Some people say the solution to the ESG challenge is to embed social-purpose statements into corporate charters, and that this will oblige companies to consider all stakeholders and to measure and report on their social effect. This sounds good – but as we engage business in trying to meet the sustainability challenge, is corporate structure the right place to focus?
Critics claim that today’s companies and financial markets are severely out of balance and are focused on short-term quarterly results and raising their stock price via share buybacks rather than investing for long-term success. A quick scan will generate plenty of examples to confirm that point, for example Kraft Heinz, but is this the reality?
The current pandemic and growing climate crises have thrown into sharp relief the critical role large firms now play in society, not just as economic entities, but as key social institutions and political actors. A decade ago, would we have imagined a scenario where business organizations are on the front lines of the fight to preserve democracy and to remove a president from office? (“This is chaos,” a statement from the conservative American Manufacturers Association read. “This is sedition and should be treated as such. The outgoing president incited violence in an attempt to retain power.”) Would we have anticipated…
The COVID-19 crisis marks an inflection point in the evolution of ESG. On the one hand, it has provided proof once and for all that ESG is here to stay, as investors pour money into ESG funds that are significantly outperforming their peers in the market downturn. On the other, it has heightened public scrutiny of companies and expectations for their social performance. What does this mean for ESG? It means moving beyond a model of ESG that is still focused primarily on minimizing harm and what Unilever CEO Alan Jope refers to as “seductive incrementalism” – creating change on the…
Larry Fink’s 2020 CEO letter and his commitment that BlackRock will now be front and forward on climate change across all of BlackRock’s assets under management represents a critical turning point in the climate fight. As the world’s largest asset manager, with $7 trillion under management, BlackRock’s leadership will now put pressure on State Street and Vanguard, the other two members of the big three asset managers, to follow suit. Together, these three firms are the majority shareholders in 88% of the S&P 500, with the power to dramatically influence corporate behavior and ensure climate change is on the agenda of every corporate…
In the three years since our 2015 survey on the state of ESG integration in Capital Markets, interest and engagement with ESG in capital markets can truly be said to have gone mainstream. ESG investment products flood the market in almost every investment category, from ETFs to fixed income and alternatives. ESG assets under management now total $30 trillion, up from $23 trillion in 2016 and are projected to grow to $35 trillion by 2020. The first version of this report was published in January 2016, using 2015 data. The report offered a landscape analysis of the mainstream capital market…
This year, there have been many important developments in the discussion on the role of investors in corporate responsibility and leadership in a global society. In the spring PGIM, the global investment management businesses of Prudential Financial, Inc. (PFI) and one of the top 10 largest global investment firms, issued a provocative paper titled The End of Sovereignty, on globalization, nationalism and the implications for institutional investors. The paper explores how the sovereignty of nation-states is now challenged by the forces of globalization and technology beyond their direct control. It notes that 70 of the top 100 global “economies” are…
For the last fifty years, the mandate and role for corporate governance have been set within well-defined boundaries, in which the business of business was business and the well-being of society was the responsibility of governments. This paradigm was summed up succinctly in 1970 by economist Milton Friedman who noted, “There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game.” Today, thanks to globalization and the international economy, we live in a world in…
For the last 47 years, since September 1970, financial markets have been guided by the maxim articulated by Milton Friedman on the “rules of the game” for business. “There is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” On January 18th this maxim was overturned by the CEO of BlackRock, the world’s largest institutional investor. In his letter to CEOs, Larry Fink said, “Society…
With a stroke of his pen, President Donald Trump took a major step toward eliminating his predecessor’s landmark climate policy — the Clean Power Plan. Unveiled by President Obama in August 2015, the plan sought to fight global warming by reducing carbon dioxide emissions from power plants. Now, under President Trump, the plan and other environmental policies are in more danger than ever. Some investors might be tempted to approach this new normal by reinvesting in oil and gas. But thus far, the reaction has been more muted. Read more in Pensions&Investments.
