Capitalism, however, has turned out to be almost impenetrable jungle. Yet history tells us (and I will not push this metaphor any further) rather than clearing the jungle and replacing it with exotic crops, to better recognize and exploit the value of biodiversity.
“The most credible economists and policymakers agree that we need a better way to manage capitalism and the latest version of this is stakeholder capitalism. “
Capitalism works. It has reduced poverty and improved the well-being of societies around the world, far more than any of the alternatives currently being tried, including central planning. McKinsey suggest to compare West Germany and East Germany; South Korea and North Korea; Costa Rica and Cuba.
The problem with capitalism is not theory – free markets allow the most efficient distribution of society’s resources to increase the total size of the economy. The problem is human nature and inefficiencies in the dissemination of information.
This is why we see results such as the growing wealth disparity – those with money and power can play against the system in the absence of proper regulation and enforcement – and intractable problems. like the tragedy of the commons – where everyone benefits from a resource but no one pays for it, which leads to its terminal exploitation.
Meanwhile, like McKinsey note, “There is a term for an enlightened company with the most perfect intentions that does not make money: deceased.”
No new challenges
Markets demand clear pricing and the absence of “information asymmetries”, but in the real world, these conditions do not exist. Sometimes because the measure is complex – the negative externalities of carbon-dependent industries, for example, or the benefits to individual health and education systems. Theoretically, markets should be able to provide care for the elderly, but they haven’t because price signals have rewarded homeowners for better marketing and lower costs, not better care for the elderly. elderly.
These are not new challenges, they have always existed in human societies in one way or another although they have become more important and more corrosive since the industrial revolution.
The most credible economists and policymakers agree that we need a better way to manage capitalism and the latest version of this is stakeholder capitalism – a capitalism that rewards all participants in an economy, all of us. , not just the owners of the capital.
Most importantly, however, it is not through central planning or even a much heavier and more visible hand of government, but through the recognition that all stakeholders – including shareholders – do better if an economy is managed sustainably. , with equal opportunities and with as little economic rent as possible. possible.
In an interview between ANZ CEO Shayne Elliott and Nathan Parkin, as part of ANZ’s ESG Investor Day this week, Parkin, one of the first to embrace the principles of stakeholder capitalism, explained the rationale – including the significant short- and long-term costs associated with to companies that ignore their wider impact on society.
Parkin is Chief Investment Officer and Co-Founder of Ethical Partners and has 25 years of experience in the Australian financial markets, most notably as Deputy Head of Equities at Perpetual Investments.
He argued that using ESG lenses in all companies was in fact no different from analyzing their financials and managing risk.
“It’s really the same thing,” he said. “When we launched Equity Partners, we made a conscious decision to integrate ESG factors into our investment process. We believe that companies that are very conscious of being socially responsible, from a human rights perspective, from an environmental perspective, generally have good governance to support that. So why shouldn’t a more responsible and socially conscious company be more successful? “
This is essentially the idea behind the emergence not only of specialist ESG funds, but also the much broader use of broader investment measures by large institutions around the world. This weight of money is telling but also magnifies the impact on business behavior – in most cases well ahead of governments or regulation.
According to Bloomberg, global ESG assets are on track to exceed $ 53 trillion by 2025, which is more than a third of the $ 140.5 trillion in total assets under management forecast, assuming growth of 15%, half the pace of the past five years.