By Alan Palmiter — 11 January, 2022
Alan Palmiter, Professor of Law, Wake Forest Law
This blog post is aimed at those of you born after 1980. It is for you the Millennials, the Gen X, Y, Z-ers. You are thinking about, worried about, heart-broken about your future. I’d like to address your feelings of despair. You are angry and afraid. I know this. The world that you had been promised as children has been taken from you. You are not to blame. Instead, you blame me and my generation – and rightly so. We let you down. We allowed this moment to arrive – well, it arrived a while ago. And we sat idly by.
In the Sixties and Seventies, we exalted in the possibility of a new world order. A world of peace. We sang about the Age of Aquarius. We had our Woodstock. And then we gave up. We hunched over, slunk down, and went into corporations – leaving our souls at the door. We followed the embedded instructions to make money at any cost.
I so admire that your generation has embarked on your own separate mission to save the world. You are in the process of redeeming your own souls. And I know that you cry out that I – and the rest of my generation – redeem our souls, too. Greta Thunberg is your spokesperson. “How dare you,” she says to us. “How dare you.” We hear Greta’s words, but we are frozen -- unable to move, unable to act. Instead, we go to COP26 and engage in self-congratulation.
But something wonderful may be happening. It has been happening without us trying. It happened in the dead of the night, during the pandemic, when nobody noticed. There are the beginnings of a beautiful noise. It rises up from the street. No, not the street transited by our ICE vehicles. But from Wall Street.
There is an awakening Capitalism -- globally. The corporation long reviled for externalizing harm, seeing only the short term, myopic to the inter-connectedness of the world, machinating with bought politicians. It is a story that is hard to believe. But I do believe it's true. And every day I believe it becomes even truer. It is a story about capitalism saving itself from itself. These are jarring words. Redemption should not exist in the same sentence as capitalism.
Yet a caterpillar can exist in the same sentence as a butterfly. Why not the possibility that American capitalism is healing itself, transforming itself. That there is a metamorphosis. That we are going from the consuming, even rapacious caterpillar toward the beautiful, transcendent butterfly. Maybe, just maybe.
In a nutshell, in the last few years – and especially in the last year – the quintessential investor has changed. It used to be Homer Simpson (beer – cheap, drinkable beer, who cares where it comes from). Today, the quintessential investor is Lisa Simpson (music, science, poetry, justice, nature, feelings, languages). You!
In some cases, Lisa is the driver of this metamorphosis. In other cases, it is we (my generation) awakening to the inter-connectedness in the world. Big finance is investing – and also funding new projects -- with an eye to dealing with the climate crisis and protecting the environment (E), considering the effects on workers, customers, and society (S), and encouraging awakened business leaders (G).
This really began to take hold during the pandemic. Big institutional shareholders – the masters of the universe – began to notice that companies in their portfolios that were adaptive and resilient not only survived, but even thrived. This they were not expecting. They assumed all companies would flounder during the economic downturn.
But they were surprised. Some companies went into the pandemic cocoon and emerged stronger, transformed, beautiful. What explains this? Did the cocoon make them better? No. The corporate DNA had not changed – the profit motive was still alive and well. Companies with a real ESG were performing better – in their bottom lines.
These companies, the ones pursuing real ESG, discovered that sales were up and costs down; their workforce was more productive, even happier; their products were more innovative, more in demand; and their leadership was more aware of how the world is inter-connected. And then the rising tide of ESG investing went exponential.
The world’s big investment firms and banks have decided that companies in their portfolios that engage in harmful activities (think ExxonMobil) either must be sold or be disciplined. ExxonMobil’s Stage 3 emissions cause floods, hurricanes, droughts, climate chaos. This hurts all the other portfolio companies.
When you sell ExxonMobil, its stock price falls – in the past five years down about 32%, compared to a 114% rise in the overall stock market. And if you have ExxonMobil in your indexed portfolio – one that tracks the whole market – you want ExxonMobil to simply get out of oil and gas. Fast. Which to a surprising extent has been happening.
In the meantime, government provides essential support – even though it has not been the ESG leader. In the United States, SEC rules require disclosure by publicly-traded companies, allowing the big investment firms to know whether ExxonMobil is getting out of oil and gas fast enough. And for private companies the rules against securities and bank fraud provide more protection.
Government also is catalyzing the transformation. Regulations that call, for example, for more renewables and that create incentives for moving to electrifying HVAC and transportation create even more momentum in the ESG movement. And then – and this is super important – government provides a social safety net. Something it has been trying to strengthen.
Besides government, NGOs have been pressuring companies to shift – not only to reduce their GHG footprint, but to treat employees, customers, suppliers with care and dignity. Diversity, Equity and Inclusion (DEI) has become an actual business strategy – because it makes a company more resilient and profitable. And, thus, the big investors are now demanding it.
You – Millennials, Gen X, Y, Z-ers – each of you has a role. We all have a role. Keep doing what you’re doing – with passion. Or pursue something else, because there are and will be so many ways in which you can make a difference. In the words of the poet-farmer Wendell Berry:
Make a place to sit down.
Sit down. Be quiet.
You must depend upon
affection, reading, knowledge,
skill—more of each
than you have—inspiration,
work, growing older, patience ….
Accept what comes from silence.
Make the best you can of it.
Of the little words that come
out of the silence, like prayers
prayed back to the one who prays,
make a poem that does not disturb
the silence from which it came.
Capitalism – an awakening Capitalism – is now beginning to position itself to heal itself. With the help (the all-in help) from you, from me, from each of us -- focused, data-driven, change-embracing. And, perhaps most important, present and caring. We each have a role, and we can’t afford to dally. Not one day.
A more academic, technical version of this talk is available on SSRN: Capitalism, heal thyself..
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