Stakeholder capitalism accounts for serving the interests of all stakeholders, instead of just corporate shareholders and this philosophy is becoming more central to the long-term health of our economies.
The recent economic and health shocks starting since 2020, have had a meaningful impact in the way we conduct business. Environmental Social and Governance (ESG) practices have become the norm as also witnessed by the large investment going into sustainability. In 2022 $2.5 trillion dollars were invested in sustainability, and in 2023 one out of three dollars of Asset Under Management (AUM) is going to be invested in the broadly defined ESG products and services.As we see more policies and regulations catching up with inequalities and market failures, you should expect more stringent rules governing how we do business. For instance, we will observe a resurgence of stakeholder capitalism and investing.
What is stakeholders’ capitalism? The stakeholder’s capitalism trend started in the 1960s in Central Europe, when corporate leaders made efforts to ensure that business success created benefits for all its employees and the communities it affected. This was particularly effective in Germany, where there was a concerted effort to bring all stakeholders together. Through this approach, corporate leaders did not only try maximizing profit and shareholders returns but focused also on creating positive externalities for the society at large. This model lost steam in the 80’s and 90’s but has made a progressive comeback since early 2000 pushed by more climate and youth activism.
Behind this comeback, there are several recent crises and shocks, including the 2007 financial meltdown, the progressive climate deterioration, and the most recent Covid 19 Pandemic. These crises accelerated, (thank you to global activism) the debate about the labor, climate and economic challenges affecting us all, providing the opportunity for government, corporation, civil society, and communities to work together towards the solutions of these challenges and towards a more equitable future. The best outcome of these efforts would be for all actors in society to reach an agreement that bypasses the short-term self-interest approach that has led us into these crises.
The most important characteristic of stakeholder capitalism is its cross-cutting nature as it touches all stakeholders of our system and has global interconnection. Corporations, societies, and the environment are more closely interlinked than ever and a climate event for instance, would compound societal risk by causing asset destruction, price rise and health deterioration. This interconnectedness also explains the recent investment growth in Environmental Social and Governance (ESG), which often becomes the entry point for corporations and capital markets to become more focused in sustainable development.
To ensure that communities, and the planet are protected and prosper, governments, civil society, businesses, and international organizations (particularly International Financial Institutions), must find effective ways to work together and bring their comparative advantage to fruition. While this is easier said than done, it is the only way society can promote shared prosperity, while reducing climate risk, and economic and societal shocks.
The Climate Opportunity: The climate agenda has been over-politicized and in order to have more impactful discussion and investment into the future of our climate, it is perhaps useful to refrain from politically charged terms such as climate change. I find that green growth, decarbonization and cleantech are terms that are much more accepted across all sectors and countries. This is particularly important as we move towards a greater engagement with oil producing countries including the United Arab Emirates, which are hosting the 2023 Cop 28 Climate Summit.
Conclusion: I expect cleantech and decarbonization to become as big as the internet revolution of the 1990s as more than $40 trillion are to be invested to decarbonize our economy and reach the net-zero targets by 2030. While the price tag is high, the cost of not doing it is much higher as climate induced disasters are expected to wipe out between 11-17 percent of global GDP unless decarbonization happens rapidly.