Responsible capitalism: benefiting society and investment returns

Since pulling out of the global financial crisis, markets have been on one of the longest bull runs in history. Yet as wages stagnate, productivity slumps and living standards drop, large swathes of people in Western democracies feel left behind. Many of them are losing trust in capitalism itself.

9 September 2019

Capitalism today is delivering returns for shareholders, but not in a sustainable way if the other stakeholders — employees, customers and the wider world — aren’t sharing in the benefits or, worse, if they’re paying a cost for delivering those returns. Using a parable of Prussian forests, our head of asset allocation research Edward Smith addresses this myopic focus on short-term measures of profit growth in a surprisingly relevant way. He sets out compelling reasons for every long-term investor to care about responsible capitalism — even if they don’t necessarily care about the societal benefits.

Capitalism is the solution, not the problem

Despite its faults, capitalism is one of the great success stories of history. Capitalism isn’t the problem, it’s the solution — when pursued responsibly. We recognised the importance of responsible investing years ahead of our peers, and started managing ethical and sustainable portfolios in 1997. We dedicated a whole unit to the subject in 2004, when Rathbone Greenbank Investments was established, and were one of the early private wealth managers to sign up to the Principles for Responsible Investment (PRI) 10 years ago.

At the centre of this report our stewardship director Matt Crossman and governance and voting analyst Archie Pearson highlight our efforts to put this into practice over the past decade. They highlight the tangible benefits not just to our clients, and not just in financial terms, but to our wider society.

Matt then takes us to the origins of capitalism to show that 'responsible capitalism’ is not a new concept. Capitalism is rooted in a social contract with a sense of purpose, and there is a great opportunity for healthy functioning, responsible capitalism to address today’s urgent challenges.

A social contract

In essence we see true capitalism, what we’re calling ‘responsible capitalism’, as a social contract between businesses, the state and consumers, working together for the maximum long-term benefit of all — as originally conceived.

We’ve achieved a lot over the past 10 years, and look forward to doing more to embed principles of responsible capitalism into our investment processes. This is the first in a series of reports exploring the 'whys, wheres and hows' of responsible investing.

Read the full report