Reinventing capitalism: a transformation agenda

By any standards, 2020 has been a year of attention-consuming news stories. Even with the pandemic, unprecedented wildfires across huge swathes of the northern and southern hemispheres, and most recently the US elections, the debate about the future of capitalism has been playing out in the mainstream media, alongside questions about the conduct and responsibilities of companies in response to global issues such as inequality, climate change and public health.

Capitalism, and its consequences for society and the environment, are very much in the spotlight. Even committed capitalists are beginning to argue that capitalism, in its current form, is unsustainable – socially, environmentally, and economically. Yet capitalism’s core features of private enterprise and competitive markets are essential to addressing our greatest societal challenges and unleashing the transformations required to meet the Sustainable Development Goals (SDGs).

As part of its work to update its Vision 2050, the World Business Council for Sustainable Development (WBCSD) is releasing an issue brief advocating that now is the time for companies and investors to enter – and lead – the debate, not just about why capitalism needs to change, but about how we go about transforming it.

The issue brief, Reinventing Capitalism: a transformation agenda, synthesizes the best available thinking on why capitalism needs to be reinvented if it is to create the conditions for long-term business success, and the actions that business, investors and policy makers can take today to drive transformation.

WBCSD makes the case that the capitalism we need is one that rewards true value creation – not value extraction as today’s model does. Specifically, this means that all social and environmental costs and benefits should be internalized and reflected in the relative price of goods and services, and in companies’ profit & loss statements, costs of capital and market valuations.

WBCSD has long been committed to making more sustainable companies more successful. A reinvented capitalism focused on true value would lead to a world in which more companies innovate in ways that contribute to a flourishing society, capital markets properly value and reward inclusive, sustainable business practices and, as a result, more capital is mobilized to deliver the SDGs and the transition to a 1.5°C world.

The issue brief argues that if we are to get to such a version of capitalism, we need to realign the incentives that drive businesses’ and investors’ behavior,  adopting new and better ways of measuring performance,  and tackle failures at the market and institutional level that favor financial value extraction over true value creation. A reinvented model of capitalism that address these failures will be characterized by five features: stakeholder-oriented, impact-internalizing, long-term, regenerative and accountable.

Reinventing capitalism along the lines suggested in this issue brief will, undoubtedly, be very challenging. It will require complementary action from businesses, investors and policy makers, with voluntary action from the private sector and changes to law and regulation going hand in hand. Business therefore has a critical role to play in shifting capitalism:

• “Walking the talk” –  adapting and aligning business models, decision making processes, govern-ance models, incentives, approaches to tax, remuneration, reporting and accounting with a vision of capitalism that pursues true value
• Leveraging its relationships with other stakeholders – from suppliers and customers to policymakers and civil society – to influence the norms and rules that shape capitalism as a whole.

The issue brief, developed in partnership with Volans and EY, is part of a series of interim outputs linked to WBCSD’s current refresh of its Vision 2050, a landmark 2010 report that laid out a pathway to a world in which nine billion people are able to live well, within planetary boundaries, by mid-century. WBCSD is working together with 40 of its member companies to update this work and again provide business with a common agenda for action over the decade to come.