Co-Authored with Michael Marinello, Head of Global Communications for Innovation, Technology and Sustainability at Bloomberg LP and an Adviser to the C40 Cities Climate Leadership Group (C40)
Money. Ever since the Code of Hammurabi was created around 1760 BC, money has served as a unit of account, a store of value, a medium of exchange for civil society. Today money is THE tool with which people go about the critical business of life on earth. Money used as a tool, rather than a barter system, can offer greater efficiency, convenience, clarity and prosperity as good tools generally do.
Throughout history, we have evolved our tools to serve our most pivotal needs. In the capital markets “financial literacy” is our understanding of how to use the very special tool which we call money.
In this article we assert that the time has come to embrace “TheNewFinancialLiteracy.com” and better use the information and insights available to unlock the true power of money. We are within reach of having a better understanding of how money works in the world, how it can be earned, and how it can be invested for the future and for positive returns to all forms of capital . . . financial, human and natural.
The New Financial Literacy implies an understanding of the true costs and benefits, to a broad group of stakeholders, of utilizing the tool of money in business and commerce. For both individuals and institutions, public and private, for profit and not, it implies a systematic analysis of the environmental, social and governance (ESG) factors that need to be considered in allocating resources and evaluating risk-adjusted returns.
It means embracing the understanding that the rapid nature of technological advances impacts everything we do. In turn, it forces us to constantly rethink the future because practices and processes that worked five years ago, and work today, may be outdated tomorrow. Embracing this concept also means that we are aware of the fact that what doesn’t exist today, might be the norm further down the road.
Without “The New Financial Literacy”, there is simply no way to make fully informed and effective investment decisions. In fact, in the next generation of capitalism where information, transparency, collaboration and purpose come together, we will be able to better harness the tool of money. Therefore, we can underscore the message that there need be no dichotomy between what is good for business versus what is good for society. And we can be certain that there is no conflict between long-term competitive financial returns and efforts to address massive societal needs for better education, nutrition, healthcare, infrastructure and renewable energy.
The new financial literacy becomes even more important when you consider recent research showing that the market value of the companies making up the S&P 500 deviates significantly from their book value. This “value gap” research indicates that physical and financial accountable assets reflected on a company’s balance sheet comprises less than 20% of their true value. Intangible assets include things like intellectual property and “brand value” but accounting rules do not acknowledge this shift in the valuation of companies. With the impact of intangible assets growing, accounting rules need to keep pace to ensure investors understand the full picture.
So, the questions we pose to those who invest the world’s capital and run the world’s corporations and institutions is this: “Are we financially literate?” Do we know the pivotal questions to ask by industry, country and company so we can truly evaluate the real economic outcomes of our investment decisions? If not, we may lose out to those with a more complete understanding of “The New Financial Literacy.”
Each month in the Cornerstone Journal of Sustainable Finance & Banking (JSFB), we will offer thoughts on a “Featured Domain,” which is selected from our proprietary “Sustainable Domain Bank.” The Cornerstone “Sustainable Domain Bank” contains 2,000+ addresses on the Internet, which are an articulation of business processes, business practices and aspirations for a more regenerative form of capitalism. Many of these domain names have the potential to be developed into business plans reflecting a robust interpretation of sustainable capitalism and finance. In particular, each “Sustainable Domain” captures a principle, or reflects a value inherent in the systematic understanding of the Environmental, Social and Governance (ESG) imperatives facing businesses and the economy today. Each Domain is intended to facilitate dialogue across functions and sectors of the capital markets; and each is available for collaborative partnership, purchase or transfer should it have particular appeal to Cornerstone clients and colleagues.