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Reinventing Capitalism: a Transformation Agenda Vision 2050 Issue Brief Contents Reinventing Capitalism: a transformation agenda Vision 2050 issue brief Contents Context | 2 Issue brief at a glance | 3 Introduction: Capitalism and Vision 2050 | 4 1 Taking stock | 6 The case for reinvention 1.1 Diagnosing today’s capitalism: why is it delivering unsustainable outcomes? 1.2 Existing efforts to address capitalism’s weaknesses: a status report 1.3 2 The capitalism we need | 13 2.1 Features of a reinvented capitalism 3 Getting from here to there: the reinvention agenda | 17 4 Where to start: priorities for business | 20 5 Conclusion | 23 Appendix Vision 2050 issue brief | 1 Reinventing Capitalism: a transformation agenda Context In 2010, the World Business Council for Sustainable Development (WBCSD) released Vision 2050, a landmark piece of work that laid out a pathway to a world in which nine billion people are able to live well, within planetary boundaries, by mid-century. In 2019, WBCSD decided to revisit In other words, capitalism itself the pandemic has shone a cold and Vision 2050: 10 years on, there has needs to be reoriented to serve a harsh light on many of the negative not been as much progress made as new purpose: not simply the pursuit outcomes generated by our current required. WBCSD is working together of financial profits and economic model. Companies cannot ignore the with 40 member companies to reflect efficiency, but the pursuit of true value, vulnerabilities that have been revealed. some of the great changes that preserving and enhancing natural, have unfolded since 2010, to align social and financial capital. This is The purpose of this issue brief the pathway with the Sustainable as much about long-term business is to lay out why capitalism can Development Goals (SDGs), and to success as it is about sustainability. and should change – why the prioritize the critical actions that time is right for reinvention – and We have titled this issue brief business can take to unlock the to explore some of the most “reinventing capitalism”. It is transformations required to create a important shifts that companies deliberately provocative. In fact, world where nine billion people can can drive, as well as the actions as several of our members have live well, within planetary boundaries. that other stakeholders, pointed out, many of the shifts including governments and The original Vision 2050’s Economy that we outline in this paper could regulators, must take. pathway was clear that a radical shift take place within current corporate in the way companies do business was governance frameworks – within required if the overall Vision was to be the agreed rules of the game of our achieved. In 2050, the economy would current model of capitalism. But, at be based on “true value” where profit present, change is not happening and loss, progress, and value creation at sufficient speed and scale, which are redefined to consider longer is why we believe it is necessary term environmental impacts and to talk in terms of reinvention. personal and social well-being, and where prices reflect all externalities The COVID-19 pandemic has made – costs as well as benefits. the reinvention of capitalism even more important: it is now a critical part Today, it is increasingly clear that of the way in which we respond to, and unlocking the transformations recover from, the global pandemic. required to address issues such as Not just in order to ensure that climate change, biodiversity loss and sustainable development is prioritized inequality will only happen if there in recovery strategies, but because is a shift in the outcomes that our market-based systems incentivize. Vision 2050 issue brief | 2 Reinventing Capitalism: a transformation agenda Issue brief at a glance Capitalism is an economic system Capitalism’s core features of To achieve these outcomes, we need in which markets play a major role in private enterprise and competitive a version of capitalism characterized guiding production and distributing markets are indispensable if we by five features: stakeholder-oriented, income. Markets – and the outcomes are to achieve the scale and speed impact-internalizing, long-term, they deliver – are shaped both by of transformation needed. regenerative and accountable. those participating in them, such as businesses and investors, and The capitalism we need is one To get to such a version of those overseeing them, such as that rewards true value creation capitalism, we need to realign the governments and regulators. – not value extraction as today’s incentives that drive businesses’ model does. All social and and investors’ behavior by adopting The reason we are calling for environmental costs and benefits new and better ways of measuring capitalism to be reinvented is should be internalized and performance and tackling failures because the outcomes it is currently reflected in the relative price at the market and institutional generating are unsustainable of goods and services, and in level that favor financial value – socially, environmentally and companies’ P&L statements, costs extraction over true value creation. economically. This is not simply a of capital and market valuations. social and environmental agenda: To play their part in shifting capitalism it is about creating the conditions A reinvented capitalism focused towards this vision, businesses must for long-term business success. on true value would lead to a both “walk the talk” and advocate for world in which more companies changes to the “rules of the game”. innovate in ways that contribute to a To that end, we have proposed a set flourishing society, capital markets of priority actions that business can properly value and reward inclusive, take – linked to a corresponding set sustainable business practices of policy and regulatory changes and, as a result, more capital is that businesses can call for. mobilized to deliver the Sustainable Development Goals (SDGs) and The debate about the future of the transition to a 1.5°C world. capitalism is playing out in public, and COVID-19 has only increased interest in the conduct and convictions of companies. We believe that now is the time for companies and investors to enter – and lead – the debate not just about whether capitalism needs to change, but about how we go about reinventing it. This issue brief synthesizes the best available thinking on that question and presents it in a way designed to be actionable for business today. Vision 2050 issue brief | 3 Reinventing Capitalism: a transformation agenda Introduction: Capitalism and Vision 2050 Vision 2050 issue brief | 4 Reinventing Capitalism: a transformation agenda Introduction: Capitalism and Vision 2050 Capitalism is the main operating In this issue brief we make to thrive in the long run. If capitalism system for today’s global economy. the case that capitalism can functions in a way that undermines the The majority of production is guided environmental and social systems that – and must – be reinvented and income distributed through the underpin economic prosperity, then operation of markets on a for-profit so that it rewards true value in the long run we all lose. Ensuring basis. This is true across all major creation, not value extraction. markets do not reward behavior that economies, albeit with significant Specifically, our vision is for undermines these systems is squarely differences between countries in capitalism to reward value in the private sector’s best interest. terms of culture, regulation and Failure to do so will worsen a crisis creation that internalizes all the degree of state involvement. of trust and an ideological backlash social and environmental that is already evident in places. Over centuries, the combination costs and benefits. These of for-profit enterprise and costs and benefits should Capitalism has been reinvented before competitive markets that is – generally in response to periods the essence of capitalism has be reflected in the relative of profound crisis, as happened contributed to rising living standards, price of goods and services, following the Great Depression and innovation and wealth creation. and in companies’ P&L World War Two, and again following the ‘stagflation’ era of the 1970s. It is likely However, it is clear that, today, statements, costs of capital and market valuations. that we are right now living through our global economy is generating another period in which a series of outcomes that are unsustainable This builds on thinking that was rolling shocks to the system – resulting – socially, environmentally and originally laid out in the economic from rapid technological change, economically. Capitalism is both the pathway of the first Vision 2050 rampant inequality and the intensifying greatest source of prosperity and report, issued a decade ago. In the impacts of ecological overshoot progress in human history and the intervening decade, progress has – create conditions conducive to greatest threat to it. This paradox is at been made on assembling some of reinvention. Our challenge now is the heart of the case for reinvention. the building blocks for a capitalism to move from talk to action – from that rewards true value creation. The current system is generating tinkering to transformation – before At the same time, the urgency unsustainably high levels of inequality our predicament gets worse. and importance of reinventing and breaching planetary boundaries. capitalism has been heightened by Both science and history suggest that No single sector can reinvent the events of the last decade – from continuation on our current path will capitalism on its own, but the long-term economic impact lead to catastrophe: ecological strain reinvention will only be possible, of the 2007-8 Financial Crisis, to and economic stratificationhave in our view, if businesses and headline-grabbing environmental been shown to play a central role in investors play a prominent role in catastrophes and widespread every past instance of civilizational driving the change. To do so, they disaffection with the status quo.
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