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17 Ways to Rethink Capitalism

17 Ways to Rethink Capitalism
 Clémence Alméras
Policy Officer - Energy and Sustainable Development
 Francesco Bellino
Managing Director at BCG

Threatened by fierce competition, a lack of investment and increasing fragmentation, many European businesses are presently engaged in a fight for survival.

The time has come to devise a new, specifically European model that fits the current situation, one where the economic and social crises brought upon by the Covid-19 pandemic are provided with unprecedented support. On June 15 of this year, France, Germany and Italy undertook measures totaling more than €2.9 trillion, representing over 40% of these countries’ combined GDP.

In a report jointly published by the Comité Médicis and Institut Montaigne, we have provided seventeen recommendations aimed at reconciling economic, social, environmental and geopolitical objectives around specific initiatives to make Europe the home of "responsible capitalism." Why Europe? Because we consider it to be ahead of other regions of the world in terms of social and environmental protection requirements, evidenced by the progress towards green taxonomy, and perhaps even recent gains of green parties in multiple European countries, especially in France.

In Europe, the movement is already underway. Most businesses have significantly increased their efforts in moving towards a responsible transition to a greener economy and increased transparency in their actions, demonstrated in the increasingly numerous and well-substantiated provision of progress reports. However, it is also clear that few companies have been able to achieve a genuine and responsible transition so far. This failure has occurred due to:

  • expectations from investors and shareholders, which too often remain purely financial and short-termist (a legacy of the Friedman doctrine);
  • difficulty in implementation - even when top management provides clear direction - due to a lack of support from middle management, who often perceive the twin demands of maximizing profitability and corporate responsibility as inherently contradictory;
  • difficulty in prioritizing actions (and available resources), which often leads to scattered efforts and reduced impacts.

Bearing in mind that the obstacles are primarily regulatory and financial, an ecosystem beyond individual businesses must be mobilized. A new framework needs to be defined in order to remedy the situation and fully attain a responsible, prosperous capitalist economy that will ensure all European businesses are profitable, independent and resilient.

Firstly, business performance assessment frameworks must be revised to reflect the current realities. There is a need to move away from the Friedman doctrine, which states that a company’s only social responsibility is to its shareholders; as such, profitability is the only way to truly measure a company’s responsibility. This must be supplemented with extra-financial information in order to begin the transition towards a sustainable economy, through connecting long-term profitability to social justice and environmental protection. Such extra-financial information would outline, for both investors and consumers, the societal and environmental performance of companies and their overall impact on society.

Europe must now establish its own regulatory framework for extra-financial information that embodies European values, which are naturally different from those advocated by the United States or China.

Europe must now establish its own regulatory framework for extra-financial information that embodies European values, which are naturally different from those advocated by the United States or China. To these ends, and before selecting the CSR rating indicators, the European Union must identify key Environmental, Social, and corporate Governance (ESG) themes in line that are in line with EU values. Given the sums involved, any national or European aid should be subject to ESG requirements that are based on a taxonomy that is both eco-friendly and socially responsible.

Moreover, in order to better assist European businesses in the movement towards responsible capitalism, engaging not only management but also, and above all, their employees, we recommend establishing European guidelines on corporate governance. This could be achieved by increasing employee profit-sharing via an effective balance of participation and incentive schemes.

With these seventeen proposals, our ambition is to launch a debate that will help Europe build this new capitalism, which is crucial to all companies and businesses across the continent.

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