The purpose of governance is to set rules of conduct which maintain order and activities that lead to collective action toward a certain end. Governments and international non-governmental organizations like the United Nations aim to create just and sustainable conditions so everyone can pursue their individual hopes and desired liberties.
Polycentric governance starts in our homes, communities, and concentrically moves outward to a global level since we are all connected by a shared planet.
Kate Raworth captured the polycentric boundaries of society within our ecological ceiling. Her model is another depiction of our global social-ecological system. She specifically outlines what happens when society pushes beyond our ecological limits.
Diagram #1 | The Doughnut (Raworth 2021)
This economic framework accounts for consideration of explicit accounting costs plus opportunity costs or tradeoffs. The 2015 UN Sustainable Development Goals (SDGs) are global aspirations meant to keep us within our Ecological Ceiling (see Diagram #1). Staying within this ceiling will make us globally resilient to climate hazards, but it requires building a strong social foundation. It is our social and ecological interactions that dictate the outcomes of our shared system. The University of Leeds, Doughnut Economics, Oxfam, and the Economic & Social Research Council (ESRC), published research that compares countries using this framework, along with scenario explorations entitled, “A Good Life for All Within Planetary Boundaries.” This framework provides a good way to examine how polycentric governance is working at a national level.
A new framework needs to be adapted at the firm level. The Carbon Disclosure Project (CDP), Climate Disclosure Standards Board (CDSB), Global Reporting Initiative (GRI), International Integrated Reporting Council (IIRC), and Sustainability Accounting Standards Board (SASB) published a, “Statement of Intent to Work Together Towards Comprehensive Corporate Reporting.”
Diagram #2 | Structure of Integrated Reporting by CDP, CDSB, GRI, IIRC, and SASB
Integrated reporting connects financial and sustainability reporting to satisfy the needs of various users from investors to stakeholders such as suppliers and surrounding communities. The main benefit of collaboration is the harmonization of sustainability-related data that can be shared and compared as a public good. This harmonization will better define what issues are material in regards to capital creation or erosion over time.
Identifying traits and conditions for resilient collective action is the goal of social-ecological system studies. Kate Raworth’s Doughnut allows for examination of social, ecological, and economic boundaries for governing a regenerative and resilient system. Reinette Oonsie Biggs and Maja Schlüter from the Stockholm Resilience Center together with Michael Schoon from Arizona State University identified 7 principles that can be practically applied for resilience in social-ecological systems …
1. Maintain diversity and redundancy
2. Manage connectivity
3. Manage slow variables and feedbacks
4. Foster complex adaptive systems thinking
5. Encourage learning
6. Broaden participation
7. PROMOTE POLYCENTRIC GOVERNANCE
Why is polycentric governance so important? It amplifies a common purpose, and initiative from micro to macro levels. Over time individuals, institutions, and values change. Diverse and redundant social institutions promote polycentric governance that perpetuates shared values.
The recently announced collaboration among international corporate reporting agencies (see Diagram #2) is in line with the UN Sustainable Development Goals under independent and polycentric governance. Financial instruments and companies are already diverse and sometimes redundant. Efficient markets create connectivity, manage slow variables and feedbacks, while fostering complex adaptive systems thinking.
What role can capital markets play in making our global social-ecological system resilient and equitable? Will investors broaden their horizons to direct capital in line with their values? Can the laissez faire market align shared values? Can proper capital allocation sustain a regenerative social-ecological system? Can we encourage learning and broader participation across age groups, ethnicities, and social classes? Will this improve the resiliency of our economies?