" ... it is impossible to be neutral. In a world already moving in certain directions, where wealth and power are already distributed in certain ways, neutrality means accepting the way things are now." Howard Zinn

In the first article of this series, I argued that pension fund portfolios are not an arcane technical issue of interest only to professionals. Rather, they reflect a highly contentious vision of the future. Investment managers define that vision through investment decisions, but as I point out in the second article, they frequently deny that they have any real agency, or moral choice, in the process.

As the quote by Zinn suggests, investors who sit on the fence are anything but neutral, but it is also too easy to imagine that the problem of unsustainable investment stems solely from financial professionals. What about all the people in society who buy into the unsustainable vision, tacitly supporting it by not challenging it?

A political vacuum

No party wants to take responsibility. Fund managers claim they are not in control. Pension-holders claim they have no individual power, right or desire to challenge the process. The government says it has no mandate to intervene in investment decisions.

Some claim that the invisible hand of the market is in control. Surely if people do not like the investment services they receive they will just take their money elsewhere, shifting the direction of future investment in the process?

The retail end of the investment industry though is very insensitive to market forces. Have you ever actually seen anyone change their pension, or their bank?

Not only is there a huge information asymmetry between financial intermediaries and ordinary savers, but the consequences of unsustainable investment are not felt by those savers directly or immediately, which means it does not enter their day-to-day thought. The absence of co-ordinated societal concern feeds into the lack of political will among politicians to propose changes, and the dangerous inertia of the investment industry continues unchecked.

Combating the culture of disconnection

The investment industry reflects deeper problems in our economic system. Material standards of living are higher than they have ever been, and yet people appear locked into a cycle of trying to accumulate more without really knowing why. David Graeber's viral article Bullshit Jobs captured attention for suggesting people have become fixated with personal consumption as a way to fill the void of not gaining meaning from their jobs.

This treadmill consumption increasingly forms the basis of our economic identity, and is reflected in financial institutions. As opportunities dwindle for low-risk extraction of value, the investment industry moves to ever more destructive, marginal projects like tar sands.

Alternatively, they move away from investment in actual production, towards investment into other financial institutions. One example of such "financialisation" is when pension funds allocate money to high-frequency trading hedge funds, which attempt to squeeze value out of churning shares, a wasteful zero-sum game.

These forms of economic disconnection are rife at all levels of our society. We see it in the lack of understanding about what constitutes real production, in the failure to understand the nature of money, in the joyless consumption of largely pointless goods, and in the confusion about the difference between investment and speculation. Refocusing investment towards meaningful, long-term and sustainable value-creation is going to take work on a variety of fronts at once.

Front 1: Building the technical arguments

Much of the focus of the sustainable finance community has been on developing convincing technical arguments that can be directed towards elite power-players. Groups such as the Asset Owners Disclosure Project have done great work in climate risk analysis, demanding that investment managers hedge their high-carbon portfolios with low-carbon alternatives. Others target maladjusted institutions and advance alternative investment frameworks. Savvy campaign groups are now using investment risk analysis to disrupt fossil fuel investment cases.

Front 2: Shifting the cultural ground

Technical arguments can be a great way to engage investors in sustainability, and funds such as the Norwegian Government Pension Fund are changing.

Reforming investment though, is not merely a technical matter of convincing enough fund managers to think differently. Just as vital is getting people to collectively demand more of the investment industry.

Shareholder activism is one contrast to the model of disengaged investment. We are also seeing the growth of energetic divestment campaigns, from major global campaigns such as Bill McKibben's 350.org movement, to more localised campaigns such as PushYourParents.

Some investment professionals see divestment as a naïve idea. Why would it matter if a single fund decides to divest from ExxonMobil? Surely another will simply take its place?

They miss the point. The aim of a divestment campaign is to help shift the cultural ground and build broader political opposition towards activities that society is concerned about, but has not yet explicitly condemned. This is the same role that civil rights activists and the suffragettes played in the past.

Thus, while some sustainable investment professionals are at pains to stress how their arguments for low-carbon portfolios are merely prudent risk-management approaches, activist groups refuse to back down on the justice angle. They ruffle the feathers of people in power, but over the longer term this is what people remember.

Front 3: Increasing financial education

Divestment, and other financial campaigns, are also a great entry point for young people to educate themselves on the dynamics of the financial system. They are growing up in a different time, and the "leave it to the professionals" approach is profoundly unsatisfying for many.

Poor financial literacy is one factor that underpins the complacency and lack of competition in the financial sector, and it is a large missing piece of the financial reform puzzle. Until we find ways to demystify finance at the societal level, levels of accountability will remain very low.

Front 4: Developing the engaged economic citizen

The end goal of financial education is to cultivate an ethos of personal responsibility and connection to the investment process. This is missing from so many debates on sustainable or responsible finance, many of which seem to endorse the notion of the everyday person as a passive, apolitical "consumer" of financial services, to be protected by the regulators.

We need to move towards a notion of the pension-holder as an engaged, creative participant in investment. Luckily, new technologies are also helping us to develop a sense for what that could look like. There is a rise in the popularity of new forms of peer-investment and crowdfunding, which can help people invest directly into areas such as renewable energy. We are seeing a whole myriad of creative platforms that are helping us to develop cultural acceptance for a more open form of finance.

Get involved

How these new forms will impact on the traditional world of pension funds remains to be seen, but I hope that this series has helped you get a sense for where you might contribute in the overall project of building a better financial system. It is a daunting but exciting project, and it is only going to get more important with time, so get involved.

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