Financial sustainability needs mindfulness

”People are not aware about their habits …”,

…the Swedish activist Greta Thunberg introduced an interview a few days ago at the climate summit in Vienna. A key sentence, not only with regard to climate change, but also the reference to the special role that mindfulness can play in sustainable investing and consumption. But one after the other.

The topic of sustainability has also reached the financial sector.

Finally! Banks, investment funds and insurers are managing huge amounts of capital, which are now to be used in a more focused way ”for a more environmentally friendly and cleaner economy”. This is what the ”Action Plan for Sustainable Finance” presented by the European Commission last year envisages. ”Our proposals will enable investors and every individual citizen to make a positive choice – by using their money with greater responsibility and supporting sustainability,” said Commission First Vice-President Frans Timmermanns.

So far so good. But how proposals or intentions work is something we all know well enough about ourselves. ”88% of all intentions fail,” British psychologist Richard Wiseman found in study with more than 3,000 participants in 2007. After all, we are habitual animals. We have big resolutions and in the end continue do the same we always do and how we have always done it. ”… and therefore we cannot expect them to stop travelling by plane or buying clothes …”, Greta Thunberg continued in the interview mentioned at the beginning. And this applies not only to consumers, but also to investors – all those who decide privately or professionally on the investment of financial resources.

Focusing on financial decision making

Bankers, investment managers, financial advisors – nowadays they are urged to consider sustainability and thus criteria such as ESG, SDG, PRI in their financial decisions. And to make decisions that are significantly different from what they have been until now. How can this be achieved when simple private resolutions such as ”driving less by car” can hardly be permanently anchored in everyday life?

”We believe that when it comes to fostering sustainable behavior, mindfulness can make a difference”. This is a rather promissing message from psychological research. Elise L. Amel and others at the Department of Psychology at the University of St. Thomas in Minnesota investigated how our existing ecological concerns can be translated into new, ecologically justifiable behaviors. And they found mindfulness. ”Furthermore, when people are mindful they are more likely to seek out choices that do less harm to the natural environment…”. Oh, that sounds good. But why is that so?

”Research has also demonstrated the value of mindfulness in behavior change interventions … Mindful individuals have a stronger link between intentions and behavior than less mindful individuals,” the researchers say. And the reason for this is not so difficult to understand, at least for those who practice mindfulness. ”It helps individuals disengage from automatic thoughts and become more open to behavioral change and freedom to make different choices (Brown&Ryan, 2003)”, describes Menchi Liu in the American Psychological Association. So it is leaving routines, automatic thinking and behavior. This is the core of why mindfulness is so essential for changing ways of thinking and behaving in the context of ecology and sustainability.

Mindfulness is the mental ability to look after one’s own present experiences with an open, compassionate and curious attitude. And thus also being able to “step out” of thought processes, rumours and emotions, i.e. to view oneself from a third person’s perspective. And not only perceive oneself, but also the other person, all the others, the environment as it is and not as we want it to be. It is precisely this that makes a serious contribution to the improvement of decision making.

Mindfulness improves decisions

One of the world’s leading business schools, INSEAD in Fontainebleau, has already established this. ”INSEAD research shows mindfulness meditation linked to better decisions”, was the headline of the press a few years ago. And the study also shows why this is so. By giving decision-makers a better grip on one of the most widespread and very big problems with financial decisions: the ”sunk-cost-bias”, the bias to hold on to decisions made against all logic and, for example, not to get out of the way in the event of price losses in financial investments. Or to say with a popular interpretation: it’s that good money follows bad. ”The results show that mindfulness meditation increased resistance to the sunk-cost bias … The debiasing effect of mindfulness meditation in sunk-cost situations was … that meditation reduced how much people focused on the past and future, and this psychological shift led to less negative emotion. The reduced negative emotion then facilitated their ability to let go of sunk costs”.

Giving sustainability space in financial decisions

Being aware that you are caught in a bias, or that you are too focused on the past or the future, helps you to break away from these thought patterns and thus leave the automatic routines. And so being able to decide differently. Christine Wamsler, Professorin at Lund-Universität in Sweden, comes to the same conclusions in her study ”How mindfulness can help the shift towards a more sustainable society”: ”… by minimising automatic, habitual, or impulsive reactions and increased cognitive flexibility”. She goes one, better two, steps further and looks at what this means for organisations and, last but not least, for society. ”Hence, mindfulness can also change organisations from within. In times of climate change sustainable organisations need to nurture and develop their social assets in the anticipation of, and to cope with, unexpected risky events. It does this by influencing people’s job satisfaction and organizational learning, and by improving their cognitive flexibility and openness to novelty”.

Professor Ernest Ng from University of Hongkong sheds light on how mindfulness affects financial decisions in the financial markets. ”Instead of allowing automatic emotional responses such as fear and greed … to dominate … one could allow for more controlled or higher-level responses … to guide their decision-making-process”. And continues: “With the publication of the ‘Meditation Guide for Investment Professionals‘ by the CFA Institute … contemplative practices are now considered acceptable and even recommended in the financial market”. I had already pointed this out in my money blog of May 2017.

Mindfulness thus helps to overcome conventional ways of thinking and behaving and thus to create space for ecological sustainability, especially when making financial decisions. Dan Nixon, senior researcher and former economist at the Bank of England, concludes in his comprehensive analysis ‘Towards an economy built upon human capacities of heart and mind’”… mindfulness seems to offer a particularly fitting response to the fundamental disruptions that economies are facing in the coming decades surrounding the nature and pace of technological change and the state of environmental degradation”.

At the Mindful Finance Institute in Oxford, my colleagues and I are committed to bringing these basic ideas to the financial sector. This also includes a newly created course of study ”Mindful Finance Leadership”, in which questions of decision making, sustainability and responsibility are to be dealt with.

I hope you have a good time and treat yourself and our environment with mindfulness.

Friedhelm Boschert

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