World Economic Forum – Davos 2021
"The business of business used to be business. Today, the business of business is improving the state of the world"
January 31st 2021
The so-called “Davos Forum”, organised by the World Economic Forum (an international organization for public-private cooperation) happened this week, this year on a digital platform due to the pandemic situation. As always, the key players from around the world (politicians, economists, corporate leaders) gathered to address the “state of the world”. This year was no exception and whilst the coronavirus crisis has been the focus of much of the event, the main themes can be summarised as follows: 1. Stakeholder Capitalism Klaus Schwab (Founder and Executive Chairman of the Forum) believes that 2021 will be a historical year in changing the philosophy of business. Accelerated by COVID-19, businesses will increasingly recognize the need for stakeholder capitalism. "We are moving from short-term shareholder profit maximization to a world that is characterized by stakeholder responsibility," Schwab said. “The COVID-19 crisis has shown that companies that commit to stakeholder capitalism perform much better than others because they invest in the long-term viability of the company”. Darren Walker, president of the Ford Foundation, said the audience at Davos is the world's greatest capitalists. He is a capitalist, because he believes in the system, but he said: "If capitalism is to be sustained, we must put a nail in the ideology propagated by Milton Friedman, that was used to propel the kind of inequality we see". The concept was widely debated and was the source of multiple statements and articles in the Forum. Basic message, reinforcing the one from last year, was the absolute need to move away from Shareholder capitalism as the form of capitalism in which the interests of one stakeholder, the shareholder, dominate over all others. Companies operate with the sole purpose of maximizing profits and returning the highest possible dividends to shareholders. That is the force we have seen at work in the past few decades and is now time to move to Stakeholder capitalism, one where every stakeholder’s interest must be respected and have a voice in decision-making. Measuring stakeholder capitalism will be key to its success. All of which hammers home the need to bring ESG measurements into the mainstream and to ensure a consistent reporting system that comes close to the common metrics found in financial statements. The Forum is contributing tangibly to this endeavour following the release of a set of universal metrics and disclosures to measure stakeholder capitalism that companies can report on regardless of their industry or region. The benchmarking system elevates ESG from a corporate box-ticking exercise to a process in which businesses demonstrate their long-term value creation and contributions to the Sustainable Development Goals (SDGs). The mood of the whole Conference on the topic of Stakeholder Capitalism was captured by this quote from Marc Benioff, CEO of Salesforce: "The business of business used to be business. Today, the business of business is improving the state of the world".
2. The fight against Climate Change The UN Secretary-General Antonio Guterres set the tone by saying “making peace with nature is the defining task of the 21st century. It must be the top priority for everyone, everywhere”. To coincide with the Davos event, McKinsey issued an extensive research report showing that if we fail to adapt and dramatically reduce emissions, hundreds of millions of lives, trillions of dollars of economic activity, and the world’s physical and natural capital will be at risk. One of the key discussions was around Carbon Markets. "We're going to need $50 trillion in investing to get to a net-zero world. It's not a small price tag, but the opportunity is going to be large," Larry Fink (CEO BlackRock) said. This CEO has the habit of sending every year, late January, a letter to his CEOs around the globe, letters that typically make the headlines and are closely followed by the Corporate world. His 2021 letter was out this week and we strongly recommend you read it. On the role of technology in achieving net-zero, Bill Gates said the good news is that a lot of companies are taking carbon into account as they make decisions and stay away from investments that produce carbon. "The next step is getting people to monetize those things and put the money into things that have a provable impact," he added, and a number of companies are willing to do that. Feike Sybesma (DSM) mentioned that more is needed from businesses. "The private sector, we really need to step up," he said, adding that it cannot only reduce emissions and be more transparent but also embrace well-intentioned policies like carbon pricing. Kadri Simson, Commissioner for Energy, European Commission, pointed to a recovery programme (currently estimated at several hundred billion euros) which would include at least 37% of dedicated climate-related expenditure. But green growth does not end there, she added. "We have to convince the banks and insurers and pension funds that they need to invest in the climate too." Bill Winters, chief executive of Standard Chartered, said that although many businesses had communicated net-zero emission pledges, few of them had outlined how they would implement or measure them. “Ultimately there is going to have to be some facility for people to get to net-zero by transferring money to other people who are able to actually remove carbon from the environment, which may not be the businesses that we run,” he said. 3. Fostering Responsible AI Leadership The topic of Artificial intelligence (AI) was high in the agenda holding the promise of making organizations 40% more efficient by 2035, which corresponds to $14 trillion in economic value. Firth-Butterfield (Head of AI & Machine Learning and Member of the Executive Committee of the World Economic Forum) announced the Global AI Action Alliance, a multi-stakeholder group including more than 100 companies to accelerate the adoption of inclusive, trusted, and transparent AI. The end goal "is to create an artificial-intelligence-enabled society, to shift our focus from building responsible and ethical AI products to building a responsible and ethical AI society that is grounded in these products, to use artificial intelligence to create genuine equality,". “We must change how we in the world structure and think about AI. One-third of the users of the internet are children, they are going to grow up in this world and it will be important for them to ensure responsible and ethical AI” he added. Have a great and impactful week! Filipa Pires de Almeida and Nuno Moreira da Cruz Center for Responsible Business & Leadership