Welcome to Moral Money. Gillian Tett will be off for the next few weeks as she buckles down to write her next book — but you are in good hands with the rest of the usual crew on board. Today we have:
US corporations have shown support for the George Floyd protests, but what can companies actually do to fix the underlying problems?
Davos boss Klaus Schwab wants to plot a “great reset” of capitalism
Former British MP Chuka Umunna sat down with Moral Money for his first interview since leaving office
China cuts clean coal from its green bonds
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Will CEOs push for change in America, or just tweet about it?
We have seen US CEOs speak up on sociopolitical debates as thorny as gun control, immigration and abortion, so it was perhaps unsurprising to see their vocal reaction to the unprovoked police killing of George Floyd, a black man in Minneapolis.
But those who benefit from a system don’t always speak out against systemic inequities, and their response to this crisis felt different.
In addition to donating millions of dollars to non-profits fighting against racism, CEOs strayed into subjects business typically avoids, such as police brutality and reparations. Companies today do not seem worried that their support for the protests may be misconstrued as being anti-police, said Amy Binder, chief executive of the PR company RF Binder.
The Fortune 500 still boasts just four black CEOs, though, and many commentators smelled hypocrisy or empty posturing. As California entrepreneur Brandi Riley put it on Twitter: “Thank you for your Black Lives Matter graphic. May I please see a picture of your executive leadership team and company board?”
So what can companies do in practice to actually make a difference? Business leaders and academics highlighted four key areas: hire more people of colour; pay them equally; use your capital to invest in minority entrepreneurs and communities; and use your lobbying power to support policies and politicians that will advance equality and curb police brutality.
Miguel Alzola, a professor at Fordham University’s business school in New York, suggested companies could focus on promoting bans on police chokeholds and transparency laws that would tear down the “blue wall of silence”.
“They can help resolve structural inequities through diversified hiring and fair compensation,” added Laura D’Antonio, a business school professor at George Washington University: “They can be much more of a force for change, if they have the courage to do so.”
Indeed, investors want to know “what are they actually doing on racial justice and equity,” notes Just Capital’s Martin Whittaker. Calvert Investments, a prominent ESG asset manager, already indicated it would start demanding diversity disclosure from companies.
As Ken Frazier of Merck told CNBC this week, there is a financial rationale too: “Business needs to go to the seat of government not only for its own economic self interest in the short term but also to think about how to create a society that is going to actually be good for business,” he said.
Yet there is a long way between rhetoric and reality, according to Judd Legum, a former research director for Hillary Clinton, who pointed out that Citigroup, Google and Facebook had donated to scores of members of Congress with voting records rated “F” by the NAACP, the largest US civil rights organisation.
One CEO who would not speak on the record put it more pointedly, saying that the relationship between business and politics was “pretty perverted” and real change would require companies to shift their lobbying spending.
“Corporate money has an enormous impact on government policy and how legislators behave,” he said. “For this to be effective people in political power have to be afraid for their jobs and right now half the country’s legislators aren’t afraid for their jobs.”
What more should business be doing? We’d be keen to hear your ideas at firstname.lastname@example.org. (Andrew Edgecliffe-Johnson, Billy Nauman and Kristen Talman)
Can Davos ‘nudges’ reset capitalism?
In case you missed the news, Davos is officially on for January 2021, and Klaus Schwab, head of the World Economic Forum, has set the lofty agenda of thrashing out a “great reset” of capitalism at the next meeting on the magic mountain.
As decades of growing inequality, the impact of climate change and fallout from the coronavirus pandemic erode confidence in unfettered capitalism serving the public interest, Mr Schwab said the stakes had never been higher.
“We need to reimagine everything from education to social contracts and work, include every economy from the US to China, and transform every industry from oil and gas to Silicon Valley,” he wrote in a sweeping manifesto published today.
What this means in practice . . . is vague for now. Mr Schwab posits that the “reset” could include everything from wealth taxes to ending fossil-fuel subsidies but the WEF is asking its elite members to work out the details by January.
For now, there is still a lot of talk about “nudges” alongside the claims that “incremental change” is no longer enough. The announcement was met with predictable scepticism on Twitter.
Without reform, Mr Schwab fears “a revolt”. With populism on the rise, multilateralism in crisis and US cities in flames it is tempting to ask if the WEF is not already too late.
Mr Schwab has been pushing for a new, stakeholder-led capitalism for 50 years now, without the CEOs who trek up the Alps each year feeling the need to make the kind of changes that would trouble their shareholders — hence the doubts about Davos rocking capitalism’s boat.
Now, though, he thinks the time is ripe. “The coronavirus moved the needle from 30 or 40 per cent acceptance [of the idea that shareholders need not come first] probably to 70 or 80 per cent,” he said.
Put another way, he said: “You had the good guys and then the rest. Now you have the bad guys and the rest.” (Billy Nauman and Andrew Edgecliffe-Johnson)
Moral Money talks corporate responsibility and racism with former British MP Chuka Umunna
Chuka Umunna was a central character in British politics before the 2019 general election that gave the Conservative party a thumping majority.
After defecting from the Labour party and then unsuccessfully contesting the Cities of London and Westminster seat as a candidate for the Liberal Democrats, Mr Umunna is putting his political career behind him, to focus on corporate roles that will help businesses put stakeholders centre stage.
He has joined the boards of two tech companies — UK software company Advanced, and fintech company Digital Identity Net — and is advising media monitoring platform Signal AI.
Mr Umunna sat down with the Moral Money team on Zoom for his first interview since the election. This interview has been condensed and lightly edited for clarity.
MM: How did your work as an employment lawyer inform your views on corporate ESG?
CU: You really get to understand that it’s not black and white, there are no saints and sinners, you can’t neatly divide employees and employers into those categories.
A lot of colleagues on the [Labour] opposition benches just had a very poor view . . . of a lot of people in the private sector, particularly big business. They are very suspicious of them. And that just simply was not my experience of the clients that I worked with.
MM: You say you’ve seen a change in CEOs’ attitudes to ESG since 10 years ago. What do you think was behind that?
CU: The financial argument is getting louder [and] ESG-conscious companies who take more of a long-term view and prepare for these types of big systemic risks are just much better placed, and I think that’s been borne out by the crisis.
The change that we need to see now requires not only that you win the argument that ESG is the right thing to do, but I think you need ESG conscious firms, and funds, to become the leader of the pack in every field in every sector. You need to make the ESG movement a place that people come to to make money.
MM: How do you think coronavirus is going to affect the world of work?
CU: The comparisons that are being made between what we’re all going through now in a lockdown compared to the wartime experience frankly I think degrades the experience of those who fought fascism. This is not a shared experience: if you are a person of colour in the US or the UK, this disproportionately impacts on you.
I think one area where there’s a lot more progress that still needs to be made is on diversity. I don’t think diversity in company management gets the attention it deserves.
Although huge progress has been made since my father arrived here from Nigeria in the mid-1960s, there is still a long way to go.
MM: Given the current outrage in the US over the killing of George Floyd, what should businesses do to address the problem of police brutality towards people of colour, and the structural inequality that underpins that violence, beyond tweeting out their support?
CU: Companies are corporate citizens that pay taxes — this in turn helps fund policing. So, never mind the clear moral imperative to act, of course business leaders should speak out. In fact, they have a duty to do so when the fundamental human rights of groups in society — which make up substantial numbers of their employees and customers — are being violated, as is the case here.
That said, they cannot do this with authority unless they get their own houses in order on race equality — and from the boardroom down there is a lot of work that needs to be done. For example, over a third of our largest listed companies in the UK are likely to miss the target to have at least one director from an ethnic minority by 2021 according to the government sponsored Parker review. Warm words are all well and good but action starts on your doorstep.
MM: Would you think about returning to politics?
CU: It was a tremendous privilege to serve in the House of Commons for 10 years but I feel I can make as much impact — and hopefully more — back in the private sector. I’m still a member of the Liberal Democrats and I’ve got no intention of leaving.
Chart of the week
New research from State Street Associates and Harvard Business School has found yet another firm link between companies’ performance on ESG issues and their ability to weather March’s market crash. Using Truvalue Labs data, the researchers found strong evidence to show institutional investors actively sought to put money into companies that received positive press coverage for their “human capital, supply chain, and operational response to Covid-19.”
Grit in the oyster
While many companies are taking extraordinary steps to pitch in for the greater good, that is only part of the story. Here’s a little corporate grit in the oyster from the coronavirus crisis.
We have heard several CEOs saying that the Covid-19 crisis will, and must, accelerate their efforts to be better corporate citizens. But those vocal stakeholder capitalists may be in the minority, according to fresh research from the Conference Board, Russell Reynolds, Debevoise & Plimpton, and ESGAUGE Analytics.
Just over 10 per cent of the 236 companies polled thought the pandemic would increase their focus on sustainability. That pales in comparison with the almost 31 per cent who expected it to set those efforts back.
Tips from Tamami
Nikkei’s Tamami Shimizuishi keeps an eye on Asia to help you stay up to date on stories you may have missed from the eastern hemisphere.
China’s central bank has announced it will drop so-called “clean coal” from its list of projects that qualify for green bond financing. Given that China is the largest emitter of CO2 and the second largest green bond issuer (after the US), the shift is far from negligible.
The change has been widely welcomed by international investors as it will align China more closely with global standards. AXA Investment Managers previously had to exclude some Chinese green bonds from its portfolios because the inclusion of clean coal conflicted with its internal investment policies. said Julien Foll, responsible investment analyst at AXA Investment Managers. This change will make it a lot easier for the company to invest in this sector.
“In Asia, the need to limit coal power is now increasingly recognised, and governments and banks are starting to take action,” said Hana Heineken, senior campaigner of Rainforest Action Network. But, she added: “The question is whether [the trend] will extend to oil and gas funding, especially [liquid natural gas], which can be equally destructive”.
As restaurants reopen, the return to disposable cups — lined and lidded with polymers — is just one sign of how coronavirus has set back the battle against single-use plastics. Concern about infection has driven consumers back to throwaway packaging, while bans on disposable items have been delayed in the UK and US. At the same time, the switch away from eating out to buying food to have at home has also pushed up demand for packaging.
Chris Arnade’s book Dignity excellently chronicled the lives of the poor in America. This week he writes about the justifiable outrage of Americans living under an “absurdly” unequal system where the poor are over-policed while the elite grow “richer off the profits of a business community unchained and under regulated, under the theory that individual liberty, especially when applied to businesses, is collectively beneficial.”
Facebook employees revolt over Zuckerberg’s stance on Trump (FT)
ESG passes the Covid challenge (FT)
Coronavirus drives overhaul of British boardrooms (FT)
Swiss debate on corporate liability comes to a head (FT)
Why Wall Street is calm in the face of US unrest (FT)
How sustainable is Amazon? An ESG analysis of the retail giant (Medium)
How companies interact with their communities amid George Floyd protests will be noted in ESG scoring, index manager says (CNBC)
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