In the Chancellor’s recent interview with City AM, Sunak said he was confident that Brexit could lead to a new wave of innovation in the City of London and the UK seeing a ‘Big Bang 2.0’.
Unfortunately, most of the commentary on business and Brexit has been around the traditional tropes of cutting red tape. Whilst some Brexiteers may believe that leaving the EU was about a bonfire of regulation, the Chancellor’s interview gives a much more nuanced perspective.
The focus on Green Gilts, for example, shows that Sunak understands that the UK’s future competitiveness does not rely on a deregulatory race to the bottom, but the opposite.
Green Gilts are part of a wider movement in business which understands that social and environmental responsibilities are not ‘bureaucracy’ but tools to drive better business performance. The evidence is clear that firms which think beyond profit are more successful.
Repeated studies since the 1990s have found that firms which seek to change the world for the better, not just make money, perform better than their peers.
Growing international recognition that responsible business is better business has created a global race to embed social and environmental purpose into firms. The UK has been a world leader, but increasingly other countries are catching up.
In 2019, the French Parliament passed a law which stipulated that any corporation must be run with due regard to the social and environmental impact of its activity. Across the pond in the United States, 35 states have created ‘benefit corporations, which define the ‘best interests of the corporation’ to include a positive impact on workers, society and the environment.
Thousands of these corporations have been registered so far including large businesses such as Kickstarter.
Recent research by the British Academy has found that 55 per cent of business leaders want the Government to create more incentives (such as lowering company tax) for firms that are governed by a social purpose.
Four in ten want the UK to change company law and regulation to further embed purpose into corporate governance. Brexit provides a chance to go further and faster. This could be the ‘Big Bang 2.0’ that the Chancellor wants to see.
There is a huge amount at stake. The Chancellor will want the UK to retain its position as a hub for foreign direct investment after Brexit. At the same time, ever larger sums are being invested globally into ESG funds. There is now around $1 trillion invested in these funds and they are growing faster than any other form of investment.
The good news for the UK is that these funds will need business to invest in, and the UK is well placed to exploit this.
For example, the UK already has 100,000 social enterprises, businesses governed by social and environmental missions, which set the gold standard for responsible business. With the right backing from the Chancellor these businesses, already growing faster than their peers, could be turbocharged and bring in billions of additional investment.
Worryingly, at a time when the rest of the world is becoming more interested in social enterprise, the UK has been falling down the world rankings as the best country to be a social entrepreneur, falling from 3rd to 13th since 2016 according to research by Deutsche Bank and Reuters.
To gain a competitive advantage from changes in global business, we will need enlightened leadership.
Dreams of ‘Singapore-on-Thames’ must not blind the UK to the real opportunities that exist. The foundations of economic growth are not cutting back regulation but having the right institutions to exploit changes in technology, to invest in people and places whilst allowing the space for innovation to take place. The UK once led the world in creating this institutional framework, it has a chance to do so again through social enterprise.