As the world grapples with a number of seemingly insurmountable challenges, this moment of uncertainty provides an opportunity to examine the foundation on which global capitalism is established, and the role business can play to initiate genuine societal change.
Professor Rebecca Henderson, McArthur Professor at Harvard University and author of Reimagining Capitalism in a World on Fire, says the world is facing simultaneous crises of environmental degradation, economic inequality and institutional collapse.
“While business cannot solve these problems alone, they cannot be solved without business,” Henderson told Rabbi Gideon Pogrund, director of the Gordon Institute of Business Science (Gibs) Ethics and Governance Think Tank, during a Gibs flash forum.
“Climate change is a truly existential risk that implicates all of us and will hurt the poorest among us first,” Henderson said.
While significant GDP growth worldwide has done much to bring people out of poverty, in many places in the world growth is only benefitting those at the top.
“What strikes me about the current moment is how global it is,” she said.
Business’ role in the transition
Business has a central role to play in transitioning to a more equitable form of capitalism, and these problems are not merely externalities best left to government and civil society to solve.
“It is not okay anymore for business to just put its head down and make money;” it must rather be engaged in a conversation about how to be profitable in a way that contributes to the long-term health and security of our society.
“At its best, business generates employment and innovation. The only way out of the kinds of massive problems we face [is through both employment and innovation], at a huge scale. Private firms, with the right kinds of incentives and regulation, are best positioned to lead the charge,” Henderson said.
Leila Fourie, CEO of the JSE, told the forum that environmental destruction, inequality and the threat to institutions are intrinsically linked.
While food, water and energy security form the basis of South Africa’s self-sufficient economy, “as a water-scarce country, with very little arable land, we are testing the limits of resource constraints. If not kept in check, we will eventually be unable to support inclusive economic growth.”
ESG and shared value: Monitoring, measurement and metrics
Fourie said it was encouraging that the Covid-19 coronavirus pandemic seems to have caused a reversion to basic values, reflected in increased investment flows into environmental, social, and corporate governance (ESG) funds that prioritise sustainability and societal impact criteria.
“This crisis has indicated that sustainable companies are more resilient to shocks in the economy and that we should use the opportunity to build on that already very powerful trend.”
As co-chair of the UN Global Investors for Sustainable Development forum, Fourie said an important task in embedding sustainable companies is establishing a universal framework and metric of measurement to ensure equal performance across companies and countries, and to avoid greenwashing.
“As global standards for modern financial accounting had their roots in the crash of 1929, I believe that out of this crisis we will forge a universal framework and standard for sustainability measurement. However, building global standards is a complex task and will be an iterative process,” she says.
Assessing the impact of responsible investment is difficult to capture with simplistic measurement metrics, but Henderson said it was important “to get the wheels of change turning. The core realisation is that non-financial measurements of performance are material. They are material to the firm and to society. We must begin to get a grip on them.”
A collaborative effort
It has become clear that there are many things business could and should do to address society’s major problems. However, “without a partnership with a democratically accountable, capable government and strong support from civil society and a political and social movement which really supports that partnership and the vision of inclusive capitalism, we aren’t going to get anywhere”, Henderson said.
South Africa needs “a coalition of the willing to come up with a genuine and carefully considered solution to address our problems,” Fourie added.
There has been a systemic shift towards an understanding that all of the components in our environment are interconnected.
“In a post-Covid world, we absolutely have to collaborate and build this economy from the bottom up. It is a joint problem for which we are all equally responsible. Business needs to use its convening power for change,” Fourie said.
Henderson argued that democracy was in business’ long-term interest: “I believe that the long-term health of our economy rests on a democratically accountable, capable, broadly legitimate government and a strong civil society. Business has a moral duty to contribute to the strength of democratic institutions. Free markets bring prosperity and freedom, but only if the rules of the game are right.”
This new capitalism, she explained, is not just about firms doing the right thing that is profitable, but rather a “collaboration between business and government, open to civil society and focussed on the mutual good. Such collaboration has happened before in times of massive national emergency – we’ve got the emergency, now let’s get going with the collaboration,” Henderson said.
“People who work beyond themselves can achieve amazing things.”
Henderson is the McArthur Professor at Harvard University and Fourie is CEO of the JSE
City Press is a media partner of the Gibs forums.