Great new paper, "Ecosystem tipping points: Understanding risks to the economy and financial system," from UCL & University of Exeter. It does an excellent job of articulating interdependent ecosystem tipping point (ETP) risks (unsurprisingly, given that Tim Lenton is a co-author) & then integrates these ETPs into the economic system context. This fills a long-standing (& gaping) blind spot in economics.
https://lnkd.in/ebK29Xgp
My only quibble is their landing on double materiality as a "promising way forward."
"...the fundamental uncertainty associated with ETPs requires policymakers to explore other approaches beyond risk quantification. A ‘double materiality’ perspective offers a promising way forward. There is a role for financial authorities to identify and map where financial institutions are exposed to economic activity that is driving ecosystems towards tipping points. These exposures are unlikely to present material enough transition risks to be adequately managed by individual financial institutions, but, given the magnitude, irreversibility and uncertainty associated with ETPs, they represent possible sources of systemic physical risk that require intervention at the macroprudential level."
To be clear, I'm a strong proponent of integrating sustainability thresholds (incl those linked to tipping points in ecological & social systems) into materiality.
When the Global Reporting Initiative (GRI) 1st introduced the idea of outside-in *and* inside-out impacts & risks (what's now dubbed "double materiality") in G3 in 2006, it *explicitly* integrated Sustainability Context (ie sustainability thresholds).
Unfortunately, GRI started to undermine the inside-out & thresholds-based elements of its approach to materiality starting with G3.1 in 2011.
The other shoe dropped in 2019 when the EU coined the term "double materiality" for outside-in & inside-out, while completely ignoring sustainability thresholds.
So this new paper helps resolve this problem by proposing adding ETPs to materiality.
But what it would leave unresolved is the foundational problem of traditionally framed materiality that double materiality adopts.
What's needed is Context-Based Materiality (CBM), which Mark W. McElroy, PhD first introduced in 2008 & UNRISD endorsed in 2019 in this paper https://lnkd.in/e8BG8eU5
Importantly, CBM is predicated on *duties & obligations* (Rawls 1971) companies owe to rightsholders to *normatively (ie sustainably)* manage impacts on vital capital resources they rely on for their wellbeing.
This concept is nowhere to be found in traditional or double materiality. It makes all the difference.
I don't fault the researchers (Lydia Marsden Josh Ryan-Collins Jesse F Abrams & Lenton); it's GRI that invisibilized this key aspect of Context.
