How to Prioritise

    Who should live and who should die sounds like a decision reserved for God(s), not an actual dilemma that any of us mere mortals should face. Well, during the recent pandemic, there were those among us tasked with formulating an answer to this very question. Healthcare resources are, alas, hardly infinite, and, given the crisis we were in, someone had to decide who should get that last available intensive care bed equal to a survival chance. Enter the demi-gods of the National Centre for Priorities in Health.

    You might not have heard about it. Neither had I until recently. The existence of the centre makes perfect sense, though. “In a publicly funded health service, it is important that priority settings are seen as fair,” states the short motivation. “If explicit ethical principles are not in use, there is a risk that ‘non-principles’, for example ‘the megaphone principle’ (he who shouts loudest gets the best care), or the ‘personal interest principle’ (he who asserts his own interests gets the best care), will prevail.” It is fascinating to hear Lars Sandman, the ethics professor heading the centre, explaining the complex and conflicting aspects that he and his colleagues had to consider. Indeed they had to draw the guidelines for the doctors and nurses of the country in the throes of the pandemic, just a matter of days before those guidelines might have had to be enacted.

    I think of their impossible task as I read an intriguing new paper by the Shift Project, the center of expertise for the UN Guiding Principles (UNGPs) on Business and Human Rights. The authors zoom in on another taxing priority exercise that financial institutions must tackle daily: the sustainability equation, where “a colossal and potentially irreversible risk of staggering complexity” meets the reality of finite resources. Even here, science-based and ethics-anchored principles can help a practitioner focus on doing the job at hand instead of fighting moral qualms, just as in the case of a health emergency.

    How can investors avoid the numerous pitfalls that come with the complex sustainability territory? The paper offers a cavalcade of warnings against falling into the trap of “carbon tunnel vision”, missing the risks to people while focusing on the risks to businesses, or overlooking the indirect effects of climate change on those most vulnerable.

    What captures my attention, however, is the chapter dealing with the practical aspects of prioritising what actions a financial institution should take once it has identified any potential negative impact. “A common pitfall for all businesses is to focus on those impacts that are closest to its operations or that are the easiest to fix,” explain the authors. That is, however, not the right course of action, according to the UNGPs, which state that “when impacts on people cannot be addressed all at once, the focus should be on those impacts that would be most severe.” The framework would be familiar enough for any risk manager. It prescribes assessing a threat’s scale, scope and remediability and plotting its severity vs its likelihood sounds.

    Then comes the hard part. “The bank and even its client may be several steps removed from these impacts. However, under the UNGPs, they each have a responsibility to use leverage to try to improve the situation for severely affected people.” The example provided is that of funding a renewable energy solution, critical for the just transition, whose value chain might feature state-sponsored forced labour. Solar panels from Xinjiang, anyone? Or how about EV batteries made with Congolese cobalt? To get the gist of the human rights abuses nightmare that these mines are, read the fresh 87-page report by RAID, The Road to Ruin (NB Parental guidance is highly advised).

    So, what do the UNGPs recommend in such cases? They state that “where an organisation lacks, and cannot create, the leverage necessary to reduce harms, then it should consider ending the business relationships that are leading to the harm, while taking account of any additional human rights impacts of doing so.” There is leeway, though, in cases where “a business relationship may be crucial and unable to be terminated whether for legal or operational reasons.” In such a case, the UNGPs require that companies, including financial institutions, justify their continued connection through their leverage efforts, pushing portfolio companies to trace the value chains of their products and develop alternative sources of supply over time.

    Clear enough? Somehow, I do miss the simple yet stringent logic that is the foundation of the healthcare principles for prioritising. Perhaps it is time to invite the ethics professors into the sustainability emergency room.

    Image courtesy of Ch pski on Unsplash
    Julia Axelsson, CAIA
    Julia Axelsson, CAIA
    Julia has accumulated experience in asset management for more than 20 years in Stockholm and Beijing, in portfolio management, asset allocation, fund selection and risk management. In December 2020, she completed a program in Sustainability Studies at the University of Linköping. Julia speaks Mandarin, Bulgarian, Hindi, Russian, Swedish, Urdu and English. She holds a Master in Indology from Sofia University and has completed studies in Economics at both Stockholm University and Stockholm School of Economics.

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