CSRwire Talkback

By John Elkington 

Some people winced when — in a study called The Phoenix Economy — we concluded we faced not a simple recession, nor even in a double-dip variant, but instead one of those periodic, fundamental restructurings of the global economy that take decades to work through. But, we argued, this was necessary to enable a transition to more sustainable forms of capitalism.

For an idea of what this might mean, track down a copy of the Manifesto for Sustainable Capitalism, due for launch shortly by Generation Investment Management — and spotlighted in The Wall Street Journal by Generation’s founders, former US Vice-President Al Gore and former Goldman Sachs investment banker David Blood.

“We are once again facing one of those rare turning points in history when dangerous challenges and limitless opportunities cry out for clear, long-term thinking,” Blood and Gore argue.

“The disruptive threats now facing the planet are extraordinary: climate change, water scarcity, poverty, disease, growing income inequality, urbanization, massive economic volatility and more. Businesses cannot be asked to do the job of governments, but companies and investors will ultimately mobilize most of the capital needed to overcome the unprecedented challenges we now face.”

Five Key Actions For Sustainable Capitalism

So what should business do? Blood and Gore recommend “Five key actions for immediate adoption by companies, investors and others to accelerate the current incremental pace of change to one that matches the urgency of the situation.”

1. First, they encourage business leaders to account for the growing risk from “stranded assets.”  These are risks “whose value would dramatically change, either positively or negatively, when large externalities are taken into account — for example, by attributing a reasonable price to carbon or water.” 
2. Second, they call for mandatory integrated reporting, now being pushed by the International Integrated Reporting Committee.  “Despite an increase in the volume and frequency of information made available by companies,” they say, “access to more data for public equity investors has not necessarily translated into more comprehensive insight into companies.”
3. Third, they call for an end to the practice of issuing quarterly earnings guidance. “The quarterly calendar frequently incentivizes executives to manage for the short-term,” they conclude. “It also encourages some investors to overemphasize the significance of these measures at the expense of longer-term, more meaningful measures of sustainable value creation.”
4. Fourth, they call for better alignment of senior executive compensation structures with long-term sustainable performance. “Most existing compensation schemes,” they warn, “emphasize short-term actions and fail to hold asset managers and corporate executives accountable for the ramifications of their decisions over the long-term.”
5. And, fifth, there is a growing need to incentivize and reward long-term investing with ‘loyalty-driven securities.’  The logic here is that “the dominance of short-termism in the market fosters general market instability and undermines the efforts of executives seeking long-term value creation.”

Some find it strange that businesses like Generation are signaling the next round of the sustainability agenda, but as the focus shifts to the large-scale remodeling of capitalism, this is a logical trajectory for the next 20, 25, 40 or 50 years.

Readers: What are your recommendations for creating “sustainable capitalism”? Tell us on Talkback by leaving a comment or connecting with us @CSRwire!