White Paper establishes framework and actions for “Sustainable Capitalism”

Generation Investment Management has published a White Paper that proposes a new way of looking at value creation in order to ensure “Sustainable Capitalism”.

The White Paper defines Sustainable Capitalism as a framework that seeks to maximise long-term economic value creation by reforming markets to address the real needs of all stakeholders while considering all costs.

The economic case is made that this paradigm shift does not represent a trade-off with profit maximisation but instead fosters superior long-term value creation.

The White Paper presents five key actions for immediate adoption, which Generation Investment Management says has the potential to accelerate the transition towards Sustainable Capitalism:

Identify and incorporate risks from stranded assets

Stranded assets are those with a value that would change dramatically under certain scenarios such as a reasonable price on carbon or water, or improved regulation of labour standards in emerging economies. Until there are policies that establish a fair price for widely understood externalities, academics and financial professionals should strive to quantify the impact of stranded assets and analyse the subsequent implications for assessing investment opportunities.

Mandate integrated reporting

Integrated reporting encourages companies to integrate both their financial and ESG performance into one report that includes only the most salient or material metrics. This will enable both companies and investors to make better resource allocation decisions about how ESG performance can contribute to sustainable, long-term value creation. While voluntary integrated reporting is gaining momentum, it must be mandated in order to ensure swift and broad adoption.

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