Imagine you’re walking through a forest of quiet oak trees. You can smell the bark and their deep green foliage. Their huge canopies sway gently above you. You’re fully at peace. Now, imagine those ancient trees withering, their leaves turning black, and the great trunks dying in front of you.
This apocalyptic vision is similar to the one that struck the author when she first found out about climate change.
As someone who had not only benefited from our capitalist system but had taught its merits as an academic, she began to wonder if she was complicit in this impending disaster. We learn more about this in detail in the following cards.
The Problems
- Businesses can help combat climate change and other crises by becoming purposeful and sustainable, rather than pursuing destructive short-term goals. This includes rethinking the capitalist system to give value back to communities, rather than solely profiting from them.
- Prioritizing shareholder returns over everything else is damaging to both the planet and business. This mentality stems from the ideas of economist Milton Friedman, who believed that the sole moral responsibility of business was to increase profits, with shareholders being the primary focus.
- Prioritizing shareholder returns has resulted in many of the problems we face today, including devastating climate change and widespread inequality. Big businesses have successfully lobbied against legislation that would create more equality because they believe it would negatively impact their shareholder returns. This has led to the election of authoritarian populist leaders around the world.
Working together
Businesses can drive progressive change and legislation by working together.
For example, Nike formed the Sustainable Apparel Coalition to address child labor in its supply chain, which brought many large firms together. However, without full collaboration and legislation in place, these efforts can falter.
Businesses can be powerful advocates for minority rights
AT&T and IBM were early adopters of anti-discrimination policies, with AT&T adopting one in 1975 and IBM including sexual orientation in its global anti-discrimination policy in 1984. These moves showed that businesses can be powerful allies in the fight against the oppression of minorities.
The key message here is that businesses can play an important role in advocating for minority rights.
The Key message: Think Holistic
The business world is currently too focused on short-term goals. This means that dealing with the great problems of the twenty-first century can seem like an impossible task – especially when the boardroom is fixated on investor returns, rather than harmful emissions and inequality.
However, several businesses are already leading the way. Companies like Unilever and Norsk Gjenvinning demonstrate how capitalism can be both value-driven and profitable. After all, if capitalism is to survive, that’s exactly what it must do.
Accounting reform
To avoid short-term investor demands, companies should report transparently on their environmental, social, and governance issues, as well as financial data.
This will attract impact investors who are less inclined to demand short-term returns and more likely to understand the long-term choices a company might make to improve its impact on the environment and community.
Short-sighted business models threaten the long-term success of businesses and life on Earth
Many businesses prioritize short-term profits over the long-term health of the environment and society. For example, Peabody Energy, an American coal firm, continues to prioritize coal despite the climate crisis.
Burning 186.7 million tons of coal costs around $30 billion in climate and health costs, five times more than the $5.6 billion in revenue generated by shipping the coal. These profit-hungry businesses threaten the very prospect of life on Earth and their own long-term success.
Impact Investors
Impact investors are powerful people and institutions seeking to invest in companies that want to make a positive difference. If companies are driven by purpose, they’re more likely to attract these impact investors.
Limiting investor power:
Companies can limit investor power by issuing two classes of shares, as seen with Facebook. This means that founders hold the reins at the company and can never be outvoted. However, to reform the worst parts of corporate finance and the short-term perspective it encourages, changes in legislation and cooperation between companies are needed.
Aetna demonstrates the importance of shared purpose
In 2015, Aetna’s CEO, Mark Bertolini, announced that he would pay a minimum wage of $16 per hour. This move was part of a larger strategy to instill a sense of shared purpose in Aetna’s employees, with the aim of improving healthcare in the US. Bertolini wanted to ensure that his employees were committed to this mission in the long-term.
Aetna’s mission was to help US patients access the exact care they needed, with a focus on personalized treatment. This was a shift from simply selling health insurance to actively supporting patients. By treating patients before they got too ill, Aetna was able to keep costs lower while ensuring much-improved healthcare outcomes for patients.
Ethical business practices can be profitable
Not all businesses neglect their responsibility to the environment, their employees, and the wider community.
For instance, Norsk Gjenvinning, a Norwegian waste disposal company, transformed into a force for good under CEO Erik Osmundsen. He introduced a zero-tolerance policy on corruption, hired from outside the waste disposal industry, and introduced new technology to recycle waste more effectively.
These developments, while good for the world, also presented profitable opportunities. NG is now one of the most profitable waste disposal companies in Scandinavia.
Businesses can reform their accounting and investor relations to focus on long-term goals
Shareholders often exert too much influence on businesses, leading to short-term thinking and neglect of pressing issues. Businesses can reform their accounting, rely on impact investors, and limit investor power to focus on what matters and avoid being limited to short-term demands.
