Cleaning up capitalism or woke-washing?

Cleaning up capitalism or woke-washing?

The Tulchan Frameworks series with Tortoise

11.02.20
by Andrew Feldman
Managing Partner, Tulchan

Above
James Harding, Tortoise Media; Ruth Davidson MSP; Alan Jope, Unilever CEO; Christine Hodgson, Severn Trent Chair; James Cameron, Environmentalist and Lawyer

It’s a measure of how far business has travelled that the question for capitalism was not so much its destination but how – and how fast – to get there.

Yes, people supported Larry Fink’s prioritisation of climate change in his annual letter to CEOs. Yes, too, people agreed that the climate crisis will prompt a fundamental reallocation of capital. But, left to their own devices, businesses and markets will not move fast enough. And, this is awkward, there’s a gap between what the BlackRock CEO says and what his company does with its $7 trillion plus under management: there’s more talk than walk.

But what we heard was corporate activism and business action, too. Here’s a quick summary.

  • Purpose and profit: Alan Jope, chief executive of Unilever, said they’d come to the conclusion that only by being a purposeful company could they deliver long-term profitability. They identified climate change and inequality as the two chief challenges of our times.
  • The product: True enough, institutional investor interest in performance on the environment, society and governance can still feel like an afterthought, but it’s gaining traction. More importantly, the expectation of consumers, particularly younger ones, is all about the purpose – not espoused by the CEO or embroidered onto the brand, but the purpose that lives in the product.
  • Pensions: Ruth Davidson pointed to a new front of activism, namely people and their pensions. Members of the Scottish Parliament are debating what to do with their pension pot, whether to pull out of North Sea investments and pour money into green funds. Others – many, many others – looks set to make their pensions speak for them.
  • Pay, regulation and metrics: Christine Hodgson, the incoming chair of Severn Trent, pointed out that regulators can and do demand specific environmental outcomes of the water companies. Expect more of the same on carbon. And companies themselves are setting pay and bonuses against delivery on the sustainability agenda. It’s increasingly factored into remuneration decisions at Standard Chartered. It accounts for a large - and rising - percentage of reward at Unilever. (A helpful mantra in the search for metrics: “You don’t get what you expect; you get what you inspect.” ©Jope.)
  • Energy policy: James Cameron, founder of Climate Change Capital and now partner at Systemiq, made the case for the still-undervalued renewables sector. And he offered a radical recipe for the leaders of fossil fuel companies: stop exploration, invest in separate innovation businesses, particularly hydrogen technologies, oversee the break-up of the good energy from the bad energy business.

None of these things, alone, will be enough. There are things that business cannot and should not do. They fall to government, whether legislation, taxation that prices in carbon or investment in renewable infrastructure. But business and consumers are moving. Politicians will need to follow faster. As we learned exponential change starts slowly, but, when it gets going, it moves far faster than we expect.