by Kimberlee Josephson, Activist Post:
The movement for creating systemic change in the economic system is growing. Traditionally, investments in entrepreneurial ventures were based on expectations for a favorable return given the risks involved. Businesses were expected to perform at their best to ensure shareholder value, and to do so they needed to cater to consumer needs, efficiently leverage resources, and effectively manage their operations.
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Presently, however, businesses are expected to have a social impact – and it is this impact that is being positioned to matter most. More than production, more than consumption, and even more than shareholder value.
For-profits are increasingly embracing the concept of conscious capitalism and stakeholder integration, which the likes of John Mackey and Sir Richard Branson have not only championed but built movements around, calling on businesses to have a “Higher Purpose” and commit to creating a “better world”.
R. Edward Freeman, the proposed father of Stakeholder Theory, asserts that firms must align the interests of all stakeholders while doing what they can to avoid tradeoffs. His 1984 publication, Strategic Management: A Stakeholder Approach, spurred on a mission to transform business practices toward more noble pursuits.
From Villain to Social Guardian
This negative notion of the impact of business attracted others to come up with their own stance on the matter. John Renesch coined the phrase “conscious capitalism,” John Elkington promoted the Triple Bottom Line – representing people, planet, and profit, and Michael Porter developed the concept of shared value, which proposes the meeting of a social need with a business model.
To be sure, many have stressed the role of business in society to be more than just about making money, and forms of corporate social responsibility (CSR) have both expanded and evolved in response.
When the concept of CSR first came about, it was applicable to larger firms that had the ability to utilize their wealth and success for giving back – by volunteering, giving to charities, and even partnering with NGOs. However, CSR is no longer about giving back, or even paying it forward – it is about engagement with social issues – and this is now expected of all firms.
The Push for SDGs and Rise of ESG
The pressure to ‘do good’ is not only based on reputational concerns from private actors, but derived from a broader, more politically charged global movement.
In 2000, the Millennium Summit took place in New York City at the United Nations, and was the largest gathering of world leaders at that time. The purpose of the Summit was to determine the ongoing role of the UN and propose new goals for creating a better world.
As a result of the Summit, public officials signed the Millennium Declaration, which outlined eight Millennium Development Goals (MDGs) to be achieved by 2015. And given that a primary focus for the UN was eradicating poverty, engaging with the financial sector became a crucial component.
At the bequest of the UN Secretary-General at that time, Kofi Annan, a study was commissioned to make the business case for corporate commitments to social initiatives, and in 2006 the UN called upon countries to become signatories to its Principles for Responsible Investment (PRI). For those who signed on to the PRI, the standards proposed required firms and capital markets to take part and do more for the global good.
After 2015, the MDGs morphed into the Sustainable Development Goals (SDGs), and the PRI prompted the creation of ESG frameworks. Both the Sustainability Accounting Standards Board (SASB) and the World Economic Forum (WEF) promoted efforts for instituting “a globally accepted system for corporate disclosure” to track the progress of the SDGs and pressured financial firms to implement ESG metrics as proof for doing their part.
The adoption of ESG standards, however, is truly problematic given that value and virtue are difficult to measure and there will always be tradeoffs – whether Freeman likes it or not.
A troublesome matter for businesses serving societal goals rather than marketplace needs is the complexity of catering to all stakeholders at once, and the subjectivity of what is meant as being ‘good’ or when ‘good’ does or doesn’t apply.