The rapid rise in industrialization, material wealth and consumption has blinded us to the fact that we live in a world of shared and finite resources. The Tragedy of the Commons is an apt metaphor for this dilemma. If common goods such as air, water and many of nature’s other services are available free of cost, they will be consumed indiscriminately by self-interested parties without regard for other stakeholders (in the present or future). As the global population approaches ten billion by 2050 and emerging countries demand Western living standards, the tragedy of the commons will only intensify.²

Research from the Global Footprint Network estimates that humanity is currently using natural resources 1.75 times faster than our planet’s ecosystems can regenerate them.³ This means that 1.75 Earths are needed to maintain current living standards, which is clearly unsustainable. If ‘business as usual’ scenarios continue, by 2050 three Earths will be needed to sustain the standards of living to which we have grown accustomed.⁴ The cost of this global ecological overspending is becoming increasingly evident in the form of deforestation, soil erosion, biodiversity loss, and the build-up of carbon dioxide and other greenhouse gases in the atmosphere.

The challenge for businesses and economies is to efficiently use Earth’s resources without depleting them. This will require a shift away from wasteful production-consumption models toward circular ones where resources are recycled, reused, and repurposed.

Resource scarcity is just one of a series of crises that must be addressed for humanity and the planet to survive and thrive. In 2009, a team of internationally renowned scientists introduced the Planetary Boundaries Framework which identifies nine critical processes that work in unison to regulate and stabilize life on Earth (see Figure 2). For each of these processes, the boundaries quantify the levels that are acceptable and safe for life on the planet.

Disturbingly, recent scientific studies show that human activity has already pushed us beyond the ‘safe zone’ and into states of ‘high uncertainty and risk’ for at least five out of nine of these critical maintenance systems, including climate change, biodiversity loss, vital nutrient flows, land use and novel entities (a group that includes plastics).⁵

The impact of climate change is already beginning to demonstrate that the risk of breaching these planetary boundaries for businesses and investors is large. They will cause scarcity of raw materials, supply chain disruptions, shifts in consumer preferences, increased regulation and more generally, higher costs overall.⁶

Sustainability encompasses much more than preserving natural resources and ecological boundaries, it also aims to protect social capital.

The doughnut economy is a conceptual framework that offers a means of integrating the human element into frameworks dominated by ecological metrics. Much like the UN Sustainable Development Goals (SDGs), it recognizes that people on the planet should have access to life’s essentials, including food, shelter, education, and healthcare. In short, the framework maintains that sustainable economic development should not overshoot planetary boundaries or undercut human needs and well-being.⁷

More recently, a team of scientists combined the social aspects of the doughnut economy with the planetary boundaries to construct a set of new Earth System Boundaries.⁸ These are designed to minimize harm caused by boundary breaches on human health and well-being as well as to address issues of fairness and justice. In a 2023 report, the group revealed that when both human well-being and social justice factors are considered alongside planetary health, numerous boundaries have already been exceeded.⁹

While direct government intervention can help ensure that economic prosperity is long-lasting, sustainable finance also has an essential role to play. It can help ensure that financial capital is efficiently allocated to companies that are making products in a sustainable way. Investors can use ESG scores to evaluate companies on a full range of sustainability factors – spanning everything from water quality, waste management, and carbon emissions to more social factors such as board diversity, talent retention and employee safety – all of which can impact a company’s competitive position and long-term financial performance (financial materiality).

Next to assessing financially material issues to make better-informed investment decisions, regulators are now using the principle of ‘double materiality’ to measure a firm’s sustainability. Double materiality broadens the material scope of sustainability to include the impact of a company’s products/services on society and the environment (impact materiality). Measuring impact materiality is critical because it accounts for the external costs of polluting and depleting common goods.

The concept of double materiality for measuring the sustainability in business and finance is at the heart of the EU’s Sustainable Finance Plan. It is also central to the achievement of the UN SDGs and the climate goals of the Paris Agreement.