ESG ratings, inclusive business dev't, progressive capitalism

“Convincing people they are wrong is difficult” – Stephen Denny

Yesterday, there was an item in the news that Ayala Land Inc. (ALI) recently received very high scores from several global ESG rating firms. ALI is one of the very few Filipino companies that gets consistent high ESG rating and has in fact earned a higher rating in the environment category than the Asia regional rating.

ESG is a measured investment grade rating based on Environmental Social Governance issues. It measures a company’s actions on things like climate change, sustainability, diversity, social equity, management transparency and business inclusion. Many western investors consider these ratings on top of profit based ratings before they plunk in money into certain companies.

Yesterday’s opinion page in a prominent news platform also contained a piece on the business sector’s role in promoting inclusive economic and business development. The piece posited that there is a need for big business to be more cognizant of the plight of the economically vulnerable people and their participation in the betterment of their economic life such as increasing access to sources of income, goods, services and credit.

In a recent seminar for businessmen, one of the main speakers harped on the need for today’s corporations to change their very nature from that of profit-oriented organizations to that of institutions that practice inclusive business development. She emphasized that for centuries, the main aim of corporations was simply to make profit. She admitted that a profit driven corporation is one that encourages innovation and rapid development. However, she stressed that because of the dire situation of many of our countrymen, there is a need to veer away from a pure profit driven approach to that of a more socially conscious one.

When asked why companies should shift away from an approach that produces maximum profit and builds an environment of innovation and development, the speaker in so many words replied that it was simply the “right thing to do” and that to do otherwise was inherently evil.

These concepts of ESG and inclusive business and economic development are part of a trend which some sectors call the new progressive capitalism. The basic concept of adding social and environmental concerns to the main objectives of corporations is essentially a laudable one. The effects of Covid-19 and the recent economic difficulties worldwide has had a large negative effect on the quality of life of many people.

Unfortunately, there is also an increasing trend of a large pushback against ESG and inclusive business development. Conservatives have called these concepts as part of woke capitalism. A growing number of investors and businessmen have questioned the relevance of these concepts and even claim that these concepts have an actual negative impact on business especially profits. The standard answer of “it is the right thing to do” does not deter nor counter the pushback. What is worse, the penchant for progressive business advocates to attack their opponents actually hardens this pushback

We cannot just focus simply on moral or ethical considerations to convince many corporations to adopt ESG and Inclusive Business Development. We cannot just tell the businessmen that they should adopt these principles because it is “the right thing to do”. We cannot continue to ram these principles into their throats from a stance of moral and intellectual superiority and attempt to shame people who do not buy in to the concept immediately.

If we truly want to convince corporations to take note of ESG and inclusive business developments then, we must convince them that these concepts and approach will realistically benefit them. There are many examples of cogent practical reasons for businesses to adapt these new concepts.

First of all, these new concepts are popular with the millennials and Gen Z’s. Given the large population base of these two groups, it is clear that the profit potential of catering to them in terms of their beliefs is a clear way for companies to tap into their spending list. As such, being perceived as an ESG advocate will increase market base.

Second, sustainability actually enhances long-term profits. Rampant short-term profit based action plan run the risk of finite resources disappearing rapidly and eventually crash companies.

Third, there are some data that show companies that do not care about ESG are often the ones that are embroiled in controversies about pollution, poor governance and other related issues and underperform in the long run especially if their equities are listed and public perception affects their value.

These are samples of how advocates of progressive capitalism can win over those opposing them. Mutuality of interest or basic long term self- interest are more compelling arguments for convincing people.

There are many counter points against the so - called woke capitalism but there is no denying that the principles of sustainability and social awareness are valid concerns. If one truly cares about promoting these valid causes then perhaps, it is time to go beyond the base argument of “you must do these things because it is the right thing to do and you are bad if you don’t”. It is time to engage with the intended audience on terms of how it will benefit them in the long run.

This is just my oblique observation.

Editor’s note: The opinions expressed in the foregoing article are solely the author’s and do not reflect the opinions and beliefs of the Philippine News Agency (PNA) or any other office under the Presidential Communications Office.