A New Age Of Capitalism

Financial Advisory

12 October 2021

Financial AdvisoryMeeting of MindsWealth Management and Private Banking

Expert: Rob Marshall, Head of Stewardship and Sustainability and Ben Constable-Maxwell, Head of Impact Investing Facilitator: Mandy Kirby, City Hive

Key Takeaways:

  1. Business must accept the need to change is driven by externalities as well as those closer to home in terms of customer, shareholder and wider stakeholder behaviour
  2. This is a global issue that is currently being solved with local measures, exacerbated by short-term government cycles
  3. Change can come through a reinterpreted capitalism that accepts there is value that goes broader than financial capital 


There are undeniable global challenges to address pressing systemic risks. There has been global agreement on priorities for action in the guise of the Sustainable Development Goals, which also demonstrate the interconnectedness of the issues. The 2030 deadline for the goals is not that far away, with the 2050 Net Zero commitments looming in the background, but the world is not on track to achieve the goals. But to what extent is business responsible and how should investors act?


While governments have anticipated and asked for private sector investment in order to meet the lofty goals of the SDGs, in reality it’s not always clear what action needs to be taken by investors. 

There has undoubtedly been progress in education, health and prosperity across parts of the globe. But there remain large populations who have yet to see those gains. Some argue that capitalism is an effective course corrector and problem solver, given enough time. But while it is fair to say that progress has been made across industrialised nations and in pursuit of growth and improved living standards across the last two hundred years, the reality of climate science is that time is running out and the effects will not be confined. 

The concept of capitalism has certainly evolved over time and can increasingly be seen to pivot towards stakeholder capitalism with a much broader view of its role and impact. However, this is not a blanket condition, capitalism looks very different in Europe, the US and even China. In parts of the global south where it’s no longer really possible to enjoy the unconstrained development of the industrial revolution, different ways must be sought to create growth and prosperity within climate constraints. 

New ideas around capitalism have emerged that emphasise the importance of circularity – essentially the reinvestment, reuse of products and elimination of waste. In addition, different types of capital, including human, social, produced and natural, must now be valued. Failure to protect and sustain natural capital will render all other growth null. 

There are some truths to understand to know that business practice must change and adapt. These relate to the external context as well as the changes in consumer behaviour, that the shareholder base has changed since the global financial crisis, along with the focus shifting from cutting costs to a broader set of responsibilities. Stakeholder dialogue is broader and more frequent. Employee expectations have developed around what they expect from an employer for themselves and it's impact in society. And there are complications along the way such as a generational split on certain issues.

Investors are left with the understanding that they now act with a wider set of responsibilities, but questions of whether they have the mandate to change, or the scope of it – perhaps there is only so much that portfolios can do. In fact, in many cases in the past the government has kick-started the private investment process with seeded public investment that sends a signal to the private sector that this is a necessary and preferred area of investment. This may point to a need for more intentional impact, including a move towards impact investment and philanthropy on a smaller scale.

The challenge is to make the issue tangible, while targets for the SDGs (2030) and Net Zero (2050), have been set it’s not always clear what success will look like – at the end or along the way. Clear milestones are needed (bearing in mind we are likely to be looking at an exponential curve with a very flat starting path).

And the most challenging reality is there is no final arbiter of quality or behaviour. Free-riding is possible by companies that can enjoy the efforts of others, and failure to participate in climate-friendly or socially responsible business is not – yet – effectively penalised. 

Global challenges need global solutions

The reality is that while this is very much a set of global challenges, the solutions being worked on are being done often piecemeal and locally. This isn’t the flagship programmes such as TCFD, which took a lot of groundwork to achieve, but rather the different carbon markets, or tax rates or investment products. 

There are some efforts to create global consensus around issues but it takes years to reach agreement on the necessity of action, let alone what the action should be. This month, 136 nations agreed to a minimum global corporate tax rate of 15%, to address tax tourism by multinationals channelling revenue through low-tax jurisdictions that are not where core business operations are located. This solves one problem, but creates new ones, especially considering increasing amounts of business are virtual, intangible or global. The role of strong and representative institutions is critical, to set the standard and to continue to push for progress where governments lose steam or fear electoral punishment. In this way, we see the OECD pushing for minimum carbon taxes (having been instrumental in the corporate tax agreement), alongside the tireless work of activist groups to keep attention on issues. 

And there is potential for a quiet revolution in the more traditional and conservative spaces in audit and accounting, including the International Organization of Securities Commissions (IOSCO). They are considering how to approach moving ‘non-financial’ (already an outmoded term) items onto the balance sheet and looking at how to reimagine concepts of value. Providing a practical tool, Harvard Business School has backed the creation of Impact-Weighted Accounts, which aims to price in various different costs that can fail to make it onto balance sheets, and transparency provide a clearer picture of the actual costs and impacts of certain types of business and investment. 

Who is ultimately responsible? Everyone.

Consumers do need to be more knowledgeable about the impact of the choices they make. There is a trend towards changing spending habits to seek higher-quality products or to pay the ‘true’ cost of items rather than the discounted price that is allowed by the current models of production and supply. But it’s not realistic to expect consumers to challenge these existing models of consumption that have been carefully constructed and relentlessly promoted to them. There, governments and business must take responsibility. 

This likely needs to be a partnership to leverage the bits each party is best as corporates can be more agile in changing policy and can look to longer than an electoral cycle to plan and strategise. But this is a challenge if the policy environment is in flux and they cannot plan for costs that might arise through taxation or changes to regulation. Governments could signal more clearly the direction of policy and investment to enable business to follow suit. But they must recognise that legacy systems and infrastructure can take time to change. 

Ultimately, everyone has a role to play and whether it’s reframing the role of investors or taking individual steps, the only way to progress is to act.