Climate change dominated the public discourse in 2019, influenced by purpose-driven youth demanding action. The combination of an energized public, ambitious governments, and incentivized corporations could make 2020 the year for enduring momentum on sustainability.
Ahead of the World Economic Forum’s annual meeting, a Davos Manifesto has been released. Its guiding element is that companies have a responsibility towards all its stakeholders, not only their shareholders. Stakeholder capitalism is the term.
Throughout its fifty years of existence, the forum has been an arena for initiatives that have altered the trajectory of business, politics, and society at large. The hope is that the commencement of global leaders of governments and business can culminate in a pledge or agreement of substance, where the Davos Manifesto can function as a roadmap for sustainable action.
It’s not without reason many stress the fact that we might be close to a tipping point on climate change, where the consequences spiral out of control. But can it be possible to achieve a positive tipping point, where we reach a momentum on sustainability needed to take us back from the brink?
I believe we are seeing three overarching movements of sustainability converging. Together they can supercharge the transition and make 2020 a positive tipping point. This year’s World Economic Forum gathering in Davos can be the starting point for a year and a decade where we see this shift.
THE ROLE OF GOVERNMENTS AND INSTITUTIONS
Global sustainability will never be possible without a commitment to change by governments and supranational institutions. France’s goal of carbon-neutrality, California’s work to cut emissions, and Germany’s plan to end its dependency on coal are examples of governmental actions that could have important ramifications.
Simultaneously, EU members have agreed on carbon neutrality by 2050. This is part of the European Green Deal, where the commission have set out an ambitious plan to reform Europe. The introduction of a cross border taxation on CO2 and a dedicated fund to help the transition from fossil to renewable industries are among the plans we might hear more about in 2020. We should expect that the EU’s ambitions on climate affects the discussions in Davos this year.
Just as important is that sustainability is gradually becoming a core focus amongst institutional investors. According to McKinsey, over 25% of assets under management are being invested on the premise that sustainability affects market value. The government pension funds of Norway, Sweden, Japan, and the Netherlands are specific examples of institutional investors starting to play an increasingly bigger role in tackling the biggest challenges of our time.
THE CORPORATE RESPONSIBILITY
A MIT Sloan Management Review and BCG study found that 60% of investment firm board members are willing to divest from companies with poor performance on sustainability. And, in 2017, a Morgan Stanley survey found that 71% of investors believe companies with leading sustainability practices may be better long-term investments.
And, recently, an article by McKinsey described how sustainability creates value for companies: a strong ESG proposition has clear benefits for both top-line growth and cost reductions, which ultimately leads to a more robust bottom line. Overall, a host of studies have shown a positive relationship between ESG performance and financial returns. It’s not without reason that companies race to introduce the most ambitious plans for sustainability.
In many ways, the idea of stakeholder capitalism expands the purpose of the company. We have largely moved past the perspective that the business’ only purpose is to generate profits for its shareholders. Luckily, the fact that investors gradually shifts their investments towards the most sustainable assets gives corporations a clear incentive to also become more sustainable.
The heightened attention amongst companies doesn’t solely come as a result of wanting to do good. It is the realization that sustainable investments are what makes a corporation profitable in the long-term. This is the new reality and will be the backdrop for any discussion at the World Economic Forum’s Annual Meeting where the future of capitalism is a topic.
A NEW GENERATION FIRED UP AND READY TO GO
For 2020 to be a tipping point for sustainability, an energized public is required. We got a preview of what’s in store in 2019: the Fridays For Future movement, spearheaded by seventeen-year-old climate activist Greta Thunberg, have had a massive impact on the public discourse and awareness.
The fact that young people around the world mobilize on the issue of sustainability shouldn’t come as a surprise. A 2018 study by McKinsey found that Generation Z is more idealistic and mobilize around political and societal issues deemed important. Moreover, they clearly expect corporations to take their social responsibility seriously. They are more purpose-driven than any generation before them, with a new framework for consideration and opinions when they buy, vote, work, and discuss.
In short, the younger generation expects society and environment to be a focus of corporations; seeking profit is not enough. From Amazon employees demanding action on climate change to Google employees addressing how AI is used in products, the demands for a sustainable business approach is increasingly becoming a non-negotiable point. The same can be said about expectations towards governments; nothing less than unequivocal action is deemed acceptable.
Some might brush them off as just kids. But this decade, they will be the consumers, employees, employers, and voters every corporation and government must pay attention to. In a few years, they will be running the World Economic Forum; the only viable option is to listen to their concerns
THE SUSTAINABLE TWENTIES?
In Davos, the global elite of politicians, corporations, and NGOs meet to discuss the state of the world and the way forward. This forum has previously shown its ability to launch initiatives with fundamental impact on the world. With global sustainability in a dire situation, we should hope for this type of mobilization once more.
The conditions are right: The mobilization amongst a more purpose-driven public is being accompanied by governments with increasingly ambitious climate goals, investors – institutional and others – with sustainability as a requirement, and corporations with a heightened awareness of stakeholder responsibility. Together these movements can supercharge each other and create ripple effects all over the globe. Whilst they in many ways have operated in parallel with each other for years, the lines are starting to intersect.
The Davos Manifesto states that the responsibility of corporations goes beyond creating values for its shareholders; they must keep all their stakeholders in mind. The World Economic Forum this January is the perfect occasion to kickstart a year of heightened awareness on corporate purpose and stakeholder capitalism. Hopefully, it can mark the beginning of a decade of sustainability.