Active Value

Fast-paced change disrupts trusted features of our living reality, and creates risks where we did not previously expect to see them. In the early 21st century, we are witnessing planetary systems and everyday technologies disrupted and evolving at speeds with which political processes and cultural norms cannot keep pace.

We are living in the Age of Risk.

Planetary systems change is not limited to questions of climate, weather, and energy. There are profound and urgent questions about risks linked to food systems and water supplies, and these are both flashpoints that can drive mass migration and amplify security risks.

Infrastructure is also at issue, in all societies—even the most developed. It is not only a question of what kind of decisions we make today about future infrastructure. The United States, for instance, has underinvested in upkeep and upgrading of infrastructure for five decades. That means old infrastructure is more tired and outdated, and unprepared, given the shock events that are coming.

Financial risk is evolving in ways that are hard to predict, but the contours of which are discernible and worth preparing for.

• What is hard to predict is what shock hits where, when, and whether global supply disruptions will affect a given industry in this decade or the next.
• What is easy to discern is that supply chain risks, and the costs of credit, capital, and insurance, will all steadily increase as vulnerability, impact, and cost, spread.
• This is why we propose an Active Value system for integrated consideration of all relevant areas of risk, resilience, return, and wider non-monetary benefits.

Active Value does not limit value creation grading to the parameters a given enterprise wishes were the whole story; it considers the whole landscape of value creation and the difference a given activity makes in our shared prospects. Only when we are counting value in this way will we know whether we are steering toward resilient prosperity or pervasive vulnerability.

An overarching Active Value consideration is the effect of nation-state behavior on fiscal stability and the long-term outlook for resilient prosperity. Some of the ingredients of the overall Fiscal Resilience rating are:

1. Experienced climate impact vulnerability 
2. Emerging climate impact vulnerability 
3. Diversity of value chains (trade relationships, secondary industries, local sustainable development investments)
4. Logistics and infrastructure
5. Strategic utilization of Earth science insights—climate, ecosystems, biodiversity, water, wind, and weather
6. Coastal resilience and other landscape resilience metrics
7. Watershed health, resilience, maintenance, and regeneration
8. Climate-sensitive debt management and green finance outlook
9. Constructive multilateral cooperation through alliances, trade, and prioritized resilient prosperity levers

These are far-reaching geopolitical questions that are beyond the scope of most local or sectoral actors, but they are worth watching. How governments behave with respect to these economy-shaping priorities signals what kind of opportunities will be available, how reliably, and for how long. The impacts of degraded macrocritical resilience at the national and international levels are felt in the cost of credit and availability of financial and other business services. 

In most regions, insurance is either evolving or disappearing, pushing costs up across the board. Most of us do not need to buy insurance to protect against supply-chain related losses, but we pay for the products whose purveyors need to consider those kinds of risks. And, as insurers’ portfolios shrink and lose diversification, all forms of insurance see prices increase. So yes, your health insurance premiums are going up in part because insurers cannot as readily get income from unrelated businesses, municipalities, and homeowners. 

For small businesses, large industrial supply chain integrators, policy-makers, and investors, it is increasingly important to know what to measure, in what detail, and what those details mean for routine decisions. Do you need to make major adjustments to your operations or business model, or do you simply need to find vendors who have already moved to reduce risk and build resilience? 

Geodesiq and Active Value propose the following as starting points to consider, depending on your industry or geography:

1. What kind of climate-related disruptions are affecting your region?
2. What kind of operational disruptions or capital costs result from those risks and impacts?
3. Are service providers managing those costs pro-actively, to reduce your risk?
4. Are municipalities managing vulnerabilities pro-actively, to reduce physical risk?
5. How well is infrastructure designed to deal with the current burden of risk and impact?
6. What will it mean for your personal or professional opportunity and wellbeing if major changes are made to local and regional infrastructure?
7. What if those changes are needed but cannot happen or be paid for in a timely fashion?
8. What kinds of innovation are revving up, and where will they create changes you could benefit from, or be disadvantaged by?
9. How can you respond to these innovation-related (or transitional) risks, to position yourself for success?
10. Are major trends in business, politics, and technology, enhancing or reducing your agency and independence?

This leads to the question of what success looks like for you.

• Do you want to live in a community with clean air and water, where services function well, and threats to human life and safety are reduced to near zero?
• Do you want to interact with businesses large and small that prioritize honest, good faith support to small businesses, household incomes, and community wellbeing?
• Do you want your everyday economic activity to enhance your personal and household freedom and agency?
• Do you want your bank to be an ally in protecting your earnings and established non-financial benefits—such as vibrant community life or a safe environment?

Banks are not just repositories of cash. They are facilitators of value exchange, and their responsibility is to safeguard value and empower account-holders to manage their affairs in a way that allows for security, stability, and prevents against losses to theft, fraud, or preventable waste.

Banks will clarify that they cannot be responsible for their account-holders’ choices, but they are responsible for how they safeguard the money in their accounts, which is often done by investing it in other kinds of enterprise, or by providing business services to large corporate or industrial entities.

This is part of the overall calculus determining how risk cascades through to you.

• Is your bank using deposits to promote business activities that destroy non-financial value or financial value for others?
• Is your bank profiting from business models that add cost to every other transaction in your life?
• Does your bank attempt to avoid investing in or facilitating practices that contaminate air and water and degrade health in your community or region?
• What are the impacts of these decisions on costs in your everyday life, or for your business or community?

Without this information, we cannot make informed decisions about how best to safeguard and build value over time. Inattention to the hidden costs of unsustainable activity, over centuries, has brought us to the this age of pervasive, proliferating risk.

The challenge of pervasive, proliferating risk is also a result of technology speeding up the pace of change in everyday practices. As technologies rapidly evolve, people adjust by adding new capabilities, concerns, and customs, to their personal and professional lives.

It is difficult for established institutions to track, project, innovate, and evolve, in line with that rapid change. This is why we hear about ‘disruption’ as a result of innovation, and it is one of the core reasons why institutions are losing public trust.

Trust is complicated. We generally want to know we are not risking anything when we give it, but we generally want it given to us in spite of our inability to eliminate risk. Institutions designed and built for past operating conditions, and with funding structures attuned to those conditions, cannot easily earn the trust of the people they serve now. 

They must adapt and evolve, make few mistakes, and continue to deliver goods and services without interruption. In most cases, this process of adaptation requires someone to pay more, and that adds stress and strain to the fabric of economic exchange, which undermines patience, confidence, and trust—especially if—as for most of this century—incomes are not rising faster than costs. 

Small businesses, communities, and regional governments, should seek incentives that allow for investing in economic diversification and rewarding those who adapt early, innovate, and deliver reliably. Measure what you do not know; then measure what you did not think you needed to know; then measure how it affects your operations. 

Adapt and Deliver is an emerging strategy—for public agencies and for enterprise—for riding the waves in the Age of Risk. Know your needs, your vulnerabilities, your environment, and where you need to innovate. Then find the incentives and leverage that support those innovations, and get to work building a better future.