Sep 2020

Responsible Capitalism: An Opportunity For Europe

Published September 2020

Bruno Roche, Founder & Executive Director at the Economics of Mutuality, has contributed to an important report on the future of capitalism and the role of the European Union to shape it. Responsible Capitalism: An Opportunity For Europe has been published by Institut Montaigne, a nonprofit, independent and influential think-tank close to the business community based in Paris, France.

The following extracts underscore the reports’ relevancy to the Economics of Mutuality:

  • Climate change and social inequality: these are without a doubt Europe’s two major challenges today.

  • We know that they are urgent. We also know that capitalism as we know it, and as it has prevailed since the 1980s, has not tried to resolve them, quite the opposite.

  • Finding solutions to our major challenges requires questioning the current economic model, and shifting towards a responsible form of capitalism. Facing crises such as Covid-19, fighting climate change, reducing social inequalities — these are the main drivers that should push Europe’s economic strategy.

  • Europe has the potential to reinvent capitalism and to mobilize the actors that operate within it, in a way that can ensure a safe and sustainable future for all.

  • Corporations and decision makers can no longer shy away from the capacity they have to generate change through the business world.

  • A new model of capitalism that thrives on value-creation for all its stakeholders is possible.

The report presents a set of measures designed to create the architecture of this new form of capitalism. These have been included below. Click the button to learn more and read the full report.

17 recommendations to make responsible capitalism possible in Europe

  1. To finance responsible growth in Europe, we must allocate European financial resources to long-term investments.

  2. Using primarily the savings of European households and companies to finance responsible European companies, by exploiting the coincidence of the environmental and social transitions.

  3. Investigating the creation of a European pension fund, collecting a portion of household savings and complementing national pension funding solutions. Such a mechanism would allow for Europe to adopt a unified approach to resolving issues of old age. This sovereign fund would be invested in the long-term in responsible companies, with governance rules inspired by German and Swedish funds (joint or mutualist management, priority given to responsible investment, civil society representatives).

  4. Taking into account the lessons of the 2020 crisis, adapting the prudential rules applicable to financial activities (Solvency 2, Basel III) to encourage long-term investment in responsible capitalism.

  5. Developing the Capital Markets Union for investment in responsible companies at European level and, within this framework, harmonizing the tax rules applicable to the various investment instruments in Europe to determine a European flat tax on financial assets and harmonized bankruptcy laws as quickly as possible. This would also call for transposing the “Restructuring and Insolvency” directive as uniformly as possible in each of the Member States.

  6. Creating private equity investment instruments that can channel financial savings from a region toward companies in that same region, in order to develop local employment.

  7. Increasing employee participation in company ownership, by coordinating profit-sharing and incentive schemes. This recommendation was already put forth in Institut Montaigne’s report: ETI: taille intermédiaire, gros potentiel (in French only), published in January 2018.

  8. Defining the terms of a social taxonomy to complement the ecological taxonomy, taking into account health and social concerns.

  9. Taking back control over the principles that govern European accounting standards within IASB and re-defining a European accounting framework.

  10. Revising the 2014 extra-financial reporting directive, which requires large companies to publish reports on the environmental and social impact of their activities, to define the brand of European responsible capitalism.

  11. Identifying the essential themes of ESG criteria (environmental, social and governance indicators) that correspond to the fundamental values of the EU, before selecting the indicators. I.e: solidarity, individual freedom, regional and cultural diversity, role of unions, etc.

  12. Making ESG requirements based on a green and social taxonomy a condition for all national or European financial aid.

  13. Reforming the EFRAG (European Financial Reporting Advisory Group, created in 2001 to provide a European voice in the development of international accounting standards and to advise the European Commission on the adoption and implementation of those standards) in order to incorporate a European vision of ESG, in line with the challenges and values of the European Union.

  14. Drawing up a code of conduct for extra-financial rating agencies. A similar approach should be applied to proxy voting agencies.

  15. Stipulating that a European company must be managed according to its corporate interest in consideration of the social and environmental issues related to its activities, and encouraging all European companies to adopt a “purpose”, a key element of their image in society and of the definition of their commitment to common good.

  16. Enabling responsible European companies to have long-term European shareholdings. This brings us back to the mobilization of European savings and therefore shareholders that believe in the European values and influence management on the basis of common values.

  17. Establishing European guidelines subject to the same requirements, in the areas of corporate governance, remuneration of directors, tax policy and due diligence.

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