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The Future of the ESG Movement

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15th Apr 2021




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Posted by Executive Editor Edie Lush on 8th April 2021.

What’s your view on Clubhouse? It’s the audio-only app which went live on iOs last year and feels to me like talk radio crossed with a podcast. 

Personally, I resisted it for as long as I could.  (Do I need another distraction? NO.)  But now that I’m on it I’m trying to manage my addiction. 

In between episodes of Global GoalsCast we can’t stop ourselves talking – and listening – so we’ve joined forces with the Global Impact Club and are hosting democratised debates, Clubhouse style, once a week. I would love for you to join us – we’re usually there on a Friday at 5pm UK time. You can check us out here

Our most recent event examined the future of stakeholder capitalism after Emmanuel Faber was ousted from Danone. and was very happy to have Global GoalsCast friend Gillian Tett, creator and editor of the FT’s Moral Money join the discussion.

Faber was one of the corporate world’s better-known proponents of stakeholder capitalism. So what does his removal mean for the corporate sustainability movement?

Here are five things I learned:

1. Emmanuel Faber’s removal may be a sign that the purpose movement is growing up.

“We’ve gone through the first phase where people asked, ‘what is ESG (Environmental Social and Governance) – why bother?’ said Gillian “Some of the early pioneers grabbed this label and waved it about, and there wasn’t a lot of scrutiny about whether it actually stacked up, what it meant and how to actually implement it. 

We’re now moving into a world where ESG is becoming mainstream, so it’s being put through the mainstream lens of good and bad. Faber waved a big flag for the cause of sustainability. He spoke about toppling the statue of Milton Friedman in a way that many people cheered. 

There were many aspects of things he did that were admirable. But there were questions raised about the G (governance) aspect of ESG, which frankly has had far less attention than the E, environmental, and the S, the social aspects of ESG, until now.

What’s really interesting about the whole Danone battle is that it is essentially about two groups of activists in battle with each other. You had the activists who were the classic sort of ‘Barbarians at the Gate’ sort that we like to imagine who were very much operating within the Milton Friedman framework and wanted profit.  And there were other ESG activists who were very much supporting Faber. 

It’s not a happy story in some respects for the sustainability movement, because certainly there are people saying, ‘sustainability has been used as an excuse for less than dazzling governance or management.’

But what it has done is create more maturity around the discussion of what is or is not possible with sustainability and shown it is not a magic wand that you can just wave blindly and hope to get you out of all corporate challenges.”

2. Purpose Leaders are no different than others: you have to take the whole company with you

“We’ve seen indications that Faber hadn’t got wider backing of the Danone management, and that there were personality clashes. Now, that happens in many companies and we should recognise that CEOs of all stripes get ousted for this. One of the things that made the situation particularly challenging was the fact that the company didn’t have what many other consumer goods companies have – a cleaning household good products department, which boomed during the pandemic.  So many of its rivals looked a lot better just by virtue of the fact they had other products which were doing well in the pandemic.

But I think the question about Danone – and other CEOs – who over the last year or two have embraced sustainability mantras and goals is whether they are doing enough to convince the rest of their corporate boards and / or their management of their strategy.

There’s a well-known sceptic of ESG and sustainability at Harvard called Lucian Bebchuk who did a study after the Business Roundtable letter came out which found that only two of the CEOs who signed this letter had consulted with their corporate boards.  That might imply that what they were doing was cosmetic.  It might imply that they already knew everyone would back sustainability, or it might imply that there’s a danger that (going back to the G issue) that pioneering visionary CEOs grasp onto sustainability ideals but don’t definitely get the wider corporate support or even spend the time explaining to the wider company, what it means to practice them.”

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3. How we measure corporate success is changing

Many of the resources and skills we need to build back while the pandemic continues are in the hands of the modern invention, the Multinational Corporation.  The biggest corporations are far more powerful than most sovereign companies.  And the world is beginning to see them as important to hold to account – but how we do that, and how we measure their impact is still being defined. Old metrics built around the Milton Friedman-esque notion of profitability linger on, but it is clear that in the 21st century they need augmentation. 

“The reality is that we’re at a very interesting flux point in the markets where it’s become clear that the old metrics that people were using in the few decades after Milton Friedman, which are very narrowly bounded visions of the corporate balance sheet, and profit and loss statements. Those tunnel vision metrics are increasingly no longer acceptable to shareholders, alone or stakeholders alone. 

People are looking for a wider lateral vision of what the company is doing. But we haven’t yet clearly defined exactly what that lateral vision that wider perspective should actually be.”

4. Radical transparency + corporate power = increased pressure on companies to act in the interest of society 

Milton Friedman’s vision was wonderfully simple.  Corporations were created to make profit for the shareholders. And everyone likes simple metrics, but we haven’t yet created these new metrics for this new vision.   

“There are so many things about the Milton Friedman framework which were products of his time. And the current context has changed. 

Milton Friedman wrote his vision of shareholder capitalism in the 1970s in America when trust in the ability of government to do the right thing was sky-high. And so it made perfect sense that he should tell companies – and specifically CEOs – that they have to leave all the tricky problems in life, like social issues and the environment to the government, because he thought the government could fix them. 

Today, does anyone think that governments are fixing stuff?  Biden’s administration is trying to change that but very few people would say they would trust the government to fix things.

In Milton Friedman’s day too there wasn’t an easy way for people who were outside companies to track closely what they were doing, or even their own employees and to find ways to quickly coalesce and protest in an effective manner. Today you have radical transparency and employees and customers, and other kinds of stakeholders can see quickly what companies are doing and complain.

So I suspect that even Milton Friedman might say that some of his 1970s ideas – and the simplicity they tried to embrace – look less relevant today.

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5. Purpose / ESG / Stakeholder Capitalism / Moral Money – whatever you call it – isn’t going away. 

Government continues to lose trust.  Corporations are increasingly being asked to act on behalf of the people who buy their products. Or putting it more brutally, the organisation that was designed to handle social issues – government – isn’t up to the task. So we’re asking companies to do this.  And they aren’t all ready for it. 

“Take the issue of Georgia Voting Rights.  Jamie Diamond was pretty outspoken speaking about it. Others, like Coca-Cola, only jumped into it very late in the day, and are facing flak as a result. The controversial Lincoln Project is quite deliberately targeting companies because they recognise that if you are fighting back against the Trump machine you need to speak to companies as much as to people in Congress.”

Don’t forget:

In between episodes of Global GoalsCast we can’t stop ourselves talking – and listening – so we’ve joined forces with the Global Impact Club and are hosting democratised debates, Clubhouse style, once a week. Would love to hear you there – we’re usually on a Friday at 5pm UK time. You can check us out here.