3 reasons to double down on stakeholder capitalism now.

How the World Economic Forum’s new global ESG framework changes the game and what mid-market leaders can do to make sure they have a seat at the table.

by Neil Bellefeuille

Stakeholder capitalism is on the rise. Forward-thinking corporate leaders, investors, and a growing wave of socially- and environmentally-conscious consumers everywhere are beginning to move in the direction of this new form of capitalism that levels the playing field between profits, people, and planet.

The recent release of the World Economic Forum (WEF) whitepaper Measuring Stakeholder Capitalism Towards Common Metrics and Consistent Reporting of Sustainable Value Creation is a watershed moment in the journey toward a more sustainable and just future, as it offers the first truly global, unified framework on Environmental, Social, & Governance (ESG) and climate-related disclosures. It is a game-changer because it establishes common benchmarks by which all corporations and their leaders can and will be measured.

With that in mind, we offer 3 compelling reasons to begin investing in stakeholder capitalism and integrating sustainable value creation into your strategy now.

1. CORPORATE GOVERNING BODIES AND AGENTS OF CHANGE AROUND THE GLOBE ARE ALL-IN.

ESG metrics and reporting standards have been around for a long time now, with numerous highly-respected independent organizations leading the charge toward standardized reporting. To date, however, no single framework has been able to garner a position as the de facto global standard by which all companies could be measured and compared. The WEF framework changes all of that.

The WEF framework was developed by the International Business Council in collaboration with Big 4 firms Deloitte, E&Y, KPMG, and PwC and has the buy-in of 140+ international CEOs as a vehicle to align their corporate values and strategies with the UN’s Sustainable Development Goals (SDGs).

It unifies five leading global voluntary frameworks and standards—CDP, the Climate Disclosure Standards Board (CDSB), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC), and the Sustainability Accounting Standards Board (SASB)—around a set of 4 universal pillars, and 21 core measurement and reporting metrics.

And it incorporates action and alignment amongst a broad range of national and international governing bodies—The European Commission, International Organization of Securities Commissions (IOSCO), The US Securities and Exchange Commission (SEC), The International Financial Reporting Standards (IFRS) Foundation, The International Federation of Accountants (IFAC), The International Accounting Standards Board (IASB)—working to unify and consolidate global ESG measurement and reporting, and to integrate it with standard financial reporting requirements in an effort to pull businesses toward the realization of true stakeholder capitalism.

Until now, disclosure and reporting have been relatively disjointed with an array of standards in different regions and sectors, each with unique strengths and weaknesses. The WEF framework aligns and unifies those standards with a set of metrics that are common across industries, business models, geographies, and cultures. And in doing so, it permanently tips the balance in the direction of change by bringing a level of clarity and convergence that will greatly accelerate the global shift toward stakeholder capitalism.

The new WEF framework permanently tips the balance in the direction of change by bringing a level of clarity and convergence that will greatly accelerate the global shift toward stakeholder capitalism.

2. THE WORLD’S LEADING CORPORATIONS AND INVESTORS ARE ALL-IN.

More and more, the largest and most influential businesses in the world—companies like Microsoft, Unilever, Nike, Apple, Honda, and Ikea, to name a few—are choosing to make sustainability a primary business objective. Not just because it is the right thing to do for people and planet, but because it’s also the right thing to do for costs and profits.

Many of these organizations are pursuing integrated value creation as a core strategy. Leaders like Patagonia, for example, are reformulating their strategies and business models around a foundational purpose that is fundamentally oriented toward profit generation derived from solving problems for people and planet. Almost half of Fortune 500 organizations have set climate change and clean energy targets, and 23% have made public commitments that they are, or will be carbon neutral, using 100% renewable power, or meeting a Science-Based emission reduction target (SBT) by 2030.

Perhaps more importantly, institutional and retail investors alike are rapidly shifting asset allocation toward sustainable value creation as a critical indicator of risk, resilience, and values alignment. As of late 2020, ESG investing accounted for one-third of total U.S. assets under management with rapidly accelerating 7x growth since 2012.

In January of this year, BlackRock’s CEO Larry Fink published his annual letter and threw his firm’s $9 trillion weight behind stakeholder capitalism in general and the WEF framework in specific calling on all companies “to disclose a plan for how their business model will be compatible with a net-zero economy,” and reinforcing the importance of a single, global standard. BlackRock is not the only major institutional investor on this track, but they are highly influential, and their directives and support will drive further attention to, and adoption of, stakeholder capitalism and the WEF framework internationally.

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3. THE MARKETPLACE AND YOUR FUTURE CUSTOMERS AND EMPLOYEES ARE ALL IN.

It wasn’t that long ago that corporate social responsibility (CSR) was a side game and ESG was the exclusive realm of the few and the brave. But oh how times have changed.

Growing evidence across all industries is proving that companies that make integrated value creation (deeply ingraining environmental, social, and economic outcomes into core strategic DNA) a primary business objective deliver higher performance, profits, growth, loyalty, and engagement than their peers.

For example:

• 90% of purpose-driven companies deliver growth and profits at or above the industry average. Businesses with a culture of integrating ESG into strategy produce a 34% greater return on assets and 16% greater return on equity on average than companies that are not investing in ESG(1).
• Deeply stakeholder-focused companies have also experienced 2X greater stock price growth than that of the S&P 500 over the past 20 years(2).
• 66% of consumers globally will choose, switch, avoid or boycott a brand based on where it stands on the political or social issues they care about(3).
• Employees who are intrinsically motivated by the purpose of the company or work are 3X more engaged than employees who are extrinsically motivated by factors such as money. And high employee engagement has been shown to lead to 17% higher productivity, 21% higher profitability, and 59% less turnover on average over time(4).

The most recent Edelman Trust Barometer report added some depth and context to these numbers. It showed that trust in business is increasing across the globe, but that expectations are increasing as well. 65% of people surveyed said that they “expect CEOs to hold themselves accountable to the public and not just to the board of directors or stockholders”, and added that “leaders should also take the lead on change rather than waiting for governments to impose change on them”.

Growing evidence across all industries is proving that companies that deeply ingrain sustainable value creation (the practice of integrating social, environmental, and economic strategy) into their DNA deliver higher performance, profits, growth, loyalty, and engagement than their peers.

In short, embracing stakeholder capitalism by pursuing an integrated value creation strategy delivers better growth and profitability, reduces costs, increases engagement and productivity, and creates a material competitive advantage with increasingly conscious and informed consumers.

AS KENNY ROGERS AND WARREN BUFFET MIGHT SAY, WHEN YOU HAVE THE EARLY ADVANTAGE, DOUBLE DOWN.

For mid-market brands, doubling down on stakeholder capitalism at this unique point in time offers a path to outsized success. The macro direction of global governments, multinational corporations, investor assets, and consumer sentiment is clear. The question is no longer whether leaders will need to boldly embrace the coming change, but when and how they will do so.

Those who invest early and wisely will carve out a unique position as a leader and innovator that could open up new markets, deepen customer relationships, enhance talent acquisition, and expand access to capital. Decisive action is going to afford early adopters a distinct advantage over their competition. So here are a few tips and resources to help you start down that road toward the future now.

PURSUE PROGRESS, NOT PERFECTION

We mentioned this in an earlier article we wrote as well because we believe it’s one of the biggest stumbling blocks mid-market leaders face in initiating change. Nothing gets in the way of progress more than feeling like you have to do everything now. You don’t.

You need a long-term perspective and plan that aligns with who you are as a business, and you need to be working on truly material, inherently strategic issues that can move the needle. But it’s not an all-or-nothing proposition.  

Your stakeholders have increasingly high expectations, but they’re not unreasonable. In all likelihood, they’re looking for reasons to believe in you, trust you, and follow your lead. Your role is to show them that you understand this new era of sustainable and responsible business and that you have a plan to lead your company into it.  

Set targets. Be transparent about your successes and failures in reaching them. Invite your stakeholders on the journey with you. Don’t worry about being perfect. Just commit to making meaningful progress.

PUT PURPOSE AT THE CENTER OF YOUR STRATEGIC CHOICES AND DIRECTION

Purpose is the central building block of good business, good governance, and coincidentally, of the new WEF framework. It’s also the defining component in the way we advise all of our clients to think and work.

Operationalizing Purpose may seem like an obvious, almost elementary, piece of advice. Yet few companies actually define and utilize their purpose as a strategic tool and as a result, most Purpose Statements and business models are not aligned. To be relevant in the next great era of business, companies are going to need a clearly defined Purpose that drives decisions, actions, and governance in ways that are consistent with a stakeholder capitalism view of the world.

A purpose to grow and make money or to be the best in industry X is no longer enough. Companies must demonstrate their will to add real value to the people and environments they interact with and rely on for their survival in order to maintain license to operate, and in order to gain the market share and loyalty that will make those contributions profitable.

DEFINE THE PATH, MANAGE THE PROCESS, MEASURE THE OUTCOMES, AND SHARE THE RESULTS

The WEF framework offers a solid foundation around which leaders can build a custom plan. As we mentioned earlier, you don’t need to cover every possible base tomorrow. But you do need a long-term plan to get from here to there, and a commitment to sharing the journey that will help you build trust with your stakeholders along the way.

When integrating value creation into core strategy, we advise our clients to focus on the intersections between environmental, social, and strategic materiality and to prioritize the things that have the greatest potential Return on Impact (ROIm) to both your business and its stakeholders. And importantly, as you operate in those spaces, define your own narrative with a clear commitment to transparency and around your unique story and long-term goals. When you can speak in clear, transparent, and specific terms about where you’re heading and why, people will give you a lot of room to operate, grow, and make mistakes along the way.

BACK TO THE FUTURE

As with anything worth doing, building integrated value creation into your core strategy isn’t going to be easy. But it is going to be worthwhile. We’re at a unique time in history that is going to afford early adopters a distinct advantage.

We recommend you start talking to your peers and colleagues. Find out who you can learn from, who has good ideas that you can borrow, and how you can take some first simple steps forward. And reach out to firms like BILD in the sustainability space whose very purpose is to help you reshape the way you think and operate as a way to accelerate performance and integrated value creation.

If it’s better business, better for people, and better for the planet, why would you not invest in stakeholder capitalism now and reap the benefits of being first or early to market?

LEAN STRATEGY & INNOVATION
FOR A BETTER TOMORROW.

We can help you align your strategy, metrics, and reporting with the World Economic Forum framework and deeply integrate ESG into your strategy, operations, products, and brand to strengthen employee engagement, enhance customer loyalty, and expand your market share.

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Neil is a Partner and Senior Design Thinking Strategist at BILD. Neil spent the early part of his career as a Partner and Strategist at the renown design & innovation firm Bulldog Drummond before co-founding a social enterprise called The Paradigm Project that builds distribution and sales networks in emerging markets. Neil is an adventurer, father, avid reader, and amateur outdoorsman.

Photo by Matilda Babaeva via Unsplash.