Want to find out what shifting to more sustainable forms of capitalism might involve?
Take a look at the Manifesto for Sustainable Capitalism, published by Generation Investment Management and spotlighted in the Wall Street Journal by Generation's founders, former US vice-president Al Gore and ex-Goldman Sachs investment banker David Blood.
"We are once again facing one of those rare turning points in history when dangerous challenges and limitless opportunities cry out for clear, long-term thinking," Blood and Gore argue. So what should businesses do? Blood and Gore recommend "five key actions for immediate adoption by companies, investors and others to accelerate the incremental pace of change to one that matches the urgency of the situation".
First, they encourage business leaders to account for the growing risks from stranded assets – risks "whose value would dramatically change… when large external factors are considered – for example, by attributing a reasonable price to carbon or water".
Second, they want mandatory integrated reporting. "Despite an increase in the volume and frequency of information made available by companies," they say, "access to more data for public equity investors has not translated into more comprehensive insight into companies".
Third, they call for an end to quarterly earnings guidance. "The quarterly calendar frequently incentivises executives to manage for the short-term," they argue.
Fourth, they call for better alignment of senior executive compensation structures with long-term sustainable performance. "Most existing compensation schemes," they warn, "emphasise short-term actions and fail to hold asset managers and corporate executives accountable for their decisions". And, fifth, there is a need to incentivise and reward long-term investing with loyalty-driven securities.
Some find it strange that businesses are signalling the next round of the sustainability agenda, but the large-scale remodelling of capitalism means that this is a logical trajectory for the next 20, 25, 40 or 50 years.
John Elkington is executive chairman of Volans (www.volans.com) and non-executive director at SustainAbility (www.sustainability.com). He blogs at www.johnelkington.com
