The 2020s – make or break for sustainability

As we rapidly head towards a new decade, there is a growing sense that the 2020s will be ‘make or break’ with respect to addressing a number of pressing sustainability challenges.

In addition to the looming threat of rapid climate change and growing impatience with high levels of inequality, there is a surprisingly widespread view, shared across the political spectrum, that capitalism is not in great shape generally. Driven by inappropriate executive compensation targets, too many companies have focused on hitting short-term numbers at the expense of investment in research and development. Share buybacks and M&A activity, sometimes warranted, have too often been used as a kind of ‘corporate botox’. At the same time, fresh case studies of misconduct have challenged our faith in the market.

As a result, the reputation of the corporate sector has never really recovered from the financial crisis and a series of other scandals and blow-ups (I go into this in more detail in my new paper 75 Years of Responsible Investing: From Universal Rights to Global Goals). All things considered, we need to give capitalism, and its anchor institution – the publicly-listed joint stock corporation – its biggest overhaul in a generation if it is to survive and thrive in the years ahead.

It is not surprising that corporations are the least trusted of all types of business. 

Generally speaking, ‘big business’ has become cleaner, greener and safer over recent decades, albeit with a vastly increased operating footprint. The effects of social media and 24/7 news coverage obscure this, but it is nevertheless true. As much as I applaud the growth of social enterprises and alternative approaches to doing business, I still believe that the publicly listed corporation has the potential to be a very sustainable business structure if properly governed: widely and publicly owned, overseen by elected independent directors, and accountable to all of its key stakeholders, with a time horizon that should be multi-generational. It feels like we’re a long way from that ideal today, and it is not surprising that corporations are the least trusted of all types of business. 

 

To gain some perspective on the present-day challenge, it’s helpful to step back and look at the long-term picture. As a bit of a history geek, I naturally revert to the past as a logical starting point. The idea for writing about the history of the rise of responsible investment, and the growing importance of environmental, social and governance (ESG) factors in investment, came about in this way. In discussions with clients and colleagues about the rapid development of the ESG discipline, I often found myself starting with the historical context and personal anecdotes to ‘set the scene’ for the inflection in interest that we are seeing today. By way of example, my experience of researching corporate shortcomings in the Nigerian oil and gas sector as a Masters’ student twenty years ago was that there was almost no disclosure or commentary of any kind from companies on some really important issues. We have come a very long way, and this should be celebrated. 

Attempting to ‘invest responsibly’ on a global level is only possible because of the increasingly widely shared beliefs in basic rights and responsibilities, enshrined in a number of landmark documents, treaties and organisations.

I was also struck by the interplay between several different things since the end of the Second World War, which are too often studied in isolation. Attempting to ‘invest responsibly’ on a global level is only possible because of the increasingly widely shared beliefs in basic rights and responsibilities, enshrined in a number of landmark documents, treaties and organisations. ‘Responsible investment’ depends on ‘responsible business’, which in turn is a product of ‘responsible society’. For these reasons, the story of universal rights, international development, corporate responsibility and the growth of interest in ESG have played out in a connected sequence.

The last 75-year period has been one of truly remarkable human progress. The Universal Declaration of Human Rights would have a good claim to be the most important document of all time, in terms of its impact on the lives of the world’s most marginalised people. Built on the foundation of universal rights, we have seen the flourishing of civil society in many parts of the world. Along the way, numerous corporations have demonstrated their ability to deliver innovative products and services at scale, improving countless livelihoods.  

 

At a time of huge political uncertainty and growing despondency about our ability to tackle a range of environmental and societal challenges, it is helpful to remember how far we have come in a single lifetime. With impressive advances in technology, communications and computing, we could do even better in the years ahead if we can find our way through the growing challenges together.

Andrew Cave

Head of governance and sustainability

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