News

It’s time for our economic system to acknowledge interdependence

Milton Friedman’s 1970 essay, “The Social Responsibility of Business Is to Increase Its Profits,” has just turned 50 and this is prompting a range of initiatives calling for a shift to “stakeholder capitalism” responsible to workers, communities, suppliers and the environment as well as to investors.

A year ago, 181 CEOs members of the Business Roundtable pledged themselves to the stakeholder approach instead of the “shareholder supremacy” preached by Friedman. “It is good that the business community has awaked,” economist Joseph Stiglitz recently said in The New York Times. “Now let’s see whether they practice what they preach.”

One of the advocacy initiatives recently launched is Imperative21, whose goal is to champion an “economic system that is designed for interdependence, invests for justice, and accounts for all stakeholders”, as B Lab’s Jay Coen Gilbert, one of initiators of Imperative21 recently wrote in the New York Times.

The stakeholder approach has long been part of the framework that onValues uses in advising its clients. After 30 years of sustainable investing experience, we have enough evidence that professionally managing and taking into account stakeholder concerns is key to the long-term success of both companies and investors.

onValues endorses Club of Rome call to action

onValues is officially endorsing the Club of Rome's call to action to global leaders in relation to the ongoing Corona crisis.

It states that "[...] It is important to acknowledge that the planet is facing a deeper and longer-term crisis, rooted in a number of interconnected global challenges. [...] About 70% of [emerging infectious] diseases originate in animals (mainly wildlife). Their emergence results from human activities such as deforestation, expansion of agricultural land and increased hunting and trading of wildlife. [...] How leaders decide to stimulate the economy in response to the corona crisis will either amplify global threats or mitigate them. The risk is making nearsighted decisions that increase emissions and continue to degrade nature in the long term".

It concludes by calling on leaders to have the foresight to make their economic recovery plans truly transformative by investing in nature regeneration, low carbon development and sustainable agriculture and food systems.

Learning from the corona crisis and staying the course on climate change

The ongoing crisis is painfully reminding us of the vulnerability of our economies and global financial systems and is a wake-up call for strengthening the resilience of those systems. It is also a reminder of the urgency of reducing the risks of unconstrained climate change leading to more frequent shocks of this type in the future.

How can investors contribute to increasing the resilience of our economic and financial systems? First, align your investment portfolios to a scenario leading our economies to net-zero greenhouse gas emissions by 2050 at latest aimed at limiting temperature rise to 1.5°C above pre-industrial levels (e.g. by joining the UN-convened Net-Zero Asset Owner Alliance). Second, if your mandate permits, allocate a part of your capital to companies providing break-through innovations in areas such as clean energy, resource efficiency and the transition to a circular economy. Third, take a long-term approach to investing avoiding speculative investments and asset classes that destabilise financial markets. Fourth, take a forceful stewardship approach (with clear goals that if not met lead to divestment) in engaging with companies that are working against a transition to a more sustainable economy. Fifth, collaborate with other investors in shaping a more resilient architecture for our financial systems (e.g. through initiatives such as Principles for Responsible Investment, Climate Action 100+, the Institutional Investors Group on Climate Change, the UNEP Finance Initiative etc.).

The current crisis is ultimately strengthening the case for sustainable investing and could reveal itself as a powerful accelerator toward a more sustainable trajectory of our societies.

Can investments contribute to protecting biodiversity?

On behalf of RS Group, we looked at different ways in which financial markets and investors can contribute to reducing the destruction of tropical forests and the unsustainable use of land and oceans, while helping to mitigate climate change and to provide a livelihood to local communities for them to become stewards of local ecosystems. Given our economic system does not allocate a value to natural capital, it is almost impossible to design investment structures that will be financially attractive for commercial investors, unless concessionary capital or grants are used to de-risk or enhance returns. This is exactly what blended finance structures (e.g. structured funds, bonds and other vehicles) aim for.

Together with RS Group we found that more innovation is needed in the field and on 11 November 2019 RS Group and Convergence (a think-tank specialised in the field) launched a US$3 million design funding window for innovative and catalytic blended finance solutions focused on natural capital in Asia. By supporting the design of new blended finance structures, the window will draw new investors into this critical, but underfunded development area. Asia’s enormous economic growth in the last few decades has come at a high cost to its environment, leading to deterioration of land, freshwater, and marine ecosystems and exacerbating water and food insecurity and climate vulnerability. Globally, it is estimated that there is a US$200-300 billion gap per year to preserve the world’s last healthy ecosystems.

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News

  • It’s time for our economic system to acknowledge interdependence

    Read more

  • onValues endorses Club of Rome call to action

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  • Learning from the corona crisis and staying the course on climate change

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  • Can investments contribute to protecting biodiversity?

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  • A total portfolio approach for promoting peace (SDG 16)

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  • Assessing Swiss pensions funds' responsible investment practices

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  • Engaging with others in support of field building and strategic initiatives

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