The “Environmental, Social, Governance” or ESG revolution is here, and it is changing everything.This ambitious and progressive three pronged initiative is quickly becoming among the most important cultural, political and financial movements of modern times.
ESG has been gleefully embraced by a corporate culture that not long ago focused only on building “shareholder value” at any cost, no matter the social, environmental and governance consequences. Long time observers recall the 1990s and the time of “Chainsaw” Al Dunlap, the former CEO of Sunbeam that glorified laying off workers and other draconian policies in order to boost the company’s stock price. Though Dunlap was eventually exposed as a fraud and in fact had a history of perpetrating illegal governance dating back to his previous employment at paper mill Nitec in the 1970s, Dunlap was seen at least at that moment by the Wall St culture as a gutsy corporate hero and the epitome of the take-no-prisoners capitalism that was fashionable at the time.
But now, we’ve come a long way from Chainsaw Al Dunlap. ESG and its progressive, world changing vision has charged to the forefront of corporate consciousness in manner not seen perhaps ever. CEOs and other corporate bosses now can’t talk enough about their commitment to ESG, and all of the benefits to the environment, stakeholders, the community, the society and now last on the list, shareholders.
The one thing that’s so interesting about all the ESG excitement is that it seems that most shareholders don’t seem to object to shareholder value, once the top priority of most CEOs, as being last on the list of ESG priorities. A plurality if not an outright majority of investors sense something else at work in the ESG narrative. Investors seem to like the ESG movement because they perceive that the quality of their investment is enhanced over time, perhaps substantially by the ESG ethic.
The overtly progressive and modern ethos of ESG is now seen by many as a massive positive for the society and investors as well, even though actually implementing ESG will be tricky, often contradictory, expensive, and wrought with conflicts of interest and numerous legal hazards. Nonetheless, the goodwill and brand value that ESG promises has already augmented certain stock valuations. Microsoft’s CEO Satya Nadella outlined in January of 2020 his company’s ESG vison, talking in terms of Microsoft being “carbon negative” by 2030. Even the CEOs of cigarette and chemical companies are talking up their own version of ESG, as they can sense the public’s positive reception of the ESG revolution.
Of course, politics is ever present in most human enterprises, and the ESG revolution is a certainly a cultural if not outright political phenomenon. ESG is built upon a modern and decidedly cosmopolitan world view, and many conservatives are already wary of its distinctly lefty flavor.
But there may be some room for consensus in the ESG Phenomenon. The E is for Environmental; a decidedly progressive cause. S is for social, also a progressive aspiration. But the G is for governance, and it is the G where both sides might agree. Both liberals and conservatives have had enough of corporate greed mongers like Al Dunlap and the many others before and after him. Both sides want better governance of corporate entities, with more fairness for workers and curbs on excessive executive pay, and are willing to support initiatives for more responsible corporate governance.
The ESG revolution may be part of why stock prices have rallied in recent times, where investors may be sensing a long awaited improvement in the integrity of publicly owned enterprises, which can enhance the value of equities immeasurably over time.