On a web show hosted by the New York Stock Exchange and JUST Capital, business leaders assert that organizations addressing the needs of all stakeholders—customers, employees, communities, and the environment—outperform their competitors; that it’s time to establish clearer disclosure measures, and for organizations to develop action plans.
A panel of investment companies, advisors, and corporate executives agree that Stakeholder Capitalism provides better results for shareholders, stakeholders, and society, than the traditional approach, and that the time has come to establish clearer disclosure requirements and to move from talk to action. Click here
to watch the entire program.
“ESG (Environmental, Social, and Governance) business practices are now proven to drive better results,” says Lynn Martin
, President of ICE Data Services, a leading provider of market data to investors. “2020 will go down as the year of ESG.” Investors, she says, will be increasingly looking at “public disclosures, public filings, sustainability reports, what companies put on their web sites. Our job is to provide investors objective information on a company’s ESG footprint on as a real-time basis as possible.”
Her company tracks about 400 ESG attributes in US publicly traded companies. “ESG is just another risk factor giving you the information you need to make the right decisions about your portfolio and helping to manage your risks.”
Paul Tudor Jones
is a hedge fund investor and founder of the JUST Capital outreach group and the JUST Capital Goldman Sachs ETF (Exchange Traded Fund), which includes 500 of JUST Capital’s top companies ranked according to what surveys of Americans seek in companies. “What’s good for stakeholders is good for shareholders. These companies have a better return on equity and have the earnings to prove it.They get fined less. They are much more likely to have an inclusive workforce; they are less likely to pollute, and yet you get great company performance.” He says the JUST Capital ETF has outperformed the Russell 1000 index by about 7% per year since November 2016 and has outperformed the index by about 12% this year. Jones announced that Goldman Sachs will shortly create a JUST 100 ETF.
He explains that the companies in the fund are selected based on the criteria Americans admire most in companies, starting with how they pay and treat their employees and those of their supply chain; their ethical practices as measured by litigation and fines; the contribution of their products and services to addressing societal needs; treatment of customers, and their environmental sustainability.
Stakeholder Capitalism, he believes, not only produces better returns for shareholders and experiences for stakeholders but contributes to a better society. “Only 29% of Americans think that capitalism is working for them, and this was before Covid. To turn this around, we have to find new ways for capitalism to interact with society.” The collective resources of private enterprise, he points out, dwarfs the resources of government and philanthropy combined. “One-third of Americans can’t pay their bills on time. Half of workers in the Russell 1000 cannot making a living even with a partner working part time. That’s not what we want our capitalism system to be.” He believes that employees unable to meet basic needs generally are not as productive or engaged as those in better circumstances.
He concludes: “You can invest in the best companies that do things that resonate with the American public that will not only make you feel good, but you will make money, too. It’s the best story you could possibly have.”
Investing in Employees Boosts Returns
Observes Warren Valdmanis
, Partner in Two Sigma Impact, an investor in people-focused businesses, “There has been a lot of talk about ESG over the last few years. Finally, the S (Social) of ESG is getting its moment. Fair treatment of workers has become a No. 1 priority.” He believes this has a significant impact on organizational performance. “50% of Americans describe themselves as disengaged; 13% are so disengaged, they act against their employer.'s interests. This is a big drag on the economy.”
His company invests in medium-size companies that have a strategic focus on people. “Investing in workers creates better companies. Addressing ESG factors boost returns.”
Valdmanis argues that “We need more scientific rigor in measurement. ESG metrics are all over the map. This is a major factor holding back institutional investors.” He speaks favorably of the new World Economic Forum Stakeholder Capitalism Metrics
published last month as a potential solution.
From the point of view of a major institutional investor, Rodrigo Garcia
, Deputy State Treasurer, Chief Investment Officer, and Chief Financial Officer, Illinois State Treasurer, says, “Companies with a sustainable business approach are lower risks. They are good for the community and good for the bottom line. This aligns with our core fiduciary responsibility.” His office uses traditional financial metrics with a focus on sustainability and corporate responsibility and believes this approach “protects shareholder value and maximizes returns.”
He notes that Illinois is the first US state to require the consideration of sustainability practices in the investment of local and state funds with the goal of maximizing returns, minimizing risks, and addressing fiduciary responsibilities. This includes the consideration of ESG factors, including human capital, the company's business model and innovation practices. “Today, 84% of assets are intangible on the balance sheets of S&P 500 companies. When so much of a company’s assets are based on IP (intellectual property), patents, relationships, brand value, we need to better understand those assets.”
Garcia believes that Stakeholder Capitalism can restore faith in capitalism. If anything good has come out of Covid-19, he believes, “it is a shift to Stakeholder Capitalism, a recognition of the importance of employees, customers, communities, and the environment. When companies take steps to protect workers, they benefit from more engaged employees, happier customers, and greater engagement in their brand. Stakeholder Capitalism can be a force for good.”
From the perspective of Anna Pot
, Head of Responsible Investments at APG Asset Management in the US, the time has come for having reliable information and holding companies to their pledges. It’s not just enough to sign the new Business Roundtable charter or other pledges, she says, “We need to ask: you have signed this. What does that mean now?”
We’ll know when Stakeholder Capitalism has really taken hold when we see the capital shifts, says Richard Steele
, Partner, McKinsey & Company.
He believes that the time has come for Stakeholder Capitalism, and he also is convinced that, despite skepticism, many CEOs are sincerely trying to understand how to address these issues. "The poor numbers on employee engagement are undeniable." How do you translate that recognition into action? "It's not as simple as having the data, though that's a necessary pre-condition." One of the questions to ask is: does it make sense to put money into corporate social responsibility or other activities when companies aren't addressing their fundamental people challenges? How companies spend money will determine if they are serious about addressing the people issue, he emphasizes.
, Senior Executive Vice President, Human Resources, AT&T, one of the companies in the JUST 500 index, says: “The future of work is here. How do we engage employees in this new world of work at home? How do we recruit, develop, reward, incent and engage people? We are thinking about this with a different lens that we have never used before. This is difficult. This is pushing us to think in innovative ways.” The company’s core principles, she says, “drive all our decisions.”
Says Kathy Sayko
, Chief Inclusion & Diversity Officer, PGIM, the global investment management company formerly known as Prudential, “Diversity will be key.” The events of this year, she explains, have created an inflexion point in people’s awareness from which there is no going back.
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