Capitalism Is Awakening

As environmental social and governance (ESG) markets approach $41 trillion globally this year, values-aligned investors and their managers face an aggressive complex of conservative and fossil fuel interests intent on fostering polarization about proven investment frameworks. In a clever spin, the “ESG Backlash” posits ESG analytical tools as a thinly disguised political attempt by radical liberal or progressive interests to take control of the capital markets.

What these spin doctors don’t acknowledge is that at its most basic, ESG is simply a bunch of subtly (but often) contradicting proprietary data sets based in science; widely recognized existing sustainability, workplace, and economic policies; and financial return metrics.

What is attention-getting about ESG is not so much its impact, which remains to be seen, but the astounding way in which the importance of greater transparency around sustainability, social, and governance considerations at companies has captured the imagination – and money – of a new generation of investors. Indeed, a broad swath of investors and their managers, across different age, race, class, and job affiliations, believe in corporate accountability and in strengthening the fundamental ideals of a democratic economy through information.

Not coincidentally, the well-crafted anti-ESG media campaign launched just two quarters after Glasgow’s COP 26, which saw a global goal of reaching net zero by 2050 cemented within the UNFCC process. Global capital markets are by definition implicated. Despite whatever obstacles lie ahead, the world has agreed, through a complicated, convoluted, and by some counts, agonizing process, that we must achieve net zero economics in less than 88 months to reach 2030 benchmarks, and eventually, within two and a half decades, “zero.”

Working towards net zero fundamentally changes…everything: what we consume, how it’s made, where it’s made, how we transport it, who can buy it, and ultimately, as in the case of fossil fuels, its obsolescence. Those interests that have done well in the pre net zero paradigm are clearly quite threatened. Nobody likes to change, especially when change comes at enormous personal cost and inconvenience.

It’s not surprising then that in addition to fomenting polarization, the anti-ESG forces employ other tactics, including ones aimed at driving women away from corporate leadership –by preventing abortion– alongside efforts to shut down discussion of racial equity on Wall Street by linking values-aligned investing and ESG to civil society’s efforts to advance gender and racial equality, which, coincidentally, also apply to Wall Street. Thus, ‘woke capitalism’ is a terribly inappropriate slur aimed at those who would sympathize with street activists.

Jed Emerson, the preeminent impact investing pioneer, calls this fraternizing with the ideals of average citizenry, “Leadership of the Whole.” This approach to investment thinking draws upon the wisdom of previous and future generations through the community of reflective practice that you create as a member of Confluence Philanthropy.

In this whole we are awakening to the power of big data analytics to drive healthy competition between companies. In this awakening, ESG information drives transparency in a way that builds values-based companies and puts a spotlight on egregious and unsafe behavior that harms investment returns.

In this awakening, we re-imagine capitalism grounded in democratic ideals in which everyone can learn to serve and to lead, when asked.

In the spirit of Awakened Capitalism, we welcome your commentary, critiques, and respectful community-wide discussion. Thank you for all that you each do, every day.

- Dana Lanza, President & CEO, Confluence Philanthropy