ESG and Shareholder Value
03 September, 2019
Perhaps indicative of the growing interest in the subject matter, last
week saw widespread media coverage of an announcement by one of the largest
U.S. business groups, The Business Roundtable. This collective, which
represents 181 companies including Apple, Goldman Sachs, and Coca-Cola, has
broken with decades of precedent by re-issuing its Statement of Corporate
Purpose, but eliminating the founding principle of shareholder primacy. The statement now delivers five principles as
commitments to the stakeholders in member companies:
value to our customers. We will further the tradition of American
companies leading the way in meeting or exceeding customer expectations.
our employees. This starts with compensating them fairly and providing
important benefits. It also includes supporting them through training and
education that help develop new skills for a rapidly changing world. We
foster diversity and inclusion, dignity and respect.
fairly and ethically with our suppliers. We are dedicated to serving as
good partners to the other companies, large and small, that help us meet
the communities in which we work. We respect the people in our communities
and protect the environment by embracing sustainable practices across our
long-term value for shareholders, who provide the capital that allows
companies to invest, grow and innovate. We are committed to transparency
and effective engagement with shareholders.
primacy has been a staple of business practice and education since Milton
Friedman's 1970 article in the New York Times Magazine promoted the concept
that the sole purpose of business was to maximise profits for shareholders. Accordingly,
this shift by leaders of the U.S. business community carries weight, even if it
merely speaks to a view held by a number of industry leaders. How (or perhaps
if) companies will implement this approach remains to be seen.
Regardless of the scale of any corporate
adoption, there have been a few leading examples that have rejected a profit
maximisation philosophy, some even accelerating this progress in more recent
times. One of these is Unilever, which has repeatedly demonstrated this through
social and environmental programmes, and most recently has taken the almost
unheard of step of ensuring that its products have an individual purpose beyond
driving corporate profits. These have historically ranged from the prevention
of infectious diseases, all the way to combatting climate change.
As set out in our recent paper 'ESG andShareholder Value' - our investment team recognises how investors, through the appropriate
application of certain ESG factors, can help to ensure not only a more balanced
and long-term approach to business, but also that investors can seek long-term
value through their investments.
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