Making stakeholder capitalism real and rewarding

The end of August traditionally signifies a return to the office and all hands on deck for the remaining months of the year. This year, as we adjust to our “new normal” and its endless amount of video calls, it is nevertheless important to sharpen our focus on what will be a critically important final quarter of 2020.

This will be a crucial time in our collective fight against the global pandemic – which still rages on in much of the world. These next months will also determine how we give meaning to “building forward better” in a post-COVID-19 world.

The global pandemic has unmasked our interdependencies, highlighted the stress we place on the environment and in many places greatly increased inequality. As a result, the global landscape is rapidly shifting. Business’ approaches to resilience, purpose, society and the environment are being called into question. The disconnect in the financial system between the financial return and the environmental and social impacts calls for a reinvention of capitalism.

Since last year’s Business Roundtable statement, a lot of the conversations have been focusing on the shift from shareholder to stakeholder capitalism. But stakeholder capitalism is not yet real for business. We have no shared definition, the expectations of business are not clear, there is no roadmap on how to implement it, and much of the financial system architecture is still focused on (short-term) financial returns.

That being said, there are signs of progress in the stakeholder capitalism debate:

• Companies who focus on environmental, social and governance (ESG) factors continue to be perceived as better managed, less risky and are more highly valued, even during this crisis.
• Mark Carney and David Schwimmer have made it “one of COP26’s core objectives to ensure that every professional financial decision takes the risks and opportunities of climate change into account, supporting the widespread adoption of Task Force on Climate-related Financial Disclosures (TCFD) reporting”.
• The UK and Swiss governments and ten financial institutions, supported by WBCSD, are throwing their weight behind efforts to create a Task Force for Nature-related Financial Disclosures (TNFD) by joining an Informal Working Group that will lead to the creation of a TNFD in 2021. Establishing a reporting framework for finance sector impacts and dependencies on nature is seen as critical for halting biodiversity and ecosystem loss.
• And finally, there is now real momentum towards a globally harmonized system for ESG disclosures between all reporting frameworks (the Impact Management Project (IMP)) and the establishment of lead ESG indicators (by the World Economic Forum’s International Business Council).

WBCSD is taking a leading role in making the building forward for a better capitalism real and rewarding for business in three ways:

1. Soon an issue brief on capitalism will be published as part of our Vision2050 Refresh work, that will make the case for the need to reinvent capitalism;
2. Today, we are launching a groundbreaking collaboration between WBCSD and PRI (Principles for Responsible Investment) that will drive corporate-investor action on sustainable development (see press release here);
3. And WBCSD’s Redefining Value program is offering new projects to support business in understanding and implementing stakeholder capitalism with tools and solutions.

The collaboration between WBCSD and PRI is adding a fundamental piece to the puzzle that will complement the move towards a globally harmonized system for ESG disclosure: how to change the engagement between business and investors in a way that will integrate sustainability in financial and strategic decision making. We will bring leading business and investors together to clarify what sustainability information is needed in the investor-corporate relationship, how businesses and investors can align incentives, decision-making and valuation around sustainability; and lastly explore the institutional changes needed to integrate sustainability into the financial system.

We remain focused on creating a capital market that will recognize that more sustainable business will attract a lower cost of capital and generate more financial capital to lead the transformations towards a better world.