What is inclusive capitalism?

A persistent, decades-long rise in gross domestic product (GDP) in many countries has improved overall living standards and lifted many people out of poverty. This is proof of the power of capitalism. But measuring GDP has its limitations. It cannot shed light on unequal income distribution. Nor does GDP give any insight into other types of societal inequality – including less access to healthcare, education, or infrastructure.

That’s why the concept of inclusive capitalism is gaining momentum as part of a more inclusive approach to economic growth. Inclusive capitalism aims to deliver equal opportunities and fairness for all members of society.

The push towards inclusive capitalism is a result of a recognition by governments, businesses, investors, and wider society of the limitations of the current economic model. Consider, for example, data from the Allianz Global Wealth report, showing the richest 10% of the world’s population together owned more than 84% of total net financial assets in 2020, and the middle class is shrinking.[1]

Many governments and companies are taking steps to build a more inclusive world. ?More than 190 countries have adopted the UN Sustainable Development Goals (SDGs) to support a better and more sustainable future for all. By highlighting priorities such as “zero poverty”, “decent work and economic growth” and “quality education”, the 17 SDGs provide a roadmap for companies to address these issues in the way they run their organisations and through their products and services.

With its focus on reflecting the needs of women, youth and local and marginalised communities in climate-related planning,?SDG 13: Climate Action?is particularly germane to this discussion of inclusive capitalism. SDG 13 highlights how the journeys towards both an inclusive world and a 1.5 degree-aligned world are tightly interwoven. Consider how moving to a low-carbon economy can have social repercussions, for instance if jobs are jeopardised by the shift away from fossil fuels. This is the impetus behind the calls for a “just transition”. At COP26 in November 2021, more than 30 nations signed the Just Transition Declaration acknowledging “the need to ensure that no one is left behind in the transition to net zero economies”.[2]

Clearly,?the SDGs can provide a much-needed roadmap to address some of the world’s most pressing issues related to sustainability. Early results are promising: of the 8,550 companies in the MSCI All Country World Index, nearly 40% have aligned with multiple SDGs (see Exhibit 1). But other companies still have work to do: 7% of firms were assessed as “misaligned”, noticeably on?SDG 7: Affordable and Clean Energy.[3]

More companies and other stakeholders will need to embrace the shift to inclusive capitalism to reduce more societal inequalities.

Exhibit 1: Level of corporate alignment with SDGs

This chart displays distribution of companies’ assessment by SDG for a set of 8,550 companies, as at 11 August, 2020. Data for 8,550 companies. Source: MSCI ESG Research LLC. Data as at August 2020.

[1] Allianz Global Wealth Report 2021

[2] Supporting the Conditions for a Just Transition Internationally - UN Climate Change Conference (COP26) at the SEC – Glasgow 2021 (ukcop26.org)

[3] Assessing Company Alignment with UN SDGs - MSCI

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