As we stand on the cusp between 2015 and 2016, I believe we are at a turning point between one form of capitalism and another. Hopefully, we will soon leave behind the roaring '80s, Gordon Gekko, greed dictating the rules, and the practice of squeezing business to maximize shareholder value in the short term. That was a capitalism of exclusion of the many and victory of the few. Globalization, new technology, and decades of the rules being rewritten to favor capital markets and the wealthy have led to what the Financial Times calls "America's middle-class meltdown."

Where we are headed, if we can make the pivot, could be called inclusive capitalism, regenerative capitalism, or doing business with purpose. Instead of shareholders only, all of a company's stakeholders, including employees, communities, customers, suppliers and the planet, will benefit from good management practices. And we can have a win-win situation: shareholders are likely to reap rewards that are greater from purpose-driven companies than from those seeking only quarterly profits.

Above all, society as a whole will benefit. If we pursue inclusive capitalism, we can all rise together.

Most people are aware of the historic accord on climate change signed in Paris on December 12. This will directly affect business, accelerating the transition away from fossil fuels and into renewable energy, and unleashing opportunities for clean tech innovation.

Fewer people are aware that the United Nations General Assembly adopted a new set of 17  Sustainable Development Goals in September, and that business is expected to play a fundamental role, along with governments, in ending poverty on a global scale.

These two agreements, if implemented effectively, can launch us unto a new way of doing business that leaves no one behind.

Here are 7 reasons I expect business to pivot in 2016:

1.       Business has entered a race to the top. As soon as the UN's Sustainable Development Goals (SDGs) were published, corporations began aligning their own Corporate Social Responsibility strategies with the SDGs and announcing ambitious social targets. Many are following an " SDG Compass" for this purpose. In Paris, big companies were outdoing each other with commitments to ambitious environmental targets. (This even prompted some activists who have traditionally considered corporations to be the enemy to call big business an ally.)

2.       In order to be counted as a truly sustainable business, a company's supply chain must be sustainable. As companies make sustainability demands of their suppliers, and those suppliers make similar demands on theirs, a spider's web of sustainable practices and transparent reporting is extending itself across the globe.

3.       Risk, especially to corporate reputation, has come to the forefront. Consumers now expect corporations to behave ethically, and CEOs have been made aware of the magnitude of their responsibility.

4.       Regulators are stepping up environmental, social and governance (ESG) compliance requirements. Companies are being held accountable in a very serious way for polluting and for their human rights records. For example, the UK and California are making it a legal necessity to root slave labor out of supply chains. 

5.       CEOs and Boards have broader fiduciary duty. "The Principles for Responsible Investment (PRI) report "Fiduciary Duty in the 21st Century," and the U.S. Department of Labor's Interpretive Bulletin 2015-0016 put boards on notice that their scope of influence on materiality goes beyond traditional economic matters," says Gregg Sgambati, Managing Director of S-Network Global Indexes, Inc. "Corporate boards will re-evaluate and act on their fiduciary responsibility to incorporate non-economic or ESG information into their strategic guidance and decision making."

6.       One aspect of the corporate race to the top is an increase in voluntary sustainability reporting. And the reporting frameworks that are emerging, including the Global Reporting Initiative (GRI), the Carbon Disclosure Project (CDP), the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB), are aligning. When a company embarks on such reporting, it prioritizes sustainability as part of the process.

7.       Institutional investors, in turn under pressure from their clientele, are beginning to favor companies with better sustainability programs.

Hunter Lovins, President of Natural Capitalism Solutions, says companies are scrambling to get on board. "We're going to start seeing leaping and bounding," she says. "This is the year that will be seen as the watershed. Which side of history are you on?"

 

Published on: Dec 17, 2015