance is one of the most discussed topics. However, if you look closer, you will find that most discussions aren't true communication—they are one-way statements. Financial stakeholders look for more risk-adjusted profits, whereas climate stakeholders advocate for more primary market funding to mitigate climate damages.
True communication is a two-way exchange, not a monologue. If either side won't listen and change its practices, it's hard to make meaningful progress. During my startup journey, the CFA Institute invited me to share a personal reflection with CFA charterholders around the world to help bridge the communication gap.
My talk centered on a fundamental question that financial professionals have long faced: As a financial professional, why should we care about sustainability?
To answer this, we must first ask: As a financial professional, what do we actually care about? Financial profits? Positive returns? Investment alpha? Volatility? Liquidity?
These answers are partially correct, but they don't capture the whole picture. Ultimately, as financial professionals, we care about what our clients say, because they are the ones who pay us. In conversations with clients, financial professionals often hear that "people want more money, higher profits, or positive returns." The underlying logic is that money provides the space and freedom to choose the lifestyle they desire. Yet, people rarely pause to reflect on why money is useful in the first place.
"Money is useful" is an unexamined assumption. To test it, we must ask: under what conditions? If money is inherently useful, why don't we just print as much of it as possible to make everyone a billionaire?
Doing so leads straight to hyperinflation, which shatters societal stability. Money is useful only when the monetary system reflects the total value humans care about, and as the global population grows, the limited global resource system becomes a major part of it.
Zimbabwe does not have problems with a higher number on its currency, but it does when that number cannot reflect the shortage of global resources and the total value generated. If the global resource system is important, how is it now?
Human activities exploit natural resources unsustainably. Global warming, biodiversity loss, and ocean plastic pollution continue; most of these consequences are irreversible. It’s a systemic failure like a phase 4 cancer that is impossible to recover from with our current human knowledge. The nightmare scenario of climate change isn't about higher costs from climate disasters; it's about that money becoming useless.
No matter how rich you are, you can't exchange your money for the destroyed products and services that support your basic lifestyle needs. If all the food you eat contains toxic chemicals, all the water contains microplastics, and all the air carries dangerous pollutants, wealth loses its meaning. That is why financial professionals must factor climate realities into their decisions. Not simply because climate change is a trendy topic, but because our future survival depends on it.
Myths About “Inflation is Bad”
Hyperinflation is destructive because it drastically reduces purchasing power. Accordingly, people without financial background knowledge reflexively view all inflation as an enemy and mistakenly advocate for deflation instead. However, is inflation truly bad?
To answer that, we must look closer at what a decrease in purchasing power actually means: when everything remains constant, a general, sustained increase in the price level of goods and services over time.
In the long term, nothing remains static. Because society is constantly evolving, rising prices over time do not automatically mean a drop in purchasing power. For instance, if overall living standards rise and your salary is adjusted accordingly, your real purchasing power can remain steady. Even with a fixed salary, your effective quality of life might not decline if other factors improve—such as higher educational quality, better product value, increased government efficiency, or stronger healthcare support.
It is easy for non-financial professionals to fall into the trap of treating inflation as an absolute evil. In reality, inflation is not inherently bad; it is only harmful when prices rise while everything else—wages, productivity, and societal support—stays stagnant. Because real-world conditions are never truly static, a rising price level does not automatically translate to a degraded quality of life.
The True Measure Inflation Implies
If inflation does not necessarily mean a decrease in purchasing power, what does inflation actually measure?
To answer this, let us return to the definition of inflation: a general, sustained increase in the price level of goods and services over time. From this definition, 2 key characteristics emerge:
- It applies to overall goods and services, not a single product, company, or industry.
- It tracks price changes over a period of time.
Inflation reflects the broader state of society rather than isolated market events. Accordingly, in an inflationary society, the price of a physical asset tends to rise simply with the passage of time, even if no active steps taken to improve it. The rate of change in the product's price is the inflation rate. In other words, the inflation rate is the return rate of the product we hold.
Within the same timeline, the higher the inflation rate, the higher the return rate of the product we hold. In a hyperinflation society, we can easily see that holding products is far better than holding cash. If the product sustains its function over the long term, its value will increase accordingly until it is used, broken, or expires. This exact concept takes on a profound meaning when we factor in climate change. We can argue that the true structural inflation rate of our era mirrors the increasing scarcity of global resources—from food to essential metals—even if the capital market has yet to fully price in GHG emissions.
If major stakeholders fail to act on climate change, the resulting ecological damage will drive inflation steadily higher. As the global population marches toward 10 billion, society will indirectly feel the severe pinch of resource scarcity. In that future, money will no longer be the most valuable thing; physical assets will be. Valuation frameworks will shift away from discounted cash flow models toward pure asset-based valuations, and fiat currency will ultimately lose its meaning.
The Value of Currency and Its Purpose
Having established that inflation is not necessarily bad; it does not reflect a decrease in purchasing power, but rather the return rate of the product we hold. Before money can become useless, what gives it value in the first place? Most people know money is important, but few understand where that value actually comes from.
To answer this, we need to explore what currency is, its core purpose, and the factors that make it useful.
Currency is a socially recognized, standardized medium of exchange and store of value within a specific area where people accept and use it. While creating a new currency is technically easy, it remains entirely useless if no one adopts it. Ultimately, the fundamental nature of currency is rooted in users' trust in the issuer (typically central banks), which rests on 3 trust pillars:
- Total Active Currency Users: The scale of the user base—whether mandated or voluntary—and the overall economic value generated or consumed by those users.
- Legal Recognition and Enforcement: The legal enforcement mechanisms(the military and police powers) after the mandates is made by lawyers.
- Security of Value Storage: The protection, and recovery mechanisms safeguarding stored wealth against cyberattacks, fraud, or systemic instability.
From Survival to Thrive: The Purpose of Inflation
When the currency was first introduced, user trust in the currency was anchored in gold reserves (the gold standard in monetary policy), where gold as a representative of the limited resources that a specific area owns.
However, as societies evolved from basic physical survival toward cultural revitalization, people gradually realized that rigid, resource-backed money could not capture everything humans truly care about: justice, mental health, education, and the creative arts that build a thriving culture.
As societies grew more complex, the dead weight of fixed currency supply became too heavy to bear. This shift is why modern central banks ultimately embraced a monetary framework that allows for controlled inflation, driven by 3 core reasons:
- Recognizing Non-Physical Value Creation: Society came to acknowledge that true value creation extends far beyond physical commodities. This intangible value is fueled by widespread access to higher education, technological progress, and evolving cultural norms. Advances in medical science allow people to live longer, while shifting social awareness makes it harder for oppressive systems to endure. These factors matter deeply to human well-being, yet they cannot be measured simply in air, water, or soil.
- Catalyze New Innovation: If a problem gap persists for a long time, it proves that existing methods are no longer enough. Achieving a breakthrough requires relentless experimentation, where failure is inevitable. Most failures represent wasted time, used resources, and occupied talent. Traditional wealth—hoarded by privileged incumbents—is rarely deployed to fund risky innovations due to misaligned priorities and conflicts of interest. A strictly fixed money supply locks capital away in safes or mattress vaults, suffocating potential. Controlled inflation acts as a dynamic release valve, unlocking capital to fund trial-and-error. When an innovation finally succeeds, it creates entirely new value that society is willing to pay for.
- Phasing Out Irrecoverable Historical Harms: The mistakes, failures, and historical harms of previous generations often leave future populations to clean up messes they did not create. Most of them are irrecoverable and the people created the messes are no longer alive. It is an intergenerational injustice for people holding the same currency. Forcing an economy to operate under severe deflation makes those legacy burdens agonizingly painful to carry. For example, a massive 100M USD historical debt from decades ago, assuming no other ripple effects created, becomes vastly more manageable for modern generations when adjusted through inflation over time. This design isn't a silver bullet of absolute justice, but it prevents past failures from permanently paralyzing the present, offering society a mechanism to move forward. (Note: This dynamic works within a shared currency system, though it cannot heal society using different currencies of external historical atrocities like genocide, slavery, or colonialism.)
Trust Impacts: Innovation with Inflation
Despite these purposes and trust factors, the currency has no inherent value on its own—it can store value, but it does not represent value in a vacuum. To give currency real worth, human society must anchor it to actual global resources and productivity.
To prevent currency from becoming useless and to ensure it aligns with our finite resources—air, food, water, and shelter—people designed capital markets to encourage competition for overall efficiency and effectiveness. This generates new value large enough to back the additional currency introduced by inflation policies. And it is the basic mechanism where managed inflation sustains a long-term positive-sum game in the global economy.
Nevertheless, the inflation policy is not a panacea. It faces 2 major constraints:
- The Cost of Innovation Failures: Trust comes at a price because it allows correction after mistakes and reconciliation after conflict—both of which entail costs in money, time, and emotion. If failure costs exceed the new value generated, society will progressively slide into long-term decline. Accordingly, over the past few decades, central banks have deliberately targeted an inflation rate around 2%. Staying above 1% prevents a deflationary spiral that halts societal development, while keeping it well below 10% avoids the rapid destruction of stored wealth that leaves vulnerable populations unable to survive. Maintaining inflation within this safe harbor remains a core legal mandate for central banks worldwide.
- Physical Climate Risks with Global Resource Depletion: Global societies still fail to fully implement GHG emission pricing to reflect environmental values, meaning conflicting stakeholders are not held financially responsible of their activities for externalized costs like greenhouse gas emissions, ocean plastics, and biodiversity loss. These external costs do not simply vanish; they accumulate in the global environment, degrading the finite resources required for human survival. No matter how brilliantly we tune monetary and capital market policies, we cannot out-print or out-finance the destruction of our life support systems by human-made climate crisis—especially with a global population marching toward 10 billion. While commercial space mining may eventually unlock new materials, it cannot reverse the ecological damage already done. Carbon pricing is essential because it makes invisible costs visible, forcing markets to adapt. Delaying or rejecting it blinds society to ecological tipping points until it is too late.
Our society evolves by solving problems, not by escaping them. If current climate damage appears irreversible with our existing knowledge, we must advance our human knowledge through extensive scientific research to change that reality. When previous generations, with conflicts of interest, refuse to fund the climate transition, we must leverage tools like GHG emission pricing and calibrated inflation policy to accelerate our journey toward net-zero and ensure long-term survival.
Ethical Resource Allocation with Inflation
Inflation inevitably touches every aspect of our daily lives. However, whether the effect is positive or negative depends on the overall long-term value currency users generate, the lifestyles they pursue, the hard work they invest, and their evolving cultural attitudes. Because climate disasters inflict massive human tragedies upon our societies, we must ask: How can we use inflation wisely to allocate resources ethically and solve the climate crisis?
To answer this question, we need to look into a few considerations:
- The cost of the status quo shortfall vs. the cost of innovation failure: According to assessments by the IPCC and the IEA, most mature technologies and legacy workflows developed in the past are fundamentally unequipped to solve modern climate challenges. If we continue to allocate capital exclusively to these outdated mature systems to solve the climate problem, we are guaranteed to fall short. To solve the planetary crises that previous generations are not able to solve, we must consciously direct financial resources toward new climate innovations that close the gap
- Decentralized Distribution vs. Centralized Distribution: Overconcentration creates a top-heavy structure that is fragile and detrimental to social stability, as money is a resource rather than a substitute for expertise. Every individual brings partial knowledge and unique lived experience, making subjective judgment inevitable. The earlier-stage an innovation is, the more subjective that judgment must be. Because the climate crisis is dynamic, complex, and expansive—touching every stakeholder—decentralized resource allocation via small- to medium-sized venture capital is far more effective at solving systemic gaps through active stakeholder engagement.
- Future Outcome Prediction: When evaluating breakthrough innovations, we are not fortune tellers. Spreadsheet models shift every time we add or remove variables. No one can foresee whether early traction will extrapolate over the next 10 to 15 years, where regional conflicts might erupt, when advanced technological breakthroughs will occur, whether a global pandemic will strike, or how regulations will change. Because these factors cannot be 100% predicted or controlled, diversification across multiple possibilities is essential. Artificial Intelligence, for instance, was first conceptualized in 1956; after 60 to 70 years of research and experimentation, it finally achieved economic viability. The upside is enormous, but before it succeeded, no one knew how long the journey would take. The exact same uncertainty applies to climate innovations. Will we achieve a scientific breakthrough in the next 5, 10, or 60 years—or will our children suffer the consequences long before a solution arrives? Rather than betting everything on a single predicted outcome, diversification is a more robust strategy for maximizing our chances of success.
- Long-Term Mindset: Persistence is a long-term mindset, but giving up can be one too. Many people mistakenly assume a long-term mindset means stubbornly sticking to an original plan without any new changes, but that is not true. In reality, it means deeply understanding your ultimate goals and the decision logic that could maximize your chances of success. In a dynamic, complex world, refusing or fearing to adapt to new situations creates rigid barriers that unnecessarily block our progress on climate action.
- The Trap of GPs' Instant Gratification: Venture capital General Partners (GPs) often gravitate toward startup teams with immediate, solid traction. The more, the better. It is the trap of instant gratification. Driven by a rush to catch the next big thing, GPs frequently overlook early-stage innovations that are genuinely vital for solving the climate crisis. GPs want big outcomes NOW; startups can't deliver that, it takes 10-20 years, instant redirection to new climate technologies, and repeating the loop again and again. Big outcomes cannot be forced overnight; true climate technologies require 10 or more years of sustained capital deployment, and endless iteration. While these GPs may not be lazy, their obsession with rapid results prevents meaningful work from being properly validated, built, and optimized. The ultimate long-term differentiator is endurance when things don't go to plan. Downtime automatically filters out trend-chasers from those doing the real work, building resilience when things are difficult, and staying the course where time acts as a compounding factor. We cannot control startup downturns, but we can master the underlying logic, learn from mistakes, and forge new possibilities.
- The Extrapolation of Startups’ Failure: Every checkpoint or milestone represents a single data point, not the ultimate verdict on a startup's potential. However, when things fail or go wrong, people often reflexively assume the entire strategy is flawed. Often, the real issue isn't poor performance, but how we react to it. If a startup misses a milestone, teams meticulously review and revise their decisions for the next phase in the next 48 hours. Conversely, when an outcome is positive, few people critically examine their practices, blindly assuming past methods will always work. We tend to over-analyze failure while neglecting the lessons of success. Every milestone is simply a data point influenced by both controllable and uncontrollable variables. Elite teams do not eliminate performance fluctuations; they narrow the performance variance through robust systems and culture. Even without active intervention, collecting enough data points pulls performance toward an average, revealing trends we may spot to refine our system and culture. Treating raw outcomes as the sole indicator of decision quality is a major mistake that ignores performance variance. True long-term advantage comes from mastering decision logic and optimizing continuously—an edge that a few lucky wins can never replicate.
When designing resource allocation, integrating all of these principles helps us allocate resources more ethically and effectively. Innovation creates hope, and capital investment is vital to solving the crisis. However, without systems thinking, we will fail to unlock society's full potential.
In a dynamic, complex ecosystem, systems thinking helps solve multiple problems at scale, over time, with limited resources, and with a higher success rate. It ensures that today's solution does not become tomorrow's problem. A local optimum is never equivalent to a global optimum. Perfection fixates on localized solutions, whereas completion prioritizes the global optimum. Chasing siloed local optima without systems thinking is merely the noise before the system collapses. That is why, at Optivide, our core belief is clear: "Systems thinking with climate innovation creates hope."