This is a two-sided brief rather than an advocacy document. It sets out five reasons to adopt a stakeholder driven approach and five reasons not to, and it sources both halves to named research, named executives and named critics.
It opens by noting that several separate movements are pushing the same shift at once. ESG, purpose-driven corporations, B-Corps, the United Nations SDGs, the Business Roundtable and Humanized Growth are listed together as overlapping attempts at one change.
Key findings
- The brief asks why the shift is happening now and answers it twice, in opposite directions. One slide argues things are going well, citing over a billion people lifted out of extreme poverty since 1990. The next argues things are going badly, citing widening wealth bifurcation and a deepening climate crisis.
- On the case for, the strongest evidence offered is consumer and investor behavior. An Accenture survey of over 30,000 consumers is cited, with 66% saying they are drawn to a brand that is transparent about where it sources materials and how it treats employees.
- The performance argument rests on Morgan Stanley’s fund analysis. It reports no consistent difference in total returns between sustainable and traditional funds, and a 20% smaller downside deviation for the sustainable ones.
- On the case against, the sharpest evidence is that the ratings do not agree with each other. MIT Sloan researchers studying six ESG ratings firms found average correlations of 0.54 between providers, and called the resulting information relatively noisy.
The case for, in five parts
Consumer expectation comes first. The brief cites the 2022 Edelman Trust Barometer, covering 36,000 respondents in 28 countries, which found business the most trusted institution while government and media entered what Edelman calls a distrust spiral.
Investor pressure comes second, in the words of the largest asset manager. Larry Fink’s 2022 letter is quoted at length, insisting that stakeholder capitalism is not a social or ideological agenda but capitalism driven by mutually beneficial relationships.
The remaining three are results, talent and resilience. Deloitte is cited for mission-driven companies showing 30% higher innovation and 40% higher retention, and McKinsey for the claim that roughly one third of corporate profits are at risk from state intervention.
The case against, in five parts
The first objection is that the commitments are not kept. An investigation into Business Roundtable signatories found they did no better than other companies at protecting jobs, labor rights and workplace safety during the pandemic.
The second is that the ratings measure the wrong thing. BusinessWeek is quoted concluding that MSCI’s ratings do not gauge a company’s impact on the Earth and society but the potential impact of the world on the company and its shareholders.
The third and fourth are about performance, and both are argued from cases. Terry Smith on Unilever and the removal of Danone’s Emmanuel Faber are set out at length, alongside valuation academics from NYU and UCLA who conclude that the evidence markets reward companies for being good is weak to non-existent.
The fifth is jurisdictional. It argues that this is government work, and closes with Tariq Fancy, formerly head of sustainable investing at BlackRock, insisting that the market will not solve rampant and rising inequality by itself.
Scope and limitations
This is a collection of other people’s evidence, not IRG research. Every claim in it is attributed to an external study, survey or commentator, and the brief takes no position between the two halves it presents.
Source
This page summarises Doing well by doing good: Arguments for and against Stakeholder Capitalism, by IRG, January 2022.