In the past few decades, economic crises, pockets of rising inequality and a world increasingly vulnerable to human-induced climate change have revealed what ‘profit-for-profit’s-sake capitalism’ can potentially unleash. Consumers’ and shareholders’ expectations of business have rightly changed as a result.
Federal Treasurer Jim Chalmers recognised this when he penned his Monthly essay ‘Capitalism After The Crisis’. He drew on the arguments of economist Mariana Mazzucato that markets built in partnership between government, consumers and business are the most effective at directing resources and in doing so he argues that “healthy economies rely on healthy people and communities”. Chalmers dubbed this values-based capitalism.
The idea behind values-based capitalism is not new. Whether you know it as corporate social responsibility, social democracy, ESG, the third way or shared value, they all draw from the same concept: vibrant healthy communities beget vibrant healthy economies, and economies are only as valuable as the people and communities they serve.
While caring about stakeholders beyond the usual shareholder is a moral and ethical imperative, it also makes good business sense. Research from McKinsey has shown that strong ESG performance among firms is positively correlated with stronger returns on equity and downside risk reduction.
It's no surprise therefore that more and more investors are looking at non-financial metrics alongside more traditional measures of business success when determining where to allocate their investments. They recognise that managing risk includes more than just managing financial risk. In Australia, almost two thirds of retail investors are willing to invest in a sustainable way.
But not everything is always as it seems. Research conducted by the Responsible Investment Association Australasia (RIAA) in 2021 found that 72 per cent of Australians were concerned about greenwashing, something our regulators have shown keen interest in.
Accurate and timely reporting is vital to addressing this, and key to building trust with investors and customers. Consistency in the information being disclosed to investors is also vital. Bendigo and Adelaide Bank supports mandatory climate-related financial disclosures (based on ISSB standards) as a minimum. Consistency allows investors to compare between companies and industries with ease and undercuts the possibility for greenwashing.
Underpinning all of this is trust. Trust has always been the most important human currency and it will continue to be so regardless of what innovations and technological advancements come our way.
I welcome the recent shift in policy focus away from growth-for-growth’s sake towards inclusive, sustainable and mindful growth. I would go further to ask what is the point of economies and markets if not to produce and support healthy people and communities? Here, the importance of being driven by purpose comes to the fore.
In business, we can often fall into the trap of talking about what we do and how we do it. For example, as a bank we offer banking products like deposit accounts, loans and credit cards. We do this by operating a network of branches, mobile bankers and digital platforms. But none of this touches on why we do it—and it’s the why that matters most to customers, staff and stakeholders.
We do this because it helps our customers and communities build a prosperous life. We do it in the way we do because it leaves our communities stronger as a result. Fundamentally, values-based capitalism asks us to question ‘why?’ What is the point of driving for growth and profit if it does not feed into a greater need? Some might see this as a warm and fuzzy, or a massive corporate overreach, but the reality is that values-based capitalism makes good business sense.
The company I lead, Bendigo and Adelaide Bank, has long championed a purpose-led approach. Our story began over 165 years ago on the goldfields of Victoria where miners would pool their funds for community prosperity purposes. Once a month, everyone’s name would be placed in a barrel and a name would be drawn out. That person would then be allocated the funds to build a home. It was the genesis of banking itself: the notion that everyone should benefit from a financial transaction – the investor who provides the funds, the borrower, the bank’s shareholders who bear the risk of the borrower not paying, and society itself. That barrel remains in our boardroom today serving as a reminder that our purpose is to feed into prosperity, not off it.
Banks have a unique role in facilitating the availability and flow of capital to investments that are delivering meaningful and measurable impact. Our Community Bank model exemplifies this with close to $300 million in profits reinvested in the communities that generated them. Our close relationships allow us to work directly with customers to help drive success on both financial and non-financial metrics. We also have an unparalleled opportunity to partner with government, community and the public sector to build the inclusive, resilient and robust economy that benefits all our interests.
Through strong values, a clear understanding of ‘why’, open and transparent disclosure and better risk management, all sections of the community can play their part in building a more inclusive, sustainable and vibrant society.