Active Value

Many of the words we use to describe economic activity have multiple overlapping, and sometimes competing, meanings. For instance, one can be an ‘investor’ if one buys a few shares of stock one day and sells them a few days later, even though the word ‘investor’ means you have a vested interest—your fortunes are tied to those of the venture—and will stay invested over time.

Returns on investment can also be characterized in various ways:

• The narrowest and most common definition is the increase in financial wealth accruing to the investor. If you invest $100 and one year later have $110 of value in the same holding, your ROI over one year is 10%.
• If your savings account gives you 3.5% annualized interest, then $100 held in that account would become $103.50. If the rate of inflation is lower than 3.5%, then you would earn a modest return.

But ROI can be calculated more broadly and diversely as well:

• What other benefits do you hope to see from your investment?
• Are you investing to spur innovation, to support socially responsible enterprise, to create new opportunities in a local small-business economy?
• Are you investing to support friends or family?
• Are you making venture capital investments—where many fail to provide a return but others support discovery of cutting edge technology?

The key question is: What kind of world do you want to live in?

The Active Value Trust Ratings project emerges from an experiment in using non-financial data to assess operational adaptive capacity, and so to develop new measures of risk and resilience. The Whole-Earth Active Value Economy (WEAVE) knowledge graph aimed to identify traceable knowledge connections that could provide some insight into an institution’s preparedness for major disruptive events.

The critical innovation in the WEAVE experiment was to treat as many possible dimensions of non-financial value as relevant to the overall Active Value held in potential or generated by a given entity or activity.

A regenerative prosperity paradigm requires that we understand how certain activities undermine natural capital and other macrocritical (economy-shaping) influences. So, using the GDELT knowledge network tracking platform, the WEAVE project traced knowledge connections across 14 dimensions of resilience linked to Earth systems dynamics:

• tracing connections between water, climate, and biodiversity resilience, and…
• agriculture, food, finance, energy, infrastructure, science, shipping, watersheds, ocean health and resilience, forestry, and land use practices.

Those 14 dimensions generate more than 87.1 billion permutations, or recombinations of the underlying variables. Each of those constitutes one way of measuring comparative background preparation. The vastness of the possible value-generation puzzle means it becomes relatively simple to show that a higher density of knowledge connections is a useful proxy for preparedness—rather than having to plan across all of those variables, which do not all apply in all cases.

The WEAVE experiment helped to demonstrate that resilience intelligence was quantifiable, even when the underlying information was qualitative and non-financial. During the COVID-19 pandemic shutdowns, some of the entities with very thin WEAVE graphs—meaning there was little evidence in searchable databases of their engaging with ideas or practices linked to sustainability and resilience—were shown to have very low adaptive capacity, unable to make small adjustments in logistics, even if tens of millions of dollars were at stake.

The Resilience Intel Charter identified the need to measure hidden value and specified:

We need to be able to measure the difference in value potential between practices that reinforce and protect natural systems and those that undermine and degrade them. Over time, these patterns show a clear advantage for investments that leave behind a wider foundation for the creation of value. Such investments generate external returns on investment (XROI). They are worth more to society, and so to banking and business, because they add value for all other kinds of investment.

To achieve this, the Charter established six principles for enhanced resilience intelligence:

1. Show the resilience value of any kind of spending or financial instrument.
2. Build science-based resilience intelligence, across whole economies, to provide actionable insight to financial and political decision-makers.
3. Inform economy-wide national climate action plans (ENCAP), leveraging the catalytic value added from locally rooted clean development and cross-sector collaboration. (The ENCAR standard emerges from this background work.)
4. Incentivize climate-smart agricultural practices, sustainable stewardship of water resources (including the upstream and downstream components of a healthy ocean economy), clean air, and other core supports for a healthy human relationship to natural systems.
5. Catalyze public-private partnerships to ensure ongoing expanded collaboration for higher-resolution integration of Earth systems insights into economic analyses and knowledge-sharing systems.
6. Stimulate new areas of mainstream banking activity intended to support the expansion of business models that harness and build Resilience Intelligence and/or Resilience Value.

We have looked at Resilience Value, Embedded Climate Intelligence, WEAVE, and other forms of macrocritical XROI. What we found is that to understand overall value, it is important to understand the degree to which a given activity or institution creates added value and material benefits for the wider society and economy, including for foundational needs like climate stability, public health, or the health and resilience of nature.

That wider performance standard we call Active Value, because higher performing generators of Active Value are creating additional value—capacity, opportunity, security, and wellbeing—in the background, at all times. To ignore this kind of value creation is to ignore our own future access to opportunity, security, and wellbeing. When this macrocritical standard is applied to budgets and long-term revenue projections, ignoring Active Value equates to fudging the numbers.

The raw math says the only prosperous future possible for the financial system is one in which non-financial returns are not only sustainable, but measurably and reliably risk-reducing and resilience-building. Clear evidence from everyday experience and from financial sector risk analysis shows macrocritical resilience is already a market imperative, today, but systems and institutions need new tools to be able to make the best possible judgments about financial commitments linked to non-financial returns.

This is why Resilience Intel is now transforming into the Active Value Network, to focus on developing all relevant non-financial insights into an Active Value Trust Ratings system. Assessing Active Value is a way of giving ourselves a chance at a future in which everyday economics, policy, and finance, align with common sense objectives and steer us toward a future that is more livable and more liberated.

The process of developing this AVTR system will move through phases and will draw on and generate many overlappping measures of Active Value:

• Activv beta—a first look at the integrated Active Value rating, including Core Trust scores and insights into sustainability and resilience disclosures;
• Resilience Value—assessing macrocritical risk and resilience impacts and influences;
• RV subsidiary values—including food systems sustainability, nature benefits, diversified opportunity, improvements to livelihoods, adaptive capacity, and other factors across the SDGs and the ACCESS to GOOD and WEAVE frameworks;
• Fiscal Resilience—adapting Resilience Value to assess impact on fiscal stability, noting stark warnings from the CFTC and FSOC, the ongoing work of central banks through the NGFS, and debt-sustainability provisions of the Sevilla Commitment agreed at FFD4;
• ENCAR—Economy-wide National Climate Action Record assessments, including Fiscal Resilience and Resilience Value ratings linked to policies, budgets, risks, and impacts;
• Consumer Experience—adding direct consumer inputs and other subjective analysis to cross-reference service-offerings and value-creation strategies to determine the degree to which end users are valued;
• AVTR—the integrated Active Value Trust Rating considering impacts on customers, communities, society, nature, and future generations, in line with Core, RV, FR, ENCAR, and CE metrics.

We must embrace complexity, as was the founding purpose of Resilience Intel and of the WEAVE experiment. If we add just four more dimensions to the WEAVE calculus—job creation, improved incomes, safe communities, and consumer protection—the 87.1 billion permutations become 6.4 quadrillion. Our interactions with the climate and biosphere, and with each other, go far beyond 18 dimensions, so we need to develop tools that give us actionable insights for better decisions and enhanced prosperity.