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Speaking on January 27 before a packed audience in the United Nations’ Delegates Dining Room, overlooking New York’s East River, Al Gore was in an expansive mood. As the luncheon keynote speaker for the 2016 Investor Summit on Climate Risk, a one-day gathering held every two years, the former U.S. vice president noted that at the same event in 2008 he had commented on how similar the delusions underlying the crash of the housing market were to the false confidence in the “subprime carbon assets” of the fossil fuel industry. Eight years later, Gore said, the situation continues to threaten the stability of financial markets: “The assumption that $21 trillion of carbon-based assets currently on the books of multinationals and sovereigns and others will all be put to their intended use and burned is even more absurd than the assumption that someone who couldn’t make a down payment or monthly payment could afford a mortgage.” At the same time, Gore asserted, the sense of momentum and inevitability had fundamentally changed because of the recent COP 21 climate agreement in Paris and the plummeting prices of renewable energy. “And you here from the business and investment community deserve major credit for what happened,” he told the audience passionately. “Be of good cheer! We are winning this thing!”

Sitting 30 feet from the podium, noticing all the people around the room, many of them friends, who had played a major role in the recent success, I felt a sense of pride. I had been one of the participants in this historic metamorphosis, as corporate executives and investors had slowly moved over decades from indifference to action on climate change.

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Back in April 1992 I had invited then–Tennessee senator Gore to come to Boston to speak about his new book, Earth in the Balance, to hundreds gathered in the Omni Theater at the Museum of Science. In 1997, as president of Ceres, the largest coalition of environmental groups and institutional investors in the U.S., I had, with my co-founder Allen White, launched the Global Reporting Initiative, an international effort to standardize the measurement of sustainability performance, including data on greenhouse gases. The GRI had been formally established as an independent standard-setting body in the spring of 2002, in that same Delegates Dining Room at the U.N.

Only a few months later, in October, I had met with an old friend, United Nations Foundation president Timothy Wirth, in the lobby of San Francisco’s Fairmont hotel on the morning after his daughter’s wedding. I proposed that the U.N. host a meeting of state treasurers and other pension trustees to learn about the financial consequences of climate change so they could evaluate the risk in their vast portfolios. The resulting organization, the Investor Network on Climate Risk (INCR), has remained a project of Ceres and has deepened its impact under the leadership of Ceres president Mindy Lubber. On the day of Gore’s recent INCR speech, the value of the combined assets of institutions gathered at the U.N. was an astounding $22 trillion. Equally important, this group is playing a major role in the shift in investments away from the collapsing fossil fuel industry and into renewables. Last year investors poured $329 billion into new energy, well on the way to the annual target of $1 trillion.

Listening to Gore, I felt relief that finally, after so many years of delay, the challenges and opportunities embedded in a new, low-carbon future were rapidly becoming clear. I also began to realize that this awakening about carbon is not the end but only the next chapter in a dramatic and ongoing story. All around, one can start to see a dramatically new form of capitalism rising, though still largely unnoticed — a capitalism driven by the outpouring of unimaginably vast amounts of information, tamed by increasingly sophisticated tools from data science, guided by deeper and smarter questions and thus far better equipped to generate the just and sustainable economy that our planet must discover to survive.

The easy triumphalism about capitalism that ruled at the beginning of this century has given way to a much sharper debate about whether the system is a genuine wealth creator. Such talk has permeated conversation in the most elite business institutions. In 2015 several prominent Harvard Business School faculty formed an internal discussion group on the “crisis of the theory of the firm.” In both 2012 and 2016, the leaders of the World Economic Forum placed the future of capitalism at the heart of their annual agenda because, as founder Klaus Schwab put it, “capitalism in its current form no longer fits the world around us.”

Though no one disputes capitalism’s raw force, the deeper issue is whether the free-market system, hamstrung by the narrow assumptions of economics and finance, has been asking the wrong questions, examining the wrong data, reaching the wrong conclusions and pursuing the wrong goals. As Thomas Piketty puts it in Capital in the Twenty-­First Century, “The discipline of economics has yet to get over its childish passion for mathematics . . . at the expense of historical research and collaboration with the other social sciences.” The consequence, he argues, is the emergence of “patrimonial capitalism” based primarily on inheritance, which has led to “a radically new structure of inequality.”

The concept of sustainability has been moving from the periphery of investment and business toward its center for a generation. As sustainability has become more important, scores of new institutions have arisen to promote the release of information about corporate environmental, social responsibility and governance (ESG) performance. The rising demand has triggered an enduring debate about the relevance of sustainability to the creation of value, and ideas have differed greatly about whether value should be understood broadly across the whole company, and all its stakeholders, or narrowly as short- to medium-term financial benefit for those who own stock.

The resolution of this debate has not been left solely to corporations, however, as more and more institutional investors, particularly the largest, passively invested pension funds, have realized that they have a stake in the question of whether companies are seeking short-term earnings gains or long-term value creation. Moreover, they have realized that even by forming opinions on this matter, they have been establishing precedents not just for corporate policy and governance but for themselves.

A key driver of change has been the powerful association of global pension funds known as the International Corporate Governance Network. ICGN began modestly in 1995 as a mechanism through which huge investors and pension funds from around the world could begin to share ideas about best practices in corporate governance, such as board composition, executive pay and proxy access. “It didn’t take long for people to figure out the value of setting standards across borders,” says Stephen Davis, one of the founders of ICGN and currently associate director of the Harvard Law School programs on corporate governance and institutional investors.

Still, in ICGN’s early days it was not easy to persuade the organization to think about the systemic problems of sustainability. In May 2002 I traveled to Milan as president of Ceres to speak to an annual ICGN meeting about the then-new topic of climate risk. In my plenary presentation I proposed that the largest planetary changes in human civilization might create significant dangers for the industries and regions in their diversified portfolios — and that this suggested that fiduciaries should at least assess the scope of the problem. My charts, graphs and images of burning forests and rising sea levels had little impact. At dinner a few hours later, few of the other conference-goers would even look at me, let alone talk to me. No matter, I thought; if we can’t persuade an existing group of institutional investors to care about climate change, perhaps we can create a new one that does. ICGN’s dismissive rejection of any discussion of climate was one of the reasons the INCR was launched the following spring.

Fourteen years later, however, ICGN has expanded its conversations and education to include ESG issues. “There is now a broad recognition that ESG factors are fully part of governance and of equal weight in evaluating the value and the risk of portfolio companies,” Davis says. At a recent meeting in Boston, ICGN organizers not only ran a training workshop on the significance of ESG factors, they also debated their relevance to governance. They are doing so because of their concern about the management of the companies in their portfolios and because their definition of the responsibilities of ownership has changed. “We want to allocate capital efficiently from providers of capital to users of capital,” explains ICGN policy director George Dallas. “Efficiency is when the price is set according to the risk and when all risks are properly accounted for. We know that capital markets do not do a good job of calculating externalities. And that’s what we need to learn to do.”

Over the past 16 years, other powerful organizations have come into being and gradually asserted themselves. In 1999, U.N. secretary general Kofi Annan launched the Global Compact, a mechanism for getting corporations to endorse principles that corresponded with U.N. agreements that had already been signed by many of the world’s governments. Not long afterward the Global Compact’s then–executive director, Georg Kell, realized that the entities with the most influence over corporate behavior were not their home governments but their investors, so he supported the effort by James Gifford to create the U.N. Principles for Responsible Investment. The PRI started humbly, expressing the initial view that investors, not just companies, should think about the implications of their holdings for the world’s social and environmental goals. Through hundreds of meetings and mind-numbing patience, the PRI expanded its ranks, opened the discussion on whether fiduciary duty permitted investors to take such considerations into account and concluded that such duty not only allowed but required it. Today the PRI has more than 1,400 members from 50 countries, with combined assets of more than $42 trillion.

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