March 15, 2018 10 min read

Opinions expressed by Entrepreneur contributors are their own.

Inclusive capitalism is a new measurement framework to help companies restore trust in today’s society and is designed to help capture value from socially responsible business activities. For the past year, chief executive officers have often talked about the new sense of moral responsibility that corporations have to help their communities and confront social challenges, even when Washington has not yet taken the initiative.

Since the end of 2016, the world has become more uncertain, as voters have continued to voice their concerns and frustrations over a number of matters, including being left behind in the global economy, privacy and data breaches, or an epidemic of shootings, to name a few. One issue that appears to get under people’s skin is how technology companies keep getting richer, while having almost no safeguards against fake conspiracy stories spreading through Russian bot meddling. Technology continues to play a huge role in people’s lives, and it can be argued that it comes with positives and negatives. All of these have had an effect on driving the public trust in institutions, especially in business, to near record lows.

What’s the antidote?

It’s crucially important to restore that trust, which is why there is a new phrase gaining popularity among business leaders: inclusive capitalism. This is an idea that is as simple as it is compelling. It is the concept that a company should create not just profits but also value that reaches stakeholders and their communities.

YouTube, Facebook and Twitter all have a section designed to elevate the most newsworthy, relevant information from a vast sea of content. But time and again, they have failed to properly flag non-legitimate (fake) news. In the worst cases, the algorithms behind these trending sections drive bot-fueled hashtag campaigns promoting gun rights to the top of Twitter Trends, push fake Megyn Kelly stories in Facebook’s trending topics portal, and promote a recent far-right conspiracy “crisis actor” video about Parkland high school mass shooting to YouTube’s #1 trending list.

Related: Analysts Predict the YouTube Advertiser Boycott Will Cost Google $750 Million

In February 2018, actor Jim Carrey tweeted that he was quitting Facebook, dumping his stock and urging other investors to do the same, due to the company profiting from Russian interference during the 2016 U.S. election. “We must encourage more oversight by the owners of these social media platforms,” Carrey told CNBC in a statement. “This easy access has to be more responsibly handled. What we need now are activist investors to send a message that responsible oversight is needed. What the world needs now is capitalism with a conscience.”

A week earlier, the CEO of $6.3 trillion asset management company Blackrock sent a warning shot letter to corporate CEOs around the world: Start accounting for the societal impact of your companies, or risk disappointing the largest asset manager in the world.

“Society is demanding that companies, both public and private, serve a social purpose,” wrote Larry Fink of Blackrock. “To prosper over time, every company must not only deliver financial performance but also show how it makes a positive contribution to society. Companies must benefit all their stakeholders, including shareholders, employees, customers and the communities in which they operate.”

What should companies do differently?

In the case of the recent issue about regulating semi-automatic gun sales, Andrew Ross Sorkin, a New York Time‘s columnist, posed the question, Do public and private corporations (banks in this case) have a moral obligation or responsibility to step in and take a moral position on an issue, risking backlash or boycott of their customers, even when politicians have not changed laws yet?

Walmart’s former CEO Bill Simon thinks not. He believes gun sales should be regulated by state and federal legislators, not by retailers. And, said, “CEOs should talk about these issues, but maybe not take sides.” Others disagree: Three top car rental companies National Car Rental, Enterprise and Alamo recently decided to end their corporate discount program relationships with the NRA.

Related: Politically Charged Boycotts Explained, From Uber to Under Armour

For some companies, it could mean finding ways to support the community in which your company operates. For other organizations, this could mean providing more training/retraining or better benefits to its employees. But for all businesses, inclusive capitalism is guided by the premise that we have a crucial role to play in building a more prosperous society, aiming for long-term value creation and financial performance instead of short-term shareholder profits.

For most companies, it is harder than ever before to make the investments they need to grow and to create new jobs sustainably for the long term. Businesses are under more pressure than ever to achieve short-term profits — thanks to circumstances such as 24-hour news cycles, instantaneous access to information online, activist investors and analysts’ focus on quarterly reports.

This pressure is a common theme in conversations among business leaders, academics and investors who support the idea of inclusive capitalism. Another topic that is often mentioned is that even when a company does take action to create long-term value for its shareholders, it can be difficult to demonstrate or easily measure how it actually benefits the business. In a world with so many short-term pressures, it can be hard to justify these actions to venture capitalists and investors — thereby creating another obstacle that holds back progress to society at large.

Can inclusive capitalism measure value differently?

The big four accounting firm Ernst & Young (EY) made a new partnership initiative in 2017 with the Coalition for Inclusive Capitalism. An invite-only conference founded by Lady Lynn Forester de Rothschild, the coalition will help solve this challenge and promote long-term value creation to make capitalism more equitable, sustainable and inclusive. They are calling it the Embankment Project for Inclusive Capitalism. The purpose of this is to develop a new framework tool for businesses and investors that will better reflect the full value companies create through human, financial and intellectual capital deployment and its impact on the world.

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This 18-month project involves 20 global companies working across three economic sectors: consumer products, health services and heavy industries. In addition, 15 investment and asset management organizations will work on a proof of concept to encourage and measure long-term value creation. Collectively, they represent over US $20 trillion in assets — and include some of the most respected names in the corporate world. Here is a list of a few of the high-profile leaders and companies involved.

The Embankment Project goes to activities that are at the very heart of value creation, but are not now always fully captured on a company’s profit and loss or balance sheet. Mark Weinberger, EY Global Chairman and CEO, said, “We’re working to make a new tool because the ones we have right now are trapped in the past. They value investments in physical assets like buildings and machinery, instead of investments in areas like human and intellectual capital.” Weinberger adds, “As a result, if you spend $100 on a building, it’s considered an asset. But if you spend $100 training your employees, it’s an expense. Similarly, if you spend $100 to hire a new employee, it counts as an expense. But if you spend $100 to build a new robot, it counts as an asset.”

Can valuations be redefined?

Common sense would say that to most people there is obviously something backward about the current valuation model. Making investments such as hiring and training employees are some of the main concepts of the inclusive capitalism framework. This new program is working to give entrepreneurs and business owners the metrics they need to explain the benefits of building value for the long term and, most importantly, being able to justify those investments to their shareholders, employees and customers, and to the communities in which they operate.

Now thanks to the emergence of big data, companies potentially have access to more information than ever before — and they can use data analytics to mine, extract, analyze and report on it.

Related: Big Data, Big Deal! 5 Ways It’s Going to Be Revolutionized In 2018

Using these tools, the project tests ideas such as, does a company that has more engaged employees mean it should be valued more? And if so by how much? A few other aspects they are working on include:

• measuring the value of a company’s brand and the investments it makes to innovate for the future;
• Analyzing how purpose and ethics are drivers of shareholder value and risk mitigation; and
• Looking at the way a company’s strategy creates benefits for all of its stakeholders — employees, society and shareholders, alike.

Ultimately, the goal is to empower investors and business leaders to make informed decisions with all of these details in mind. Paul Polman, CEO of Unilever, was quoted as saying, “Long-term investment and sustainable growth models go hand in hand. Businesses must operate with purpose embedded in their strategy, serving their shareholders and wider society. The ability to articulate this in a standardized, meaningful way has long been needed so markets can properly measure this broader approach to value creation.”

Related: No Capitalism, Business For Social Change

The chairman and CEO of PepsiCo, Indra Nooyi, declares, “Business must do more than simply turn a profit. We must also be guided by a deep sense of purpose. This means measuring our success not only quarter to quarter, but also year to year and decade to decade. It means creating value for shareholders as well as society. Companies that embrace this mindset will be the ones to thrive long-term.”

How can inclusive capitalism strengthen society?

Ernst and Young’s Weinberger observes that trust in business, financial institutions and society as a whole is at an all-time low and if they hope to make any progress they have to address the issues behind these problems. “We believe we can help by working with The Coalition for Inclusive Capitalism to bring together diverse stakeholders to create a framework which is a consistent model for how companies can measure and report the long-term value they create,” he says. “Such a framework can supplement currently available financial information. This won’t be easy, and while we may not reach a successful solution applicable to all businesses, in trying, we will further this important dialogue, which will be valuable progress.”

These are lofty goals that will not just be a boon for corporations, they will also benefit society at large. By creating a standardized reporting metric framework, companies may be more empowered to make more investments that create long-term value for all of their stakeholders. They will, in theory, be able to grow and create jobs more sustainably, while helping people enter new fields, take up new jobs and join the global economy in ways we have yet to imagine. This is a first step for private corporations to begin earning back public trust. Innovation, automation and globalization are not going to slow down. As a result, companies need to do everything they can to make sure people are prepared to succeed in a changing world.

Related: Sustainable Capitalism Is the Next Big Thing in Investing

This is what the premise of inclusive capitalism is all about, creating a virtuous cycle that brings the benefits of capitalism to all stakeholders. Generally, In business, there are very few win-win situations, but putting real numbers to the very real long-term benefits of inclusive capitalism is one of them.