The week of January 17th to 21st was a powerful one!
Global economic leaders gathered in Davos to discuss their outlook, insights, and plans on the most urgent global issues. Carbon neutrality, stakeholder capitalism, social injustice, trust crisis, tech for the future, and sustainable development were in the spotlight.
Larry Fink, the 10 trillion dollar man who runs the most prominent asset manager globally, also published his iconic Annual Letter. This one was the 5th letter in a row where he called up business to transition to what he calls a "stakeholder capitalist model". In his own words: "a new model that is vital to driving durable long-term returns and to helping companies reach their (economic) goals".
Moreover, the Edelman Trust Barometer 2022 also revealed that "my employer" is now the most trusted of any institution. Indeed, 77% of the workers expect CEOs to be the "face of change" for the world.
As a matter of fact, the business world has already entered a New Era where Sustainability is at the center. CEOs and business leaders have already realized that sustainable business models are central to their long-term success, but also to their license to operate in the short term. This way, the big question now is not WHY the sustainable agenda is crucial, but HOW to make it operational.
I will give you some hints of this last week's happenings that may be useful in highlighting your way forward.
1. Climate and social Risks should be at your central concern – don't disregard them!
Davos marked the annual launch of the Global Risks Report. A study that reveals the top risks requiring urgent global attention. This report is clear on spotting climate and environmental risks in the first place, immediately followed by social risks (including social cohesion and infectious diseases). In fact, with environmental risks on the high and social challenges ahead, businesses have no other chance than include these considerations in their short, medium, and long-term plans. As Larry Fink mentions in his letter, the capital was never so abundant. Still, we have to invest in the right projects so capitalism can "help individuals achieve better futures, to drive innovation, to build resilient economies, and to solve some of our most intractable challenges."
Davos was also a clear signal that countries are committing to a long-term vision with their pledge to carbon neutrality. That was emphasized in some of the most important speeches of the week, like the ones of President Xi Jinping, Olaf Scholz, Kishida Fumio (Prime Minister of Japan), Latin American leaders, Ursula von der Leyen and António Guterres. However, in a world where only 6% of the population of the poorest countries is vaccinated (compared to 80% in Europe), much has still to be done to balance the social plate of the sustainable development.
What can you do about this? Consider the economic, climate, and social risks of the regions you operate in. Then, see them as opportunities in a proactive way and change your mindset from risk-mitigating to opportunity taking.
2. What will guide you forward is having a clear North Star!
Larry Fink's letter is clear on this: "Your company's purpose is its north star in this tumultuous environment" and putting your "company's purpose at the foundation of your relationships with your stakeholders is critical to long-term success". Purpose is indeed a strong bond between companies and employees. This can be central in times where the job market is changing, and purpose at work is crucial in capturing and retaining talent. Moreover, a clear purpose makes employees feel motivated enough to maximize their creativity, innovation, and productivity for a more significant contribution than just "finish their job". It is a guiding vision for the board, so it can have the right vision of the company's critical issues and is also an adequate instrument to lead company's culture to adapt to this new world.
What can you do about this? Commit to your purpose. Call up your stakeholders (including your employees) and build a clear and inspirational purpose together. The "reason why your company exists" (purpose) is what will make you strive for the future. Be cautious, though: nobody will love your company for your quarterly results (however, they can hate you for bad results).
3. Report what you do. This is essential. But do it transparently and use a universal language
Measuring the impact companies have on society and the planet is essential if their action is to be advanced. This is why Larry Fink and the World Economic Forum (WEF) emphasized the need for companies to report and measure their environmental and social impacts transparently. However, public and private stakeholders have struggled for many years to make clear progress amongst a number of competing ESG standards. Therefore, "for the private sector to drive progress towards achieving the UN Sustainable Development Goals, a common system of measurement is essential", Klaus Schwab mentioned.
This way, WEF announced the progress on its Stakeholder Capitalism Metrics initiative (in partnership with Deloitte, EY, KPMG, and PwC). This initiative builds upon the existing ESG frameworks and identifies a set of universal disclosures that can be compared between companies, regardless of their industry or region. "The idea is to get these things standardized, then investors won't be confused," Brian Moynihan, Chairman, and CEO, Bank of America, said. Since January 2021, more than 140 companies have shown their support for the Stakeholder Capitalism Metrics initiative, with over 50 already including the metrics in their reporting.
What you can do: Set your objectives for economic, environmental, and social results. Make them emerge from your company's purpose. Report, measure, and monitor them transparently. Use universal standards, as the one mentioned, so everyone understands your efforts. You will be recognized for your contribution, but essentially for leading the way in the right direction.
Last but never least, lead through this system with your reason and heart.
We have no doubt the capitalist system is here to stay! It has been a source of prosperity for the last decades, and we hope it can guide us through the future! However, it needs to change the focus from short-term to long-term, from one stakeholder only (shareholders) to include them all. Indeed, in Fink's words: "We focus on sustainability not because we're environmentalists but because we are capitalists". I would also add, "We focus on sustainability" because we are human-centered leaders and, if we endure, success will be with us (all).
Have a great and impactful week!
Filipa Pires de Almeida
Deputy Director
Center for Responsible Business & Leadership
This Newsletter covers SDG 7, 8, 12, 13 and 17.