Actic Ice Melt

Let's Get Serious

Created on 2018-01-05 17:21

Published on 2018-01-05 18:54

Over the past few years there has been a lot more talk in corporate circles about CSR (Corporate Social Responsibility), Environmental Sustainability, ESG (Environment, Social and Governance) and the like. There are big glossy 'sustainability reports' that complement conventional corporate financial reports. There are all sorts of commitments about what the companies are going to achieve by 2020, or 2025, or 2030. But all of this is simply not serious. Actions speak louder than words!

When corporate profits go down, the stock market reaction is immediate. The stock market even reacts when future projections of profit are less than the market has been anticipating. In this case the market is responding very efficiently to what the market considers to be 'corporate performance'. The market really does not care a hoot about what a company is doing with respect to its social impact and its environmental impact. No measures, no management!

There has been some effort by academics to show that better ESG behavior results in better profit performance, and therefore better stock price performance ... but the results are not particularly impressive. Many folk have launched ideas like Triple Bottom Line (John Elkington), Blended Value (Jed Emerson), Shared Value (Michael Porter and Mark Kramer). These ideas and many others have contributed to the conversation but what we need is to actually change corporate behavior in a very substantial way. For this to happen there have to be better metrics.

Some 50+ years ago I studied engineering and economics at Cambridge before going on to qualify as a Chartered Accountant. Over the years I have worked in the accountancy profession, in the corporate environment as a CFO and in the world of humanitarian relief and development doing consulting work for the UN, the World Bank and others. During my adult life, corporate profit performance has benefited from all sorts of innovations that have improved productivity on top of amazing technology and management information systems to improve profit performance have become very powerful and very effective.

But there is nothing like these systems for corporate impact on society or corporate impact on the environment. There are no metrics to track the way in which financial capital has been created while social capital and natural capital have been consumed.

My impression is that what we are going to be confronted with in the very near future will be all sorts of issues that are materially bigger and more dangerous than anything that we have seen in the past. This might be massive social disruption, or really extreme weather events, or new dimensions of cyber crime, or further escalation of corrupt practice and criminal enterprise.

For the time being, the behavior of the stock market and the comfort level of corporate executives suggest that the main things on the agenda are those that relate to profit performance ... and of course after tax profit performance which is likely to be enhanced by the recent tax reform in the USA. There is certainly a need for tax reform, but the reform should be addressing the need to finance the huge improvements in both public infrastructure and public social services that are essential for a meaningfully better quality of life for everyone. This reform does not appear to have anything like this in its conceptual design.

In my view any corporate entity that believes that its sole purpose is to benefit its owners no matter what, is a danger to society and to the environment ... and to the extent that such an entity also believes in making maximum use of every possible tax loophole to minimize taxes paid to government, they are dangerous parasites. This would be obvious if we had better metrics.

Trying to correlate profit performance with social performance and environmental performance simply using the correlation that more profit means more wealth creation which means a better society is absurd ... but essentially it is what we have been doing for all of my adult life.

that really did describe the way the socio-enviro-economic system is performing.

It is no surprise at all that workers (in mature economies) have flat-lined for the best part of 40 years while profits for owners have grown and grown and grown. The level of inequality is at record levels ... and it is no wonder that ordinary working people (and that includes me) are mad as hell with every justification. There was a time when workers in mature economies shared in a reasonable way with the benefits of productivity, but that all ended almost 40 years ago with the weakening of Unions and the opportunities to outsource from low wage polluting locations.

I favor free trade because it does produce net benefit to the world ... but the structural issues that result from changes in patterns of trade should be addressed very clearly and not simply ignored as has been the practice for a long time.

Sadly, I don't see much urgency on the part of corporate leadership ... and that includes bank leadership ... to make the changes that are needed. So while there is more talk about CSR, sustainability, etc than in the past. the corporate actions needed to put the talk into practice are tiny ... immaterial ... if they actually exist at all.

There are some priorities:

When one looks at the performance of most of the really big companies, there are many that are talking a lot, and some of them are actually moving ... but very very slowly. Many don't seem to have any intent on moving for another decade or two!

The problems facing the modern world are very, very serious. In my view the corporate world needs to step and really get serious about changing the way business gets done!

Peter Burgess ...