Building blocks for the transition towards Sustainable Capitalism
The importance of sustainability to business and investing is intensifying as financial markets are increasingly forced to address challenges posed by the realities of natural resource scarcity, the effects of unabated carbon-emissions, rapid urbanisation and widening wealth inequality, to name just a few. As the context of business and investing shifts, understanding the economic benefits of a sustainable form of capitalism, and the best ways to navigate the transition, have become even more critical. This has significant implications for asset owners, asset managers, corporate executives and other market participants seeking to grow successful businesses and deploy capital today and going forward.
The inertia that has kept capital allocation decisions anchored in traditional investment frameworks must give way to a new paradigm of capitalism — one which has evolved in lockstep with the emerging opportunities and challenges driving the modern global economy. This new paradigm is Sustainable Capitalism.
Sustainable Capitalism is an economic system within which business and trade seek to maximise long-term value creation, accounting for all material ESG (environmental, social and governance) metrics.
Integral to this framework is the consideration of all costs and benefits, regardless of whether they are currently attributed with an economic "price tag" by society.
While this framework is designed with a long-term horizon, it also has meaningful short-term implications, providing a process for identifying current risks and opportunities.
Sustainable Capitalism aims to address real needs in all economic, business and policy decisions.
It transcends borders, industries, forms of ownership, asset classes and stakeholders. Indeed, it exists at the intersection of business, science, politics and market forces. Consequently, it is necessary to coordinate across disciplines and sectors in order to inspire and catalyse the innovation and lasting change that we believe is urgently needed.
The progressive transformation of the incentives and behaviours that will ultimately reshape the global economy in accord with the paradigm of Sustainable Capitalism will require a broadly shared commitment to making businesses sustainable and to allocating capital in a manner consistent with the principles outlined in this framework. We propose the following definitions as building blocks for the transition towards Sustainable Capitalism:
A Sustainable Business does not borrow its current earnings from its future earnings, and provides goods and services in a manner that is consistent with the transition to a low-carbon, prosperous, equitable, healthy and safe society.
Sustainable Investing is an investment philosophy and approach which allocates capital to companies aligned with these principles, using an analysis which integrates both financial and ESG metrics to rigorously evaluate the business quality and management quality of a company. Sustainable Investing seeks competitive, market-rate returns. It does not compromise financial returns for sustainability outcomes, or the reverse. It applies to the entire investment value chain — from entrepreneurial ventures to publicly traded large-cap companies, from institutional investors to high net worth individuals, from investors providing seed-capital to those focused on late-stage growth-oriented opportunities, from company employees to CEOs, from activists to policy makers and standard-setters.