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Sustainable Capitalism....If not now, then when?

Guest post by Erika Karp, Managing Director and the Head of Global Sector Research for UBS Investment Bank. The prominent Jewish scholar Hillel is known to have said  “IfI am not for myself, then who will be for me? And if I am only for myself, then what am I? And if not now,thenwhen?“  These questions posed at around 50 BC are incredibly timely in the context of today’s battered global economy and threats to our system of capitalism.  Indeed,“If not now, then when?”  Today we witness the US economy piling on a trillion dollars a year in additional debt, the Eurozone under siege awaiting cohesive policy and political leadership, and China’s leadership in transition while hoping to maintain enough growth to support the needs of 1.3 billion people.  Again,“If not now, then when?”   We live in a world which consumes about 1.5 times the earth’s sustainable level of natural resources each year to support our current consumption patterns. Our population is aging such that the financial burden on the young to care for the old is growing rapidly, the extent of income inequality is dramatically increasing, the US alone has almost 50 million people living in poverty, and almost a billion people around the world don’t have access to clean drinking water. “If not now, then when?”  The time is indeednow.  All the pieces are in place to move forward and leverage the extraordinary power of capitalism on behalf of  the entire world. Now we have everything we need across the broad realms of technology, science, academia, economics, government, and finance to ensure a better future. We have the opportunity to repair an economic system which remains the greatest vehicle the world has ever known for creating wealth and prosperity. The real question is whether we have the force of will to follow through. In the face of a justified crisis of confidence in capitalism, we must rebuild trust and faith in the system. We can. And now is the time. To do this though, we need to better acknowledge the shortcomings in our abilities to deal with complex global problems. As did Hillel, we need to pose the hard questions to the right people and to ourselves.  We need two things which are currently in deficit.  The first is greater transparency into the mission, strategies, objectives and priorities of the world’s private sector companies combined with a regulatory infrastructure which encourages that transparency.  The second is a generation of business leaders who are better at facilitating collaboration. On the subject of transparency, I would argue that many signals now point to the need for more systematic analysis of environmental, social and governance (ESG) factors in the investment processes which drive capitalism.  The time isnow given that there are one thousand asset management firms representing $30 trillion in assets who need to better understand business decision-making processes associated with the inevitable trade-offs inherent in running a business for the long-run. These firms, all signatories of the UN Principles for Responsible Investing, now have access to more ESG data than ever before. This data can now be housed in the cloud, better analyzed, better assured, and better disseminated through social media by the scores of investors, accountants, consultants, investment banks and academic institutions which are demanding it.  This data, which is pivotal to decisions around financial investments as risk and return are analyzed, can now be disclosed in a more coherent and efficient matter now that standards are being established as with the GRI (Global Reporting Initiative) and the US launch of the SASB (Sustainability Accounting Standards Board). The time is indeednowfor better transparency. With regard to collaboration, the time has also come.  As is obvious from the course of the global financial crisis, independent action by individual economic entities working towards their own interests will ultimately fail. “If I am only for myself, then what am I?”  Complex problems cannot be solved sequentially. There must be parallel processes, initiatives and perspectives which can ultimately come together to find solutions. There must be a belief that solutions for the whole will ultimately be beneficial for the individual.  Collaboration can be encouraged by leaders who are incentivized to truly steward financial, human and natural capital for the long-run.  We have indeed begun to see that in the capital markets across the corporate and investment world.  Collaboration can be accelerated by embracing diverse perspectives. Again we have begun to see a greater recognition for this at corporate boards and with initiatives like those of Calpers and GMI in their Diverse Director Datasource.  The imperative and the infrastructure is in place, so “if not now,thenwhen?“  In summary, I argue that the awesome power of capitalism can be unleashed through rebuilding confidence and conviction. Confidence and conviction can be restored through greater transparency and collaboration. Transparency and collaboration will allow for more creativity, innovation, productivity and growth.  Obviously all these things are easy to say, but not as easy to execute. In order to actually deliver on the promise, I would suggest that we attack complexity with simplicity as did the scholar Hillel.  The simple principle of asking questions is the best starting point.  But, to ask them constructively and consistently, and to ask again and again until the answers are forthcoming, is the trick.  To elevate consciousness around broad environmental, social and governance factors and then to ask for accountability is essential. We must ask the right questions to the right people. Then we need to insist upon robust answers, comparability and accountability. The future of capitalism can indeed be much brighter if it is viewed as “a question of questions.” Originally published in Forbes.

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