People trust executives to intervene in social issues

IN AUGUST the Business Roundtable, an American corporate lobby group, updated its 2019 “Statement of the Purpose of a Corporation”. It emphasised that shareholders, employees, customers, suppliers and communities depend on each other for success. Doing good is not antithetical to doing well. Yet certain Republican politicians attack executives who speak up on social issues—attempting to cancel voices they disagree with, even while lamenting “cancel culture”—and press state pension funds to retaliate against firms supporting goals pertaining to environmental, social and governance (ESG) aims.

I have thought about the role of businesses in society for almost five decades. In 1977 George Weyerhaeuser, a lumber baron, told me how he viewed his firm’s position: “We have a licence to operate from society, when we violate its terms, it can be revoked.” In 1985 Johnson & Johnson’s CEO, James Burke, told me that “our most powerful tool is institutional trust which is real, palpable and bankable. Every act that builds that trust enhances the value long-term of the business.” Stakeholder capitalism is not new. But the backlash against it is.

Of course, the good intentions of ESG’s advocates are sometimes hijacked by self-interested parties. The number of shareholder voting-rights groups, which encourage interventions in how companies are run, has doubled in the past five years. Many have overlapping names and conflicting missions. The world of ESG investment is ballooning in size, as is confusion about terms, definitions and measurements. There were 836 registered investment companies proclaiming ESG missions in 2020, including 718 mutual funds and 94 exchange-traded funds, with assets of US$3.1trn. Their value will only have increased in the years since. Add to the list 905 alternative funds with ESG missions (private equity, venture capital funds and hedge funds). They are on track to exceed US$53trn by 2025, or a third of all global assets under management. In reality, the definitions of ESG used by these funds are vague and inconsistent. But that does not stop many from charging higher fees than “regular” funds do.