A new economic model which includes the SDGs: Stakeholder Capitalism
By Dr Amit Achameesing, Founder and CEO of NAB Impact Investing Ltd.
The free-market ideology and the insatiable pursuit of self-interest or profits for shareholders known as shareholder capitalism has dominated much of economic thinking and policymaking over the past decades. During the last century, inspired by the theoretical foundations and prescriptions of neoclassical economics, proponents of free market in many countries around the world, engaged into a campaign of promoting aggressive free market policies which would indeed take its toll on their subsequent economic and social progress.
Anyone who has lived in one of the world’s less developed countries, in other words, most of the world’s population has lived through the free market agenda. Neoclassical economics has dominated the decisions of the large international organizations such as the IMF and the World Bank. Thanks to the political and financial clout of these institutions, neo-classical policies made their mark on the world by affecting the lives of hundreds of millions of people in the most far-flung corners of the earth. In over 100 countries, central bank policies, IMF structural adjustment programmes and other reform packages changed many aspects of how societies are organized along the neoclassical lines.
The prescriptions of free market economics like deregulation, liberalization, and other market- oriented structural reforms were meant to bring prosperity to the developing countries. Proponents of neoclassical policies raised hopes that standards of living and the quality of life could be improved all over the world, that poverty and deprivation was going to be a thing of the past. Economists were convinced that, thanks to the advances of economics, an era of stable economic growth and ever-increasing wealth and prosperity had begun and would spread across the world. This is not what happened.
There is very little empirical evidence that poverty, destitution, disease, and economic inequality have been defeated. To the contrary, many studies indicate that inequality has been increasing. The number of people living in urban slums has been rising. Poverty remains an urgent and growing problem. The gap between the well-off and the poor is not closing but widening. Moreover, the unabated and ruthless gains for profits have disrupted the natural course of evolution leading to climate change disasters and destruction of the fauna and flora around the world, affecting societies and businesses in an unprecedented way and on a scale that we have never experienced before.
Today, as the world awakens to the need of addressing the many miseries and challenges of modern civilization embodied in the Sustainable Development Goals (SDGs), there is now an emerging consensus for the adoption of a more human economic paradigm known as stakeholder capitalism. Stakeholder capitalism is a form of capitalism in which companies seek long-term value creation accounting for the needs of all their stakeholders, including their shareholders, customers, suppliers, community and environment amongst others.
Stakeholder Capitalism is a further evolution of the concept of Shareholder Capitalism. While shareholder Capitalism seeks to maximize “shareholders value”, stakeholder capitalism views companies from the perspective of creating “shared value” for all their stakeholders. Stakeholder Capitalism adds a new dimension to the current model of profit measurement, as it encourages companies to strongly engage with all their stakeholders and measure, monitor, manage and report on the impact of their operations on the SDGs.
Importantly, the work of SDG Impact, a global UNDP initiative, provides a major platform to execute that new economic model. SDG impact provides three key instruments for the private sector around the world to embed impact into their decisions while also attracting private capital flows into SDG investment opportunities. The first instrument, SDG Impact Management, provides a means to improve decisions that drive investment capital to where it is needed and it includes the UNDP SDG Impact Standards, the SDG Impact Seal and overall impact management education. The second instrument, SDG Impact Intelligence, produces data and insights needed for increasing financial flows to the SDGs namely through SDG investor maps of investable business models. And the third one, SDG Impact Facilitation fosters matchmaking and collaboration to realize SDG investment opportunities.
The shift from shareholder capitalism to stakeholder capitalism should not be viewed as a trade-off between financial and social returns, but instead should be seen as a strategy for maintaining and improving financial success. Sustainability is today a major business disruptor, just as other macro trends have been in the past namely, automation and the industrial revolution, technological advances such as computing and the microchip, social media and the development of other online platforms and the digital revolution with big data and AI. Sustainability today provides companies with the opportunity to enhance their reputation and the value of their brand, opens new business and investment opportunities, drive innovation and design of effective products & services, attract and retain employees, consumers, and investors, manage risk more effectively, improve resilience, and importantly improve system value that underpins future business performance.
Indeed, a new age of stakeholder capitalism has dawned, and it is only a matter of time before business leaders around the world embrace this new paradigm that will ultimately shape capitalism and give it a human face.
