The Sustainability Duel
September 27, 2022
Some of you may have seen the recent duelling articles in the September 14 issue of The Economist: Vivek Ramaswamy’s “Stakeholder capitalism poisons democracy” and Jeffrey Sonnenfeld’s “People trust executives to intervene in social issues.”
In the former article, Mr. Ramaswamy argues that business needs to take a “shareholder” dominated view of their businesses, not what he calls a “stakeholder capitalist” view. In his opinion, a stakeholder view gives corporate executives too much power over societal issues, and “poisons democracy.” The need is to stay focused on the bottom line. In the latter article, Mr. Sonnenfeld takes the diametrically opposite view. He argues that stakeholder capitalism equates to “superior financial results (at least at the margins), stronger operational transparency and better credit ratings.” He goes as far as to say “people want more intervention from executives, not less.”
What both authors failed to point out is that from a sustainability or an environmental, social and governance (“ESG”) perspective, identification, reporting and tracking of issues is nothing new. Shareholders, in assessing risk, have always endeavoured to understand the fundamental risks and opportunities of a business, and ensure risks are being mitigated and opportunities seized. Environmental and stakeholder risks, and Board and executive performance, have always been key in this assessment.
Whether we like it or not, climate change and the energy transition have uncomfortably increased the need to identify related risks and opportunities, and we – investors and businesses alike – are all trying to navigate these significant and complex challenges. I, like most investors, want to back those companies with a solid plan to mitigate or avoid energy transition risks, or better yet, to profit from the opportunities presented. In the process, we can accelerate the transition to more sustainable ways of operating that respect the environment (the “E”), help people get jobs, food security, and a sense of purpose (the “S”), and prove this out with proactive Board and Executive oversight that deals openly, honestly, and directly with risks and opportunities that are quickly evolving (the “G”).
The names have changed over time (sustainability, green movement, corporate social responsibility, ESG, stakeholder capitalism), but the underlying issues and risks have not. Investors, regulators, local communities, and Indigenous partners want to know how we are addressing the energy transition and climate risks. I can’t imagine there are any shareholders that don’t agree with this perspective and approach. If anything, we need to do a better job of getting on with quantifying the outcomes and focusing on accelerating the creation of corporate value. Label that what you like.