Some impacts are hard to scale spatially, or geographically, or culturally. But they can be persistent, and in time, they scale well. For example, if you’re a teacher of a classroom of 40, you might impact at the most 40 lives. And that is not easy to scale, because enlarging the class does not necessarily mean more lives are impacted though the education system might want to think that way.
I once asked talked about scaling Laksa (a Singaporean dish) in an article about the narratives of millennials. I wondered if it matters that we created products which didn’t scale at least during the moment they were created. If we create products only to ride waves of growth, than majority of the products and service offerings in the world would not exists. It is often seeking to serve a particular audience that an offering comes into play and then gradually finds either more audience or more application in order to scale.
So what is the right scale for the impact that we make, or the offering we’re trying to put out in the world? It is exactly the scale that keeps things going, that keeps you doing what you want to do. If you’re happy to keep doing supporting under-privileged kids one by one, go for it; make sure it pays you enough to keep you going as well. And it is the same for a business, you just need the smallest viable audience (a concept that is popularised by Seth Godin).
Sustainability is the right benchmark, not just for the environment, but also the scale of what we do.
The market system likes to pretend the consumer is king and producers are just responding to market demand. It is usually an excuse to avoid the responsibility of building a better future. The market system constantly tries to get ahead by shaping demand, through advertising and influencers. The whole system of exchange of influence and money takes place within the market context and that’s enough to refute the claim that consumers reign sovereign.
And that means consumers needs to be more conscious of what stories they are taking in. And more than being passive receivers of goods and services, consumers have more chance than ever to shape them. Demand is usually decentralised but it can respond to so many things beyond price signals. The problem with our economic view of the market is that we only try to capture market power in the form of price-setting and ability to substitute (even this is not so well considered despite the crazy mathematical gymnastics required).
Sustainability cannot depend on corporates championing causes and trying to come up with new products and services. Consumers need to and can respond by requesting to reuse their bottles, avoiding products with too much packaging, reducing gifting of everyday items with expensive packaging.
The easiest criteria to default towards is convenience and costs but we can also think in terms of alignment of values and cost to the future. If we are able to adapt our demand to these dimensions, we can co-create a future we want to be part of.
Things are happening to me. When we experience that, we lose sight of our agency. We were not consulted, we’re not in control, not any semblance of control. We don’t seem to have a choice. We feel helpless.
Recently, I was attending an investor conference that was focused on the topics around impact, sustainability and ESG (environmental, social, governance). There was a broad spectrum of attendees; some were well-versed in the topic tossing out various acronyms while others were confused, lost, frankly a little unhappy about how the investing industry is taken over by metrics beyond the financial ‘fundamentals’. Personally I think that capital can act differently from a while back and that we have the responsibility to ensure that it is no longer perpetuating the system as it is.
Of course, there would be naysayers who dismiss impact, sustainability and ESG as fluffy, intangibles which are running counter to the money-making that investing is all about. But even the naysayers, confronted with climate science would acknowledge there is a problem we are facing with climate change and all. Naysaying helps them soothe themselves because at least if there’s nothing much they can do, the eventually downfall of the earth is not on them. We choose to be helpless that way; even when we do have a choice.
The better road is towards action. When it comes to the climate challenge, a strong and useful key message is that it is not too late to make that impact and make the change.
Had a chat with a friend who used to be in the oil & gas industry; well at least along the value chain. He was also a bit on the old school side of things and he calls solar PV technology primitive because compared to the gas turbines whose efficiency is 60% when using combined cycle, the efficiency of converting solar energy into electricity is only 15-20%.
I was a bit surprised at that idea given that inputs in terms of the energy from the sun is free whereas you might need to calculate the energy cost from the drilling, piping, even liquefaction and then gasification of gas. Nevertheless, the point is that turbine technology has been widely adopted and used for many more decades than the solar panels. So a lot more money, time, resources have been invested into that those technology compared to renewables. That is simply fact.
Yet if you consider which technology has more room for progress and can move us to a future that we want to live in, the answer is just as clear. The problem again, with the economic analysis undertaken is that they are all based on individuals considering Ceteris Paribus everywhere else. The energy transition, decarbonisation is more than just that an individual decision and it was never meant to be worthwhile done alone. It was something to be coordinated, actions taken together. Which is why we cannot allow all of these technologies like solar, wind, EVs, hydrogen to be as primitive as they are.
The previous two posts are really just preparing me for this final one about returns on capital. We have talked about the aspirations of labour and that perhaps capital should be more like labour, where it is not just trying to get a return to multiply itself, but actually to look to more qualitative returns as well. But how would capital do that?
We see examples of this done using state capital. The government uses its capital to invest into public infrastructure, education or even public housing; all of these drives returns at broad economic and social levels. And this can generate more taxes in the future but the idea of the government isn’t to actually be able to generate more taxes in the future. Having more taxes is good because it can sustain the pace of these investments but the actual return is what the society reap in terms of better standards of living, greater knowledge in the people and so on.
Yet private capital holders are not exactly thinking this way. Private capital holders act as if most of what matters is that invested capital reaps more capital. And imagine if this was applied to the government, that it simply invests more so as to gain more taxes. It might end up investing in more coercive approaches to extracting more taxes. Or to just invest in areas that gives it more power.
If companies starts developing a vision of the future and of the world it wants to build, and define the returns on capital as what gains the world get in steps towards those vision, one could expect businesses to behave differently. In other words, we start investing the way we would want to be able to practice charity or giving effectively. We put our money where there can be most impact and action towards the future we want to see in the world. The returns come when we are able to step into the future that we had envision, not when the money flows back in. In most cases, if that future in our vision materialises, the monetary gains should come in to sustain that vision. If it doesn’t, then something is missing somewhere, and you either find another vision or path to invest into, or harness further resources needed to move towards that.