Stakeholder Capitalism: The Solution to Our Climate Crisis?


· 8 min read
The recent frequency of climate change news dominating the media has resulted in much criticism of capitalism. One of the main criticisms revolves around prioritizing economic growth over the environment and for contributing to climate change and other forms of pollution (i.e. negative externalities not priced in). The history of stakeholder capitalism can be traced back to the early 20th century, with the concept being first suggested by economist John Kenneth Galbraith in the 1950s, a Canadian economist who argued that corporations should be accountable not just to their shareholders, but to all stakeholders, including employees, customers, suppliers, and the community at large. This concept was popularised by management theorist Peter Drucker in the 1970s, and later by R. Edward Freeman in 1984 in the book "Strategic Management: A Stakeholder Approach”. The idea behind stakeholder capitalism is that companies should consider the interests of all stakeholders, not only shareholders, in order to achieve long-term success.
Stakeholder capitalism is much more important in modern times because it can create a more equitable and sustainable economy by prioritizing the interests of all stakeholders. By creating value for a wider range of people and promoting social and environmental sustainability, companies can contribute to a more just and sustainable society. It is generally noted that it is one of the ways in which we can adapt capitalism for the modern age where we are facing the biggest challenges of our lifetime – climate change and biodiversity loss.
These are five ways that stakeholder capitalism can enhance environmental, social, and governance (ESG) and sustainability:
Some key leaders in ASEAN have expressed support for stakeholder capitalism. For example, President of the Philippines, Rodrigo Duterte, said "Stakeholder capitalism ensures that the benefits of economic growth are shared by all stakeholders and not just shareholders." In the same spirit, the Prime Minister of Singapore, Lee Hsien Loong, has stated that "Stakeholder capitalism is crucial for Singapore's long-term economic growth."
While the drivers can be seen as main advantages of stakeholder capitalism, there are also some known disadvantages/criticisms of stakeholder capitalism. I would include some personal justification of how they can be nullified or overcome. They include:
Another movement that has gained momentum over the years is the concept of degrowth. Stakeholder capitalism is similar to degrowth in that both prioritize sustainability and social equity over economic growth. However, stakeholder capitalism is focused on creating a more sustainable and equitable economy within the current growth-oriented system, while degrowth calls for a reduction/alignment in overall economic activity in order to achieve sustainability and social equity.
Drivers of stakeholder capitalism in ASEAN include growing awareness of social and environmental issues, pressure from stakeholders such as customers and employees for companies to adopt more sustainable practices, and increasing competition for socially responsible investments. Also, the increasing focus on responsible investing and ESG by investors is a key driver for stakeholder capitalism in ASEAN.
Some leading companies of stakeholder capitalism in ASEAN include:
In terms of the impact on sustainability, stakeholder capitalism can lead to a reduction in environmental impacts and a more sustainable use of resources. By prioritizing the long-term interests of all stakeholders, companies are more likely to consider the environmental and social impacts of their actions, leading to more sustainable business practices. Additionally, by promoting fair labour practices and supporting local communities, stakeholder capitalism can contribute to greater social sustainability and economic development in ASEAN.
It is important to note that stakeholder capitalism is not seen as a precursor to degrowth, as it is a way of achieving sustainable growth within the current economic system. It is a way of organizing economic activities to make them more inclusive, equitable, and sustainable by considering the interests of all stakeholders. However, it's not the only solution to achieve a sustainable future and other policies may have to be implemented as well. I believe the concept of degrowth can happen in the near future as consumers rationalise their demand to be more in-line with the environment’s regenerative capabilities. Increased knowledge of circularity and biodiversity is critical to pivoting consumer behaviour towards more informed choices.
The future of stakeholder capitalism in ASEAN is likely to see an increased focus on sustainability and ESG. As investors become more aware of the need for sustainable and socially responsible investing, companies in ASEAN will be under pressure to adopt stakeholder capitalism as a way of demonstrating their commitment to sustainability. Additionally, as consumers become more aware of social and environmental issues and demand more sustainable products and services, companies will have an increasing financial incentive to adopt stakeholder capitalism. When companies adopt stakeholder capitalism, it has the potential to drive long-term economic growth that is inclusive, sustainable, and equitable for all stakeholders.
Whether stakeholder capitalism is a “solution” is irrelevant in my opinion, but the realisation that corporations need to have a radical mindset change is critical. We are in need of a reexamination of our value chains and our processes to create better alignment towards our economic processes so that we can continue our activities with minimal disruptions to the regenerative properties of our environment.
illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.
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