Stakeholder Capitalism. Familiar with It?

If you follow the evolution of the ESG agenda in Brazil and abroad — through articles, news or panel discussions — you have likely come across the term stakeholder capitalism.

A clear explanation of what this kind of capitalism actually means, however, does not always accompany the reference. Here we set out to clarify the concept and to illustrate how this economic model converges with ESG practice.

Let us start with the stakeholders themselves. In the broadest sense — particularly in the context discussed here — a stakeholder is any interested party. All those involved in a matter, business or policy — shareholders, governments, consumers, employees, suppliers or the community at large — may be considered stakeholders.

Capitalism, on the textbook definition, is an economic system grounded in the legitimacy of private property and the unrestricted freedom of trade and industry, with the principal objective of maximising profits and distributing them to its shareholders and investors.

So what, then, is stakeholder capitalism?

According to Klaus Schwab, the German engineer and economist behind the concept, "stakeholder capitalism is a form of capitalism in which companies do not only optimise short-term profits for shareholders, but seek long-term value creation, by taking into account the needs of all their stakeholders and society at large."

It is in this process of long-term value creation that the participation of interested parties — the stakeholders — becomes essential, not least through actively listening to their views, claims, needs and concerns.

Schwab, it should be noted, is the founder of the World Economic Forum, an international organisation for public-private cooperation that hosts an annual gathering of the world's leading business and political leaders in Davos, Switzerland.

In Schwab's view, the corporations best able to align their own objectives with those of society will be the best positioned to create long-term value.

It is at this point that capital and profit seek alignment with environmental, social and corporate governance considerations — that is, ESG itself.

A company's success will no longer be measured solely by the wealth and dividends generated and distributed to its shareholders, but also by its positive impact on the community in which it operates, on the surrounding environment, on respect for human rights, on the responsible use of natural resources, among many other dimensions.

The future points to a capitalism of prosperity built on the aggregation of common values — more ANDs, not ORs.

A company will have to be economically viable AND environmentally responsible AND socially engaged AND deliver all of this transparently and in line with sound corporate governance practices. It cannot be one OR the other. Profit cannot come at the expense of social or environmental concerns; it must be achieved alongside success on those fronts.

As the B Movement aptly puts it — the global community founded in 2006 in the United States to redefine business success so that it accounts not only for financial performance but also for the well-being of society and the planet — boards, shareholders and investors who want their companies to thrive must shift their focus: the goal is not to be the best company in the world, but the best company for the world.

To measure a company's sustainability and its commitment to stakeholder capitalism, the World Economic Forum proposes 55 metrics organised around four pillars: recurring principles of governance, people, planet and prosperity.

While the ESG agenda is closely tied to Schwab's concept — creator and creature — it also foreshadows a clear movement among future generations, who will demand that positive impact sit at the centre of corporate strategy, ensuring sustainable processes day to day.

A sign that stakeholder capitalism is already a reality? ESG indicators have already made their way into executive performance, compensation and success metrics.

Delivering positive outcomes for business, for the economy, for society and for the planet — that is the very definition of stakeholder capitalism.

MARCO OROSZ

marco.orosz@fius.com.br