“Capitalism knows only one color: that color is green; all else is necessarily subservient to it, hence, race, gender, and ethnicity cannot be considered within it.” – Thomas Sowell
Over the past few years, I have often wondered how corporations have spurned their customer base in the pursuit of activism and how they have remained in business? How did corporations get so detached from profits that they can shun a good percentage of their consumer base and still keep their share prices stable or growing? I found the answers in Conscious Capitalism and ESG investing.
I first heard of Conscious Capitalism a decade ago in a speech by Whole Foods founder, John Mackey. Conscious Capitalism is the brainchild of Mackey, and it’s his assertion that capitalism can have a philanthropic motive and not just a profit motive. However, in Mackey’s view, philanthropy pre-empts the profit motive and profit is just a byproduct of doing good business.
Conscious Capitalism is a feel-good story until one considers that when philanthropy subverts the profit motive and the business is no longer responding to the demands of the marketplace, the business no longer serves a purpose at all. There is no shortage of charities that don’t require empty patronage for participation. Merely meeting the demand of the public while employing thousands of people in local communities is in itself a public good.
More recently, I was introduced to the idea of ESG investing. ESG stands for Environmental Social Governance, and in ESG investing a qualitative score is applied to businesses based on how well they conform to leftist social movements. Often, these individual businesses are then bundled into funds with other high-scoring businesses. One comparison of this system that has been made is to China’s social credit system, whereby your position in society is based on how well you comply with the dictates of the government.
In 2015, ESG assets stood at $2.8 billion. By 2020 those assets had hit $40 trillion and are estimated to hit $53 trillion by 2025. The onslaught of leftist activism over the past few years has coincided with exorbitant growth in these ESG funds. As leftist businesses, municipalities, and investors look to virtue signal their ESG bona fides, they have diversified their holdings like pensions into these ESG funds, which explains the exorbitant fund growth.
Historically, when a company has produced a game-changing product like an iPhone or a Tesla electric vehicle, the stock price has soared based on the objective value that the company has brought to the world. Now with ESG funds, a company like Nike can continue to manufacture their shoes in a foreign sweatshop, so long as they speak out against white privilege and achieve the coveted ESG label, or get bundled into larger ESG funds. A company can afford to lose a percentage of its consumer base if it can still grow by users investing in its activism.
Much like labeling food as organic, receiving a high ESG score is not without controversy. It has been viewed as a marketing ploy, in much the same way many food products receive the certified organic label, despite less than natural processes in production. Nike used above is an excellent example. Despite being listed as a company that does not treat its employees well or promote diversity and inclusion internally, Nike received a high ESG score from the investment blog, the Motley Fool. No consideration for how or where the company’s products are produced is given. This demonstrates that merely running social justice campaigns is enough to stand out in a crowded investment field.
Many privately held companies have been emboldened by leftist corporate activism but without the backing of ESG labels or investment. One such example is Wisconsin-based Penzey’s Spices which decided to hold an MLK holiday sale titled “Republicans Are Racist Weekend.” The result was an immediate loss of forty-thousand customers overnight, which resulted in owner Bill Penzey emailing and begging customers to buy gift cards to make up for losses. This demonstrably proves that corporations cannot be so comfortable spurning their customer base without investment in their activism.
In the case of Conscious Capitalism and ESG investing, the funding that companies garner is not based on the quality of their product, the demand for their product, or innovation that enriches the lives of their customer base. These are merely ways to virtue signal the personal politics of corporate executives and investors while turning off half of their customer base. They are empty shell games and can be likened to mid-level marketing schemes because the product offered takes a backseat to something else. Often, the demand for the product is mutually exclusive to the demand for the philosophy. Eventually, you run out of customers who wish to buy both your product and your activism.