Which colour Swan: black, white or green?

Before I read John Elkington’s last book- “The Green Swans: The coming boom in regenerative capitalism”, I had not heard about the Swan theories. Let me tell you what I have found out. It started with Nassib Nicholas Taleb, a scholar specialised on practical, philosophical and mathematical problems, and he focused on how different systems handle disorder. In his book “The Black Swan”, Taleb explains that Black Swans are rare events, outliers, aberrations. Such events have a low probability to occur but cause extreme high impacts. They are only explained after they happened. Only then people try to explain the causes. Examples for Black Swans are the breaking up of the USSR, 9/11 and WWII.

Taleb uses The White Swan theory to explain events of dramatic proportions that had been predicted. A classic example of a White Swan is COVID-19. The pandemic had been predicted by many people before, including by Bill Gates in a TED talk in 2015. Governments chose to ignore the warnings until too late.

Green Swans, on the other hand, are men made and relate to the environment, the destruction of ecosystems, contamination of the planet and climate destabilisation. They are different from Black Swans because we know they will occur but we cannot be certain of how dangerous the outcomes can be.

The Green Swan was the theme of a report published last January by The Bank for International Settlements (BIS) titled “The Green Swans: Central Banking and Financial Stability in the Age of Climate Change”. It analyses two types of climate risks: the physical – climate induced unnatural disasters or the spread of disease; and the transition risks – mass bankruptcy of companies that failed to adapt.

The report argues that Green Swan events cannot be captured by traditional risk management. The standard modelling of financial risks consists in extrapolating historic values and it is no longer valid in a world shaped by climate change. Nothing is certain when climate change is the cause. We have indications of the potential impact of the melting of the poles, but we cannot predict the exact extent.

According to Elkington’s book, Green Swans can trigger events that can exponentially drive society towards sustainable capitalism and create a profound market shift to transform the economy, society and capitalism to create environmental wealth. There are several positive signs that technology combined with governance can steer us away from inevitable destruction. For Elkington, the combination of positive events can drive us away from the present crisis. Green energy, for example, will certainly be one of the positive exponential events, as well as the development circular economy.

The low carbon economy will prove worth of investment and as Elkington puts, green chip companies will replace the old blues. Like Elkington, I believe that we still have time to reverse the climate crisis.

Click here to listen to my Transformers podcast episode featuring John Elkington.

Picture by Amundi.