Sustainable Capitalism: The Paradigm Shift

2014.05.17.IMG_3048.630x300I was recently reviewing a paper called Sustainable Capitalism by Generation Investment Management, LLP and the executive summary is so good that I thought I would share it.


The challenges facing the planet today are unprecedented and extraordinary; climate change, water scarcity, poverty, disease, growing inequality of income and wealth, demographic shift, trans-border and internal migration, urbanization and a global economy in a state of constant dramatic volatility and flux, to name but a few. While governments and civil society will need to be part of the solution to these massive challenges, ultimately it will be companies and investors that will mobilize the capital needed to overcome them.

To address these sustainability challenges, we advocate for a paradigm shift to Sustainable Capitalism; a framework that seeks to maximize long-term economic value creation by reforming markets to address real needs while considering all costs and stakeholders.

The objective is twofold. First, we make economic case for mainstreaming Sustainable Capital by highlighting the fact that it does not represent a trade-off with profit maximization but instead actually fosters a superior long-term value creation. Second, we recommend five key actions for immediate adoption that will accelerate the mainstreaming of Sustainable Capitalism by 2020

  1. Identify and incorporate risks from stranded assets;
  2. Mandate integrated reporting;
  3. End the default practice of issuing quarterly earnings guidance;
  4. Align compensation structures with long-term sustainable performance; and
  5. Encourage long-term investing with loyalty-driven securities

In addition, there are five broader ideas that merit ongoing support and attention. Specifically, they are:

  1. Reinforce sustainability as a fiduciary issue;
  2. Create advisory services for sustainable asset management;
  3. Expand the range and depth of sustainable investment products;
  4. Reconsider the appropriate definition for growth beyond GDP; and
  5. Integrate sustainability into business education at all levels.

Ben Franklin, famously said, “You may delay, but time will not, and lost time is never found again.” We have the opportunity to rebuild for the long term and an obligation to seize it. Sustainable Capitalism will create opportunities and rewards but it will also mean challenging the pernicious orthodoxy of short-termism. Now is the time to accelerate the transition.



Sustainable Capitalism February 15, 2012

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