ESG, dreaded in Florida, isn’t ‘woke,’ it’s business as usual — and that’s good | Opinion

Capitalism by any other name — stakeholder, conscious or “woke” — is still capitalism. Larry Fink, chairperson and CEO of Blackrock, wrote in his annual letter that stakeholder capitalism “is not about politics. It is not a social or ideological agenda. It is not ‘woke.’ It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers and communities your company relies on to prosper.”

That is the point of the recently maligned concept of ESG — environmental, social and corporate governance. Fink and Warren Buffett understand that quarterly profits only tell a portion of the story. Buffett champions value investing, which looks at companies as a whole.

What does that mean? Profit is essential; a business cannot succeed without profit; however, it is not the only data point savvy investors like Fink and Buffett factor when determining value.

Value is a complex calculation that factors the risks to which a company is possibly susceptible. Risk comes in many forms: financial management, supply-chain vulnerability, cultural shifts, competition, social scandals, environmental catastrophes and climate change. All of these risks can dramatically impact a company’s bottom line. Just ask the investors who lost billions of dollars because the leadership of Blockbuster, Sears, BP, VW and Blackberry did not identify the risks these companies were facing.

Numerous examples, such as the BP Deepwater Horizon environmental catastrophe, illustrate the importance of the “G” (governance) in ESG because proper governance can mitigate environmental and social disasters that result in financial loss. The Deepwater Horizon explosion caused 11 deaths and, subsequently, millions of barrels of oil to be dumped into the Gulf of Mexico, resulting in billions of dollars of lost value. It could have been avoided by adhering to ESG principles.

“The sad fact is that this was an entirely preventable disaster,” the White House Oil Spill Commission’s chief counsel, Fred Bartlit, said in a statement in 2011. “Poor decisions by management were the real cause.”

Combine the above-increased investor risk with a shift in how consumers define value, and now you have a strong case that ESG is not “woke” capitalism; it is just capitalism. A recent study by NielsenIQ reported that 78% of U.S. consumers say, “A sustainable lifestyle is important to them.” A 2020 McKinsey survey found that more than 60% of respondents said they would pay more for a product with sustainable packaging.

McKinsey released a new study on Feb. 6 titled “Consumers care about sustainability — and back it up with their wallets.” This study concluded that ESG-related products achieved disproportionately more growth than non-ESG-related products. Furthermore, the study revealed that consumers of ESG-related products are more loyal to ESG brands than non-ESG brands.

ESG practices carry less risk for the investor, have faster product growth and increase customer loyalty. That smells an awful lot like capitalism to me.

Dr. Mark McNees is a professor at FSU’s Jim Moran College of Entrepreneurship. He is founder of RedEye Coffee and an evangelist for using business as a force for good.