Hello Sally: There is more hope that you present in the capital markets. Can you response to this claim:
Corporate Social Responsibility Elevates Within Capital Markets
My Polish immigrant grandmother told me, looking over the vast past of genocide and wrong-doing in her life, that “the only way to do good, Bruce, is to follow the money.” This family mantra is now universally accepted as workable in this strange new world of capital and carbon constraints. Society—in its many vocal pieces—is demanding a realignment of how capitalism addresses social needs. We are left with three primary questions to answer in our firms, with our friends, and most importantly, in our investments.
1. How are the capital markets finding a new creativity in reaction to the challenge of climate change?
2. How do firms now reassess their enterprise risks along the lines of publicly disclosed Environmental, Social and Governance metrics?
3. And how do these recent developments in the investment community—as focused by University pension funds, institutional investors like Cal Pers and TIAA-CREF—mature the field of corporate social responsibility?
Let’s answer these with drone-like simplicity. For our fly over, let’s mention the answers in ascending order.
The field of corporate social responsibility has often been perceived as a bag on the side of corporate strategy. This unfortunate reality is because the Chief Sustainability Officers of the firms engaged in reporting CSR progress are often understaffed, but increasingly heard by the top decision makers—like the CFO, COO and CEO—running the firm. Now the good news. Climate change has riveted the attention of more and more leaders, and citizens, and investors. Thus firms are elevating the significance of corporate social responsibility. Investment relations and human resource professionals are teaming up with the Chief Sustainability Officers and speaking a more common language at last.
In general, corporate social responsibility is measured in three fundamental ways by the capital markets: the climate literacy of your Board members, the merging of enterprise risk with social promises to improve your energy portfolio, and how you change the environmental impact of your products for sale. There are many buzz words in this field, but the key resounding one is “how are you matching in actions your net zero commitments each year?” That is the best way now to follow the money, and the response the better firms are having to climate stresses.
More and more investors are beginning to follow the money along these three questions: those that will win new investments are those that have substantive answers to those social pledges of net zero. All the great competitors within corporations are focused now weekly on these matters. In fact, we just spent two years assisting Merck, the great Pharma giant, in developing the framework, financing, and external pledges to investors on carbon neutrality. In the past decade, our firm has done the same for Walmart in Africa, Walgreens in its 9700 stores, and others owned by Warren Buffett.
What is Enterprise Risk, and why is ESG metrics really a derivative simplification of this mainstream internal corporate process?
Every firm considers its social and investment risks, monthly and quarterly. The problem has been that until the maturing of ESG standards began the consideration was secret, internal, and kept in the hands of the Chief Financial Officer, the General Counsel, and a few profit and loss leaders. These private corporate inputs were then bundled in terms of financial risks privately by the CEO on the way to Board subcommittee reviews. ESG metrics take all of this more public, enabling environmentalists, and investors and government officials to see more deeply into the corporate mansions.
That is the fundamental reason more people in the public can get excited about ESG and corporate responsibility. It is more visible that the disciplines of Enterprise Risk, managed by accountants, lawyers and financial experts within the firm. You can credit the general capital markets world for these increases in disclosure; as investors wanted to protect their wealth, and compound it sensibly.
In the last few years, ESG metrics, run by firms like Calvert, Trillium, and now Black Rock and the other universal owners like TIAA CREF, are helping the internal science of enterprise risk get “better known” and “simplified” by investors. This allows investors and the public to watch how firms like Microsoft and Google, in their public pledges of climate change, are realigning their use of money, people and internal rules in the fight to reach net zero by 2040 or 2050. This is no small task.
All of this is good news for society, investors, and the next generations.
What Ben Franklin understood instinctively in his famous essay “The Way to Wealth” is now becoming a big data exercise. Will the world—in time—be able to connect the dots on climate science with capital markets? Well, the answer is in our hands as we click our investment decisions.
BIOGRAPHY
Bruce Piasecki has tracked money markets and corporate behavior since the founding of his management consulting firm in 1981. He has advised firms from Walmart and Toyota and Merck on matters of carbon neutrality thru running complex external advisory councils, and particular energy strategies. His books disclose much of that work. www.ahcgroup.com. Amazon features two of his ESG books New World Companies and “Giants in Social Investing” at this time.
