SUSTAINABILITY

“Capitalism, and its consequences for society and the environment, are very much in the spotlight. Even committed capitalists are beginning to argue that capitalism, in its current form, is unsustainable – socially, environmentally, and economically. Yet capitalism’s core features of private enterprise and competitive markets are essential to addressing our greatest societal challenges and unleashing the transformations required to meet the Sustainable Development Goals (SDGs),” Peter Bakker tells Diplomacy&Trade. He is of the view that 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 definitely signs of progress in the stakeholder capitalism debate and at WBCSD, we’re taking a leading role in making the building forward for a better capitalism real and rewarding for business.”

For a capitalism of true value

As to what solutions he offered in his lecture to make stakeholder capitalism ‘real and rewarding’, the President-CEO points out that “in our ‘Vision 2050: Time to Transform’ report, we focus on the need for leaders everywhere to change their mindsets towards building long-term resilience, towards a regenerative approach to business and ultimately towards reinventing capitalism. Transforming our global systems will take more than just engineers improving the products and services that business produces; business is good at that but will need to go further this time.” The most critical of these mindset shifts, he says is the one about the reinvention of capitalism. “This shift will ensure that the economic system, our incentives, the global accounting standards and the capital market valuations will no longer just be based on the financial performance of business but integrates the impact on the planet and people as part of how we define success and determine the enterprise value. The move to a capitalism of true value for all will accelerate the transformation towards 9+ billion people all living well, within planetary boundaries, faster than anything else.”

Interests and trust

In stakeholder capitalism corporate entities are oriented to serve the interests of all their stakeholders and oftentimes, the interests of the different stakeholders contradict each other. Peter Bakker is of the view that “reinventing capitalism will be very challenging and will require complementary action from many different actors and stakeholders across all sectors and continents, including Hungary. It will require leaders from business, government, and finance to embrace a broader – and longer – definition of selfinterest than is the norm today, recognizing that a livable planet, an equitable society, and genuinely free and fair markets are in their individual and collective self-interest. And, critically, it will require a huge amount of trust: only if businesses and governments trust one another will they have the confidence to take the steps needed to reinvent capitalism.” All costs should be reflected in the price

As WBCSD President, he says stakeholder capitalism can help businesses achieve the sustainability goals they set for themselves. “Capitalism’s core features of private enterprise and competitive markets are indispensable if we are to achieve the scale and speed of transformation needed to achieve our Vision of a world in which 9+ billion people can live well within planetary boundaries. But our success or failure in achieving our Vision 2050 is likely to hinge to a significant degree on whether capitalism can be reinvented for the better, and for its own good, during the next ten years. The reality is that this is not simply a social and environmental agenda – it is about creating the conditions for long-term business success.” WBCSD makes the case that the capitalism we need is one that rewards true value creation – not value extraction as today’s model does. Specifically, this means that all social and environmental costs and benefits should be internalized and reflected in the relative price of goods and services, and in companies’ profit & loss statements, costs of capital and market valuations. WBCSD has long been committed to making more sustainable companies more successful. A reinvented capitalism focused on true value would lead to a world in which more companies innovate in ways that contribute to a flourishing society, capital markets properly value and reward inclusive, sustainable business practices and, as a result, more capital is mobilized to deliver the SDGs and the goal to limit global temperature rise to 1.5°C since pre-industrial levels.

Impact of the pandemic

Peter Bakker stresses that the COVID-19 pandemic has made the reinvention of capitalism even more important: it is now a critical part of the way in which we respond to, and recover from, the global pandemic. Not just in order to ensure that sustainable development is prioritized in recovery strategies, but because the pandemic has shone a cold and harsh light on many of the negative outcomes generated by our current model. Companies cannot ignore the vulnerabilities that have been revealed. “The debate about the future of capitalism is playing out in public, and COVID-19 has only increased interest in the conduct and convictions of companies. We believe that now is the time for companies and investors to enter – and lead – the debate not just about whether capitalism needs to change, but about how we go about reinventing it,” he says.

It is time for transformation.

“Our world is facing three pressing global challenges: the climate emergency, the loss of nature and growing inequality. Each of them, on its own, can endanger the safe operating space for humanity and the planet, as well as the license to operate for business. And if there is one thing that we have all learned from the COVID pandemic, it is how interconnected these challenges are,” the WBCSD President-CEO points out. “We need a long-term vision that we can all rally behind: 9+ billion people living well, within planetary boundaries, by mid-century. Achieving this relatively simply worded vision requires a wholesale transformation of everything we have grown up with: energy needs to decarbonize; materials need to go circular; food needs to be produced sustainably and equitably and provide healthy diets.” The need to transform systems is rightfully the concept that everyone in sustainability is talking about; now, it needs to be backed up by actions. It is now or never. WBCSD’s ‘Vision 2050: Time to Transform’ report focuses on nine transformation pathways – actionable routes for companies to take – covering the areas of business activity that are essential to society: energy; transportation and mobility; living spaces; products and materials; financial products and services; connectivity; health and wellbeing; water and sanitation; and food. “It should inspire you to put more focus and more ambition in the journey of your company and help you shape the agenda for your company’s transformation,” Peter Bakker concludes.