Since 2008 capitalism has come under a great deal of criticism. It is amazing that before then capitalism went mostly uncriticized except in Marxist circles. Karl Marx still has written the best criticism of capitalism but now new investors called ESG (environment, social, and corporate governance) are trying to change how companies, especially publicly traded companies do business.
Caring for the Environment is Profitable?
ESG investing has gained prominence over the past five years. ESG investors are making moves throughout the economy. In 2020, Exxon-Mobil elected 4 new ESG board members to improve their climate change policies and move the company towards a post-oil environment. They have stated the goals of wanting to develop other businesses like chemicals and biofuels as they move away from gasoline production. This has been a trend within the oil industry over the past several years. Several refineries have closed. This has become a bit of a problem thanks to the current geopolitical environment, but it has been a trend. The idea is simple: what’s good for the environment can be even better for the bottom line.
Other industries like the auto companies are also moving in this direct as ESG directors encourage companies to find greener solutions to their products and service. Even the fast food industry is getting in on the action by eliminating single-use plastics and making their packaging recyclable or biodegradable. These seem like simple changes but due to the volume that companies use of these things, it soon adds up to less waste in the streets and water ways. It also means that production around these things changes to things that are less damaging to the environment. However, that only has to do with objects and products what about the people involved?
Stakeholders and Capitalism
The argument is that capitalism is exploitative no matter how you cut it, it exploits someone somewhere for their labor in order to create a profit. However, ESG investors are encouraging more companies to practice Stakeholder capitalism. This is where companies set governance policies that accommodate the needs of all the stakeholders including shareholders, employees and people who live around facilities that the company owns.
Using something like oil and chemicals again, this would be prioritizing safety so that chemicals don’t pollute local water supplies or cause unnecessary damage to people who live nearby a production facility. Stakeholder capitalism also means caring about employees and shareholders equally rather than prioritizing shareholders against all other considerations. This is a rejection of Jack Welch method of business that only cared about shareholder value.
In another day and time, this was just how companies were run. However, now we have a clever name for it: stakeholder capitalism. This is a vital improvement in the corporate governance space. It is a great way to combat income inequality by making sure that employees have great benefits and a fair wage. This also dovetails into the rise of unionization that has been sweeping across the United States.
ESG investors recognize that companies have a deeply social impact. We’ve seen this as companies have begun to speak out on social issues in order to galvanize customers. Although this has often been divisive, these investors realize that many corporations are so large that they can be a force for societal good and for societal change. ESG tries to balance that with the fundamental nature of a business.
Can Capitalism Co-Exist with Ecology and Society?
There is an argument that capitalism is completely at odds with good ecological practices or any sort of social good. The idea that capitalism must be destroyed entirely in order to “save the planet” can be compelling. The reality is that as long as humans want to trade goods and services capitalism will exist in some form. Companies can and should do more to contribute to the society’s where they do business and I think ESG recognizes this fact. ESG investing can be a great introduction to improving how companies act in the world and help them offer their products and services will working in harmony with people and the environment. ESG investors want to find out if capitalism can adapt to serve the highest needs of humanity rather than merely exploiting people for profit. This is positive progress in the business world.
ESG investing is changing the face of corporate America. Corporations are doing more to be good citizens and to work in harmony with the environment and the people who work for them, rely on them, and live near them. Although this doesn’t fix all of capitalism’s flaws it is certainly a step in the right direction.
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