Cognitive dissonance is a state in which two “cognitions” (perceptions, thoughts, attitudes) are incompatible. Such a contradiction is perceived as unpleasant by people. It creates inner tensions that need to be overcome. Man has to do something to “get back into balance”. Basically there are two ways to solve this contradiction. On the one hand, one can actually solve the problem, on the other hand, one can suppress it so far, one can banish it from his consciousness so radically, to the point that the contradiction dissolves itself.
The most important global decision-makers currently regard ESG (Environmental, Social and Governance) risks, above all environmental risks, as the greatest risks. At least measured by the probability of occurrence and the potential impact on humanity. At the same time, we, as humanity, are well on the way to once again failing to meet the 1.5% target set in Paris. Looking at global greenhouse gas emissions, there are only a handful of countries that are on track to meet their targets. This should actually lead to a classic case of cognitive dissonance. On the one hand, one recognizes a problem as serious, on the other hand, one does nothing to solve it, although, at the levers of power, one is responsible for it.
2 topics are particularly important
- On the one hand, global warming is the ultimate example of the fact that global problems can only be solved if we cooperate internationally and pull together. If an important actor dissolves his cognitive dissonance by not only repressing the problem, but simply denying it, then this also has global consequences.
- On the other hand, it is important to bear in mind that a great deal is happening at the moment in order to solve the problem of cognitive dissonances through a genuine approach to the problem itself. In the EU, the High Level Group 2018 set up by the European Commission has published its recommendations for a sustainable financial economy. Legislative material is now being drafted, discussed and soon put into effect that has the potential to change Europe’s financial economy “sustainably”, both literally and figuratively. According to the first drafts, asset managers will have to integrate sustainable risks into all their processes. Fund and portfolio managers have to integrate ESG risks into their investment processes, risk management has to monitor compliance with sustainable risk limits, reporting has to show these limits, etc. Sustainability has thus finally arrived in the mainstream.
To get back to cognitive dissonance, it is still too early to say whether this approach can finally and permanently resolve the contradiction between problem perception and action. But I am optimistic that the journey will be in this direction. And I am pretty sure that the other possibility, denying the problems, will not turn out to be a permanent solution.
Forecasts are not a reliable indicator for future developments.