Our world and its planet are no longer as simple as we thought. Yet in exploring corporate and financial risk and opportunity, including ESG, we use tools developed in an era which saw man as the master of nature, society in terms of a western ideal, and corporations as independent of both. It is time for an update.
Fueled by bushfires and stung by Greta Thunberg’s plain talking, the global economy is now processing the fact that it depends upon the different (organic) economics of a living planet that is thus both complex and complexly changeable.
In the search for a better understanding, corporate and institutional dashboards now include a rapidly expanding range of ESG metrics. Metrics that go beyond the measurement of global economic and corporate performance to include the size and shape of things that sit outside the systems of that economy.
Operating in the unfamiliar world outside the global economic system, businesses (and their raters) measure what they can, look for proxies where they can’t, and average to smooth difference.
but there’s a problem.
As standardized measurements of standardized things, metrics work well for mechanical systems — man-made systems where the parts shape the whole. But the planet is not mechanical, it is organic — a living system we see as parts (e.g. weather, species, people) but where, in fact, the whole (the planet) shapes those parts.
Operating in the unfamiliar world outside the global economic system, businesses (and their raters) measure what they can, look for proxies where they can’t, and average to smooth difference. Such an approach has a high risk of throwing up incomplete or false realities. And a high risk of driving a new generation of collective and individual investments that compound rather than reduce risk.
how did we get here?
Metrics acquired their original economic value by supporting the development of an industrial revolution which had created and scaled a ‘mechanical’ system of production — where the parts shaped the whole. Metrics were able to do this because, stripped of context, they themselves were designed to deliver a form of knowledge where the parts were more important than the whole.
As the industrial revolution grew to become the global economy, the value of metrics grew too. And as the value of metrics grew, other types of knowledge (knowledge that could both see and communicate context, complexity and change) were relegated to a periphery of academia, philosophy and art. There they languished: unconnected and increasingly less used and less useful in the practical world.
metrics in action
Metrics have been invaluable for measuring and managing the inanimate and the highly controlled and controllable systems of corporations and institutions which make up the global economy.
In my experience of working with complex challenges within the global economy, metrics can be valuable in providing an initial overview of a situation. They also provide clues as to the kind of thinking that typically contributed to the challenges in the first place. And they have the strong advantage of being a language that works for the global economy. They are not, however, sufficient tools either to diagnose a complex challenge or to address it.
Five features of metrics make them both unreliable and risky knowledge tools where applied on their own:
- measuring only the measurable, they edit out the unmeasurable, including context
- dividing knowledge into parts (necessary for measurement), they create blind spots around complexity
- applied to behavior or rewards, they magnetize focus and channel performance (Tom Peters’ ‘what gets measured gets done’), crowding out other ways of thinking that capture complexity
- delivering efficiency, they optimize speed and scale (ideal for growth; not ideal where adaptivity is also a goal)
- they create as reality what they set out to measure: silos of activity, dissociated from the organic world.
In relying upon metrics to assess environmental and social risk, and to improve our relationship with planet, species and societies, the present ESG toolset:
- increases the very risks that we are using it to address
- accelerates the elimination of other ways of thinking, cementing out dependence on the mechanical kind of thinking that created many of these risks in the first place.
We will need to work out how to bridge the gap between our ‘parts-shape-the-whole’ global economy, and our ‘whole-shapes-the-parts’ planet.
We may feel, as today’s stranding assets felt yesterday, that it is too late to change. In which case, it is unlikely that our rapidly expanding ESG metrics will help as much as we hope, and quite possible that they will make things worse over time.
If, however, we decide that we want to address the heart of our risk, we will need to work out how to bridge the gap between our ‘parts-shape-the-whole’ global economy and our ‘whole-shapes-the-parts’ planet.
To do this, we will need to look ‘beyond metrics.’
This does not mean ‘no metrics.’ It does, however, mean an open exploration of where metrics work and where they don’t, of how other systems of knowledge can counterbalance the risks of pure metrics, and of how we can combine, communicate and share the ‘beyond metric’ knowledge in ways that work for both the global economy as well as the planet.
It is time to update the toolset.
Learn more about going beyond metrics here.