Sustainable Profits and Sustainable Development: The Behavioral Economics of Climate Change

by Milton Noel Malmestrom

Provenance of the Research

Title of Thesis: ‘Sustainable Profits and Sustainable Development: The Behavioral Economics of Climate Change’

Type of Thesis: Master’s Dissertation

University Affiliation: University of Cambridge; Corpus Christi College


This paper investigates the nexus between behavioral economics and climate finance. It argues that financial institutions today are collectively able to bring climate change to a halt, but will do so only at the threshold where investors choose to integrate  environmental, social and corporate governance (ESG) factors as a mere necessity for economic survival. The constraints of earth resources only allow for climate change agnosticism up to a point. At a certain juncture — as is currently the case for coal industry investments — climate change begins to have a material impact on the bottom line. To the extent that returns are negatively impacted by investing in fossil fuels, investors are forced to divest from brown companies and are incentivized to invest in green companies, at which stage environmentalism no longer becomes a matter of ensuring sustainable development, but of ensuring sustainable profits.


  1. What were the most important or surprising findings of your work?

Well — the most significant (and perhaps least surprising) finding of my dissertation is that financial institutions today are collectively able to bring climate change to a halt but will do so only at the threshold at which regulatory and environmental factors begin to pose a fiduciary risk. That is, the risk that such factors will not act in the institutions’ best interests. Climate change agnosticism for financial institutions, I argue, is viable up to this very point, and it is not before the effects of climate change begin to have a material impact on their bottom lines that institutions are forced to do something about it.

But, external top-down legal enactments remain limited. And pervasive climate change effects are still at a comfortably elusive distance to the Western World. Therefore, I further argue that we can only bridge the gap between corporate profitability and climate preservation through pragmatic financial institutions beginning to put internal bottom-up pressure on each other to propel mutual economic incentives. 

Such bottom-up pressure brings into question something far less tangible than fiduciary duties, of course. Namely, the laissez-faire interconnectedness of the financial markets — at its core made up of humans considering and acting upon each other’s decisions. This interconnectedness, I argue, can be understood through four key constructs: herd behavior, strategic ignorance, echo-chamber dynamics, and heuristics. 

Drawing upon these constructs, the dissertation shows how a set of interviewed financial institutions with clear climate strategies make decisions. Green institutions, I demonstrate, have a clear-cut understanding of the financial risks that come with sticking one’s head in the sand in the face of climate uncertainty, and such institutions proactively mitigate these risks to ensure they stay afloat. That is — as is often misconceived — not to salve any climate consciences. Few mandates allow institutions to forego profits for the sake of preservation. Rather, as the dissertation concludes, they do so because an economic paradigm shift is underway, whereby stable revenues are concurrently materializing in the green investment space and dematerializing in the brown investment space. Leaving in the pre-paradigmatic space only the ostriches that aren’t able to bridge the gap between sustainable profits and sustainable development.

  1. What did you struggle with during your research or the writing process, and  how did you overcome these issues?

The key challenge in writing this dissertation was to establish that any observed patterns were generalizable. To this end — and to mitigate any potentially confounding variables — rigid sampling and scanning criteria had to be developed before selecting the institutions (see Methodology on pages 9-11). Further, all potential selection biases, social desirability biases, and proxy-induced biases had to be assessed. Initially, the dissertation was aimed to benchmark the decision-making processes of brown and green financial institutions against each other. But since effectively every approached brown financial institution declined to be interviewed upon being informed of the purpose of the research, I had to focus on investigating the practices of green institutions alone. Since these green institutions proved to be at the cognitive forefront of not rationalizing away climate change evidence, one could of course hypothesize that institutions with unsustainable practices would have an inverse relation to climate change risk. Yet, no such conclusions can be drawn before future interviews with brown funds have been conducted. 

  1. What are you doing now and what are your plans for the coming year? Did your research impact those plans in any way?

I’m working at Doconomy. It’s a Swedish impact scale-up that aims to tackle climate change through behavioral economics and tools for change. We’re developing an ecosystem that connects companies with consumers and empowers both parties to take responsibility for their carbon footprint. We’re doing this through a set of innovations that directly relate to bridging the gap between corporate profitability and climate preservation through internal bottom-up pressure. One innovation is our 2030 Calculator. This lets climate-resilient companies track and disclose their products’ carbon footprints to all consumers who want to make informed choices in their day-to-day lives. Another innovation is the DO Black — a credit card that is limited not by how much funds we consumers have, but by how much carbon we emit. It lets us track our emissions on all transactions, offset our emissions in CDM and Gold Standard-certified projects through Doconomy’s partnership with the UNFCCC, and reduce our emissions with the help of behavioral nudges. Even without external top-down legal enactments, there are ways to democratize accountability and empower the people who hold the power to rewire the financial system in the first place. We just need tangible ways to minimize bounded rationality and optimize our choice architecture.

  1. Do you have any advice for people undertaking this type of research?

I do. Write about what would keep you up reading at night regardless. If you are writing about climate change mitigation, I’ll say that we are at a critical point in time right now — and one that will demand diversity of thought — so I’d advise interviewing the people whose voices you think matter the most. Whether it’s filmmakers humanizing IPCC reports (like Jeff Orlowski) or BLM leaders decompartmentalizing racial and environmental justice (like Ayana Elizabeth Johnson). Daily global CO2 emissions are down by almost a fifth from last year because of the pandemic, the US is soon back in the game, and I believe it’s up to us to ensure that we don’t go back to normal even when policymakers do. Yes, there’s the Green Deal, and the Green New Deal, and the Paris Agreement, which was a signatory success, paving the way also for the now ratified Kigali Amendment. But if we are to bring real environmental justice to this world — and particularly so to marginalized communities that are disproportionately vulnerable to global warming — we need to lead by example as a collective, so kick in that research gear. One place to start is how we are to save our oceans, and with them, the air we all breathe.

If you want to read Milton’s full thesis you can find it here.

Milton Noel Malmestrom works at Doconomy – a Swedish impact scale-up that aims to tackle climate change through behavioral economics and cutting-edge financial technology. He formerly helped launch the Least Developed Countries Investment Team at the United Nations Capital Development Fund — a public-private partnership vehicle earmarked for SDG investments — and holds a Bachelor of Arts from Columbia (‘16) and a Master of Philosophy from Cambridge (‘17).

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