Professor Klaus Schwab, Founder and Executive Chairman of the World Economic Forum (WEF), published his new book, "Stakeholder Capitalism: A Global Economy that Works for Progress, People and Planet," in January. It evaluates the achievements and shortcomings of the global economic system, which has created unprecedented growth in the past decades measured in GDP and profits, yet has also intensified economic and social inequality and environmental degradation.
Schwab advocates the model of stakeholder capitalism – replacing self-serving values that only safeguard shareholder benefits, such as short-term profit maximisation and the externalisation of environmental costs, with long-term value creation that accounts for the interests of different people (or stakeholders) and the planet.
Global pandemic and business transformation
Schwab first wrote about the stakeholder model some 50 years ago. The debate over shareholder versus stakeholder capitalism has been ongoing for some time, but remained largely academic until the pandemic intervened. Covid-19 has brought about major disruptions to the markets and supply chains, as well as daunting challenges in business operations. Covid-19 also exposed the vulnerability and fragility of the current economic system.
If there is one positive from the global pandemic, it has perhaps accelerated a transformative agenda that is moving away from the "old normal" and calling for a green recovery and a better future for all – a common vision that embraces sustainability, resilience, equity, diversity and one where people can live well and within planetary boundaries.
For corporates to stay relevant and ahead in an uncompromising business environment coupled with ever-changing consumer behaviour and expectations, it demands radical shifts in business mindsets, such as from value extraction to value creation among the global business community. The new agenda fundamentally transforms the way we conduct business, how we see and optimise business influence, how business connects with people and nature, and how business success is being measured.
From shareholder value to shared value
According to the 2021 edition of the Edelman Trust Barometer, 65% of respondents agreed that CEOs should hold themselves accountable to the public alongside their board and shareholders, while 68% of consumers and 62% of employees agreed that they have the power to force corporations to change.
Meanwhile, there is growing evidence that companies that transform for long-term sustainability have better performance. In a study by the McKinsey Global Institute, those with a long-term view outperform their peers in terms of earnings, revenue, investment and job growth. Companies focused on environmental, social and governance (ESG) recorded higher performance and credit ratings.
There are a growing number of examples that illustrate the change. In January, a coalition of over 60 business leaders across industries and regions pledged their commitment to a set of ESG metrics and disclosures – known as the Stakeholder Capitalism Metrics – released by the WEF and its International Business Council, that measure the long-term enterprise value creation for all stakeholders.
More recently, in March, the World Business Council for Sustainable Development (WBCSD) launched an updated version of Vision 2050 to tackle three critical challenges: the climate emergency, nature loss and mounting inequality. It also aims to advance business transformation that is fully aligned with the Sustainable Development Goals and the Paris Agreement. WBCSD called for capitalism to be reinvented so that it becomes stakeholder-oriented, impact-internalising, regenerative, accountable and geared towards long-term sustainability.
In 2018, the Global Commission on the Economy and Climate found that bold climate actions could deliver at least US$26 trillion in economic benefits by 2030 if decisive leadership, collaboration and capital were to align on this common vision. Progressive business leaders fully understand that addressing the climate crisis, adopting circularity and shifting to regenerative business models lead to innovative approaches that generate sustainable value from new jobs, restored ecosystems and stronger communities.
Value creation is no longer predicated on the extraction or consumption of resources. Innovative circular business models now draw value from waste and favour a shared economy paradigm popular with consumers. A nature-positive approach delivers opportunities that benefit the community and the environment beyond economic value through, for example, improved air and water quality or carbon capture and storage.
Partnerships and sustainable growth
Collaboration and partnerships are key drivers for green and sustainable growth. Sustainability challenges are beyond the scope of individual companies and require a rethinking of current business models, public policies and regulatory regimes. The systemic change necessary to achieve a zero-carbon economy, for instance, depends on having the right infrastructure, building the knowledge base of the future, and developing policies and regulations that enable and support sustainable behaviour.
Last November, Chief Executive Carrie Lam announced an ambitious target for Hong Kong to achieve carbon neutrality by 2050. Meanwhile, financial regulators have announced steps for more robust climate stress testing and climate-related disclosures by 2025. The pressure faced by financial institutions, investors, banks and insurance companies is bound to trickle into board rooms and C-suites in the real economy.
These clear signals of upcoming regulatory and policy shifts, combined with market forces, will help drive a zero-carbon transition. As the business community in Hong Kong continues to embrace these changes, it is concrete and proactive responses from the business sector that will deliver on these ambitious goals.
As a corporate membership organisation, BEC has been working with its member companies and the wider business community for 30 years to shape and drive environmental sustainability through conducting research, influencing policy change, and building communities of practice.
A recent initiative, the Low Carbon Charter, launched in 2019, has now committed over 100 signatories to set and achieve carbon reduction targets, as well as to report on and disclose their progress on an annual basis. This is a prime example of how proactive engagement and partnership can enable sustainability and make a real impact.
As the world has changed, so must business leadership. With new and ever-changing consumer and social expectations, business leaders must keep up and set new priorities, understand the connection with people and nature, and take circularity, decarbonisation and innovation into long-term business consideration.
Simon Ng, Director - Policy & Research, Business Environment Council