An Investment Thesis Founded on Integral Ecology

An Investment Thesis Founded in the Principle of Integral Ecology

I see integral ecology as a moral injunction “to hear both the cry of the earth and the cry of the poor,” because that cry comes from the same source. And in developing an investment thesis that aligns with this principle, I see the field of ecological economics as offering potential pathways forward. 

Some have referred to the principle of integral ecology as the “theology of sustainable development.” Laudato Si offers the following definition for an ecology: “the relationship between living organisms and the environment in which they develop.” Integral ecology is the idea that these relationships are all interconnected, deeply intertwined, and part of a larger whole, encompassing both the human world and the natural world. 

 When I was in graduate school, I had a housemate who studied evolutionary biology. I noticed how his vocabulary was inclusive of notions of “ecology” that seemed to be missing from the fields of economics and public policy that I was studying. I began to grasp the ways in which we can identify an array of different “ecologies” outside of our environmental systems. An economic ecology, for example, might represent the ways that the structure of the economy affects people and the planet, meaning that the realm of economics and economic growth cannot be considered in isolation of the environment. Hence, the emergence of things like “ecological economics”, a trans-disciplinary effort to understand how economics is embedded in the broader ecosystem that supports all human activity. From the perspective of ecological economics, we should acknowledge the limits for economic growth and opportunities to improve long-term human well- being.

If we truly grasped the ways in which we are all part of a deeply interconnected, integral ecology, I believe things would shift significantly. We would recognize the ways in which we are in constant interaction with a complex physical, chemical and biological network. We are nature, not separate from it… and this gives rise to a moral injunction: to care for and protect all of creation. (And once this dawns upon us, we should be deeply disturbed that a tree is worth more dead than alive).

From an investment perspective then, we must ask: how is my investment activity honoring or disturbing the natural balance? If we disturb the natural balance, we in turn disrupt the social balance and therefore the potential for humans to flourish and achieve another core tenant of CST – integral human development. Our investment activities should consider how humans are embedded in their ecological life-support system, not separate from the environment. This also begs the question: how do we design a sustainable future.? It’s not just analysis of the past but focuses on creating something new and better.

The three interrelated goals of ecological economics are sustainable scale, fair distribution, and efficient allocation. All three of these contribute to human well-being and sustainability. I decided to take these three pillars and reflect on how they might form the foundation of an investment thesis:

Concept              Idea                                                                  Questions                   

DistributionThe more unequal a society is, the less cooperative, and the less productive (see Tim Jackson’s work on post-growth economics).How is this closing gaps in equality? Or is it possible that this will further income inequality?  
Allocation“Efficient allocation” by the market rests on a set of assumptions (ie. no externalities) that are being proven false. Natural and social externalities are larger than the internalities of the market.  Does this investment internalize natural and social externalities? (pricing carbon, pricing impacts on other natural resources and ecosystem services)
Sustainable scaleConventional economics does not recognize that we live on a finite planet with finite resources; there are limits to growth.Does this investment advance activities in a safe operating space in which we are within the limits and constraints of our natural environment?

I’m so taken with the way ecological economics challenges the privileged logic of investment (that growth is god, that scale is privileged, that we don’t need to properly account for the various types of externalities created with our human activities). Our economy cannot grow forever (see this video for some inspiration). Any organism grows for a period of time and then stops. We can continue to develop and improve, but eventually we stop physically growing.  I also had to do some more digging to understand the concept of social externalities. Robert Constanza, Gund Professor of Ecological Economics, and Director of the Gund Institute for Ecological Economics, University of Vermont, offers this description of a social externality:

“someone getting a bigger house causes other people to think they need one. They buy houses that are outside their price range, for example, and over-extend themselves, and have to work harder in order to pay off the mortgage. And, actually, their quality of life suffers rather than improves by having this larger house.”

This gets to some important questions being raised in this workshop around what is enough? How might our investment portfolios be furthering negative social externalities?

How might my investment portfolio look differently if I truly embraced the principle of integral ecology? I think it implies a focus on making the transition from the growth phase to the steady state; all natural systems do that. I believe this means we need to:

  • Invest in more cooperative, alliance-based, stable kinds of relationships. We need to nurture cooperation moreso than brute-force competition.
  • Invest in new types of community institutions; Elinor Ostrom’s work in this realm is fascinating and might mean we should be investing in new types of community institutions. Again from Costanza: “Common asset trusts is one institution we might think of. Think of the atmosphere as an asset. Make it into a trust that’s held so we can assign property rights to the atmosphere, but on behalf of the global community, not on behalf of private individuals. And then once we’ve assigned property rights, we can say anyone who damages our property is charged for that damage. And that’s the legal justification for carbon taxes or a cap-and-trade system. But then we can also use those revenues to pay a dividend to all of the beneficiaries, which is everyone on Earth. That helps solve the distribution issue. We can also use revenues to enhance the asset, so investing in renewable energy and other things that reduce carbon emissions, or paying for carbon sequestration services of ecosystems.”
  • Reconsider the concept of scale in our investment thesis; some of the businesses related to ecosystem services (such as carbon) are necessarily global but some (watersheds for example) will forever be local or regional
  • Consider alternative measures of progress beyond growth (genuine progress indicator, wellbeing economy measures)

Embracing the principle of integral ecology requires personal transformation, or what Pope Francis calls an ‘ecological conversion’ that is required to put it into practice. That personal transformation must then extend to the institutional transformation of political and economic structures. This process of transformation, I believe, can be furthered by the examples of our own lives and organizations – beginning with the shared questions/explorations of this workshop.

I look forward to your feedback!

One thought on “An Investment Thesis Founded on Integral Ecology

  1. Elizabeth – I really enjoyed your post and likewise struggle with the implications of “Growth as the God of Economics”. The concept of growth as good and everlasting seems be overly pervasive in most traditional economic theories, but with little respect for the concept of maximum capacity. So many of the issues impact investing works towards solving come back to the idea the negative outcomes if growth translated into consumption exceeds capacity (climate, hunger, poverty, healthcare, education). I would like to hear more thoughts from fellow investors on if we can reflect the principles of an integral ecology, solidarity, and the universal destination of goods in our portfolios in a way that other investors would seek to replicate, or if it means the foregoing of investments in growth and profit accumulation. I really struggle to bend my traditional views on how I’ve thought about investment selection (ie find managers or investments that generate alpha/excess returns/have high margins) to better reflect this principle.


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