Thinking Citizen Blog — ESG, DEI, and Chief Purpose Officers
Thinking Citizen Blog — Tuesday is Economics, Finance, and Business Day
Today’s Topic: The New Face of Capitalism: ESG, DEI, and Chief Purpose Officers
Do you know what ESG means? How about DEI? What does a Chief Purpose Officer do? Who cares? Who should? Are they passing fads? Are they here to stay? Today a few notes. Experts — please chime in. Correct, elaborate, elucidate.
ESG: Environmental, Social, and Governance investing is a big deal
1. We’re talking big bucks here: $19.2 trillion as of the end of 2019, up 42% from the year before.
2. In the first quarter of 2021, flows into mutual funds and exchange traded funds specializing in “socially responsible” investing doubled from the previous year!
3. The number of ESG funds has exploded: up 4X in the last decade to 409.
NB: But what should qualify a company to be eligible for an ESG fund? What holdings should qualify or disqualify a fund from claiming to be an ESG fund? No clear answers.
DEI: Diversity, Equity, and Inclusion
1. “DEI, which was once seen as a sub-component under the human resources department, has now evolved into a core business function that large and small businesses alike have been aggressively investing in.” (fifth link)
2. “Despite COVID-19’s effects on the U.S. economy, the number of DEI-related job postings increased by 123% between May and September of 2020.” (ditto)
3. “Diversity is the presence of differences within a given setting. Equity is the process of ensuring that processes and programs are impartial, fair and provide equal possible outcomes for every individual. Inclusion is the practice of ensuring that people feel a sense of belonging in the workplace.” (6th link)
NB: “Chief Diversity Officer” is “one of the hottest jobs in America.” But it has also been “a revolving door.” High turnover is driven by both high demand and frustration over “lack of resources and unrealistic expectations.”
CHIEF PURPOSES OFFICERS — Deloitte, PriceWaterhouse, Hasbro
1. Should every company have “a purpose beyond profit”? Deloitte has one. So does PriceWaterhouse. So does Hasbro. Is this the wave of the future? should it be?
2. In 1970, Milton Friedman once famously argued that “The Social Responsibility of Business Is To Increase Its Profits.” For him shareholder return and the interest of humanity were synonymous. Don’t profits only flow from providing services that customers want so desperately that they are willing to part with their hard earned money to get them? (see last link)
3. In 2019, 181 CEOs representing 30% of total US market capitalization took a different view, arguing that companies had purposes beyond profit. According to a statement of the Business Roundtable signed by these CEOs, companies are “accountable to five constituencies of which shareholders are only one (customers, employees, suppliers, and communities are the others).” (ditto)
NB: “The primary criticism of stakeholder capitalism is that any purpose other than shareholder profits results in a lack of focus and, ultimately, corruption. This critique logically follows from the view that CEOs can be self-serving arbiters of social value and would, if given the opportunity, divert resources to their own enrichment under the guise of “purpose.”
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