Ending Poverty for All: The Role of Investors in Achieving SDG1

The only way to get to zero poverty is to be laser focused on long-term value creation, says Oxfam’s Sharmeen Contractor

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The clock is ticking. The United Nations set a blueprint for a sustainable future in 2015. There are 10 years left to accomplish the 17 Sustainable Development Goals (SDGs), the first of which is the goal of ending poverty in all its forms everywhere (SDG1). A lofty goal, and the current trajectory has put us at risk of entirely missing the mark. In fact, we’re moving in the opposite direction – towards a hyper unequal future. Amid coronavirus, massive job losses are already having knock-on effects on low-wage workers, economies dependent on remittances, and low- and middle-income countries that lack adequate social protections – all where poverty levels are generally high.

As global economies contract, the UN estimates that more than 34 million people will fall below the extreme poverty line in 2020. In fact, for the first time since 1990, the level of poverty according to the UN could increase, representing a significant reversal in any progress made until this point. 

COVID-19 has set us back in the achievement of SDG1, then. Even before the pandemic, we were unsurprisingly behind target; according to the recently-released 2020 Social Progress Index, the world would not have achieved the SDGs until 2082 and now COVID-19 has pushed us into the future by a further 10 years, to 2092 – more than half a century behind schedule.

The private sector’s modus operandi has placed us at odds with the achievement of SDG1

The current economic model is highly extractive, preventing countries from making any real headway in ending poverty. Corporations are at the centre of this model and play a big role in exacerbating poverty. They have done everything to enrich senior executives and large shareholders while eroding the rights of all other stakeholders. Under this model, executive pay is linked to a company’s stock performance rather than company resilience to external shocks and long-term value creation. The situation is especially untenable amidst COVID-19, as over 400 million full-time jobs have already been lost in the first two quarters of 2020 with the International Labour Organization estimating losses in labour income in the range of $860bn to $3.4trn.

Profit maximisation has come at the expense of human and labour rights, climate change, and gender and racial justice – all of which are necessary for the achievement of SDG1. Oxfam’s recent report Power, Profits and the Pandemic highlights how corporations have put profits before workers, consumers, communities, and suppliers, in effect magnifying the impact of COVID-19. Corporations are doing this by displaying practices that are unsustainable for the functioning of a viable ecosystem, such as:

–        Continuing executive compensation programmes and shareholder payouts to some of the wealthiest investors, despite receiving government bailouts or needing to go into debt to do so;

–        Failing to ensure employee safety and prevent labour violations;

–          Shifting costs and risks down supply chains to those most vulnerable;

–          Profiting from government relief programmes despite lacking merit or eligibility; and

–          Lobbying the government for deregulation around the environment, tax and social protection.

According to research, shareholder maximising strategies by companies are deepening the recession and increasing government costs. In fact, companies’ payout practices had a tangible effect on the response to COVID-19. Oxfam’s research revealed that 59 of the largest companies from FY 2016 to 2019 distributed $1.8trn to (mostly wealthy) shareholders, on average paying out 84% of profits to shareholders. These practices have left companies vulnerable to COVID-19 and have exacerbated the financial crisis. 

Investors can move the needle by encouraging both policymakers and business leaders to reset the button and draft a new economic model by responding to the pandemic and its resource demands with a tax on excess corporate profits

For example, Global Fortune 500 companies increased profits by 156% from $820bn in 2009 to $2.1trn in 2019. Most of these weren’t invested in human capital or innovation. In fact, many of these companies didn’t even pay their fair share of taxes. Massive profits are benefiting the already wealthy while most workers have seen their wages stagnate. Amidst COVID-19, the 25 wealthiest billionaires increased their wealth by a staggering $255bn between mid-March and late-May alone. Specifically in the US, where the impact of inequality falls disproportionately on people of colour and women, billionaires have seen their net worth increase by $792bn.

Investors can lead the way to successfully accomplishing SDG1

COVID-19 has proven that no country and no person is an island – we’re all interlinked. The Friedman-sponsored shareholder model that has laid the foundation for US style capitalism has come at a high cost, moving us closer to an uncertain future with high levels of inequality and poverty, thereby reversing any gains made so far in the achievement of ending extreme poverty. This model has proven to be deleterious to economic growth, all of which ultimately has a cascading and negative impact on long-term shareholder value. The only way to reverse this trend and get to zero poverty is to be laser focused on long-term value creation. The conversation needs to shift from value to values.

Poverty and income inequality represent a systemic risk to investment portfolios, especially those of universal owners. COVID-19 presents the perfect opportunity to change the narrative and shift the focus from a shareholder primacy model to a stakeholder one. In fact, investors are primed to play a formidable role in ensuring this shift; as owners of corporations, they have both a positive and negative impact on poverty levels by way of using their power and leverage to shape real world global outcomes. They can move the needle by encouraging both policymakers and business leaders to reset the button and draft a new economic model by responding to the pandemic and its resource demands with a tax on excess corporate profits; reforming the corporate sector across four key dimensions: purpose, people, profits and power; and rebuilding our economies with more sustainable business models.

Investors can lead the way by hitting the reset button for the private sector and ensuring that policies and practices are aligned with the accomplishment of the SDG1. Only through shared economic prosperity will we be positioned to end poverty in all its forms everywhere. Only by tackling inequality and ultimately eradicating poverty can we exponentially enhance output, productivity, and growth all of which will ultimately enhance investment returns. 

 

Sharmeen Contractor is a Senior Advisor for Market Systems and Investors at Oxfam America