The Intergovernmental Panel on Climate Change (IPCC) just gave the world a dire wake up call in its new climate report. “The climate time-bomb is ticking,” emphasized UN Secretary General Antonio Guterres.
Our world is at a tipping point, making it critical for brands—and all of us—to focus on Environmental, Social and Governance (ESG). Recent attempts to politicize ESG as “woke capitalism” are misguided at best and potentially perilous.
When the Business Roundtable redefined the purpose of a corporation in 2019 to benefit all stakeholders, not just investors, it seemed a groundbreaking concept. But at its core, the idea was based on creating value, the only difference being that it was shared value. Jamie Dimon, Chairman and CEO of JP Morgan Chase & Co., noted, “Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term.”
This concept upended Nobel Prize-winning economist Milton Friedman’s focus on shareholder primacy. But it wasn’t a new idea. For much of the 20th century, there was a prevalent view that public companies, as opposed to privately held ones, should serve a different purpose. Harvard Law professor Merrick Dodd argued in 1932: “The business corporation is an economic institution which has a social service as well as a profit-making function.”
Taking a broader triple bottom line view that encompasses people, planet and profit is a strategic recognition that brands will be most successful, especially long-term when all stakeholders’ needs are considered. Taking a short-term myopic focus on shareholders has proven ill-advised before, and BP’s Deepwater Horizon oil spill in the Gulf of Mexico exemplifies the dangers of such myopia. Business Law professor Lynn Stout noted in “The Shareholder Value Myth“: “In trying to save $1 million a day by skimping on safety procedures at the Macondo well, BP cost its shareholders alone a hundred thousand times more, nearly $100 billion.”
Employees are a brand’s most valuable asset. Last year Disney workers staged walkouts to protest then-CEO Bob Chapek’s slow response in publicly criticizing Florida legislation that critics called the “Don’t Say Gay” bill. Young people want to work for companies that share their values. In a recent survey by Qualtrics, 56% of US employees said they wouldn’t even consider a job at a company if its value don’t align with theirs.
Consumers drive revenues: Sustainable sourcing and reducing the carbon footprint of products is increasingly important to them. Almost 80% of consumers are changing their shopping habits based on social responsibility, inclusiveness or environmental impact.
Moreover, a brand’s reputation is paramount, and unless a company and its leaders show they’re concerned about the people that drive their business, the brand’s reputation will suffer. While this was true before Covid, it became even more critical once the world faced the global pandemic.
As the UN report noted, the world is running out of time and faces dire consequences if brands, government and the public do not take action. Temperature changes, severe weather events and global resources will impact us all. This will also directly affect manufacturing. By 2050, heat-related manufacturing losses could equal more than $47 billion. Losses could be devastating in a country like China, where 32% of its gross domestic product comes from manufacturing. High temperatures will also put workers, and the public, at risk.
Taking a triple bottom-line approach is not “woke capitalism;” it’s a combined focus on shareholders and other stakeholders. This is a win-win strategy, not an exclusionary one. There’s been a corporate focus on “ESG” long before the UN started using this acronym in 2005. I first started working on ESG initiatives for brands like Ralph Lauren and Kenneth Cole when it was referred to as Corporate Social Responsibility (CSR). Then it was more broadly called Sustainability when climate change assumed a bigger spotlight (which includes Social Impact). Now, ESG has become the broadest term because it includes environmental and social issues, and ensures that companies have a governance framework in place to honor their commitments.
ESG or Impact investing has been routine on Wall Street for years. Most large corporations publish comprehensive reports about their efforts to combat climate change, drive social impact and build workplace diversity and inclusion.
In recent months, politicians on the far-right have increasingly attacked ESG, arguing it promotes liberal priorities ranging from renewable energy to the Black Lives Matter movement. President Biden recently vetoed legislation that sought to repeal a Labor Department rule that permitted retirement investing tied to environmental and social goals.
Yet, despite all the political noise and saber-rattling, environmental, social and governance investing continues to grow in popularity among investors looking for long-term value.
It’s very troubling that ESG is getting caught in the political crossfire and dismissed by some conservatives as “woke capitalism,” when it’s actually “conscious capitalism.” We saw the same politicization of mask-wearing when Covid hit. And while a vaccine was developed for Covid, there’s no vaccine to save our planet. It’s up to all of us. And brands can—and must—play a big part in driving ESG progress.
