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As the head of sustainability-focused consultancy BSR, Aron Cramer is one of the top advisers to big global companies seeking to improve their environmental and social impacts. When we spoke this week, he had some cautionary words for executives with a narrow view of what it means to be a responsible business. The conventional corporate approach towards controversial political issues — to steer a mile clear of them — is becoming increasingly untenable, Cramer reckons.
With concerns about civil liberties and democratic integrity rising in many parts of the world, “it will increasingly be a ‘which side are you on?’ moment”, he said. “Businesses will be expected to weigh in — and a lot of CEOs and boards are uncomfortable doing that.”
A striking sign of the changing times came in the US last year when companies ranging from Amazon to General Motors hit out against “discriminatory” voting laws proposed by Republican lawmakers in various state legislatures. Businesses should expect further pressure to intervene on such issues, Cramer said — not least from a new generation of employees “who want to see their values reflected in the organisations where they work”.
The newest example of the trend comes from the UK, where 200 companies have condemned a parliamentary bill that would impose hefty new restrictions on public demonstrations. Keep reading for more on that — as well as on the intersection of ESG and M&A, and the environmental threats that took top billing in the World Economic Forum’s new global risks report. Simon Mundy
‘Dangerous’ UK policing bill sparks business pushback
A recent surge in environmental and social protests in the UK has prompted a stern response from Boris Johnson’s government, which is seeking to push through tough new curbs and penalties around demonstrations. The proposed new policing law has sparked resistance from civil liberties campaigners. Now, scores of businesses are adding their voices to the chorus of disapproval.
“This bill is dangerous. It’s authoritarian. It’s draconian,” reads a statement from Unilever subsidiary Ben & Jerry’s, the Vermont-based ice cream brand. It’s one of 200 businesses to have joined a public campaign opposing the bill, with others including clothing brand Patagonia and cosmetics company The Body Shop. The intervention raises some interesting questions about companies’ responsibility to speak out on matters of law and public policy, even where there’s not an obvious direct impact on their operations.
The bill is being debated today in the House of Lords, the upper chamber of the UK parliament, ahead of a vote on Monday. If it passes into law, protesters who have grabbed headlines in recent years — from Extinction Rebellion to Black Lives Matter to Insulate Britain — would face a sharply increased risk of prosecution and imprisonment. Defacing a statue — like the one of slave trader Edward Colston toppled by anti-racism demonstrators in 2020 — would now carry a maximum prison term of 10 years. If protesters make enough noise to cause “serious disruption” to nearby organisations, they could face 51 weeks in jail. Other sections of the bill would “significantly expand the police’s ability to place conditions on the right to public processions and assemblies and . . . leave entirely open what those conditions can be”, according to this useful analysis by the lawyer-run, non-profit Good Law Project.
Definitions of corporate social responsibility have generally focused on how companies run their operations, rather than how they use their voice to influence legislation. But companies resisting the new policing bill — many of which have social and environmental responsibility at the core of their public brands — told me that they felt they needed to take this stance, to live up to their stated mission.
“This is about key intrinsic values within our business,” Patagonia’s UK head Alex Beasley told me. “It’s about being consistent and living our values. It’s not about raising sales.”
Still, there is a business logic to the intervention, said Chris Davis, head of sustainability at The Body Shop, a subsidiary of Brazil’s Natura. For many Body Shop employees, the company’s vaunted commitment to social justice is a key reason to work there, he pointed out. Many consumers, too, are attracted by those credentials.
This puts the likes of The Body Shop and Patagonia — whose consumers skew towards the liberal end of the spectrum — in a different situation from big listed UK companies, none of whom have publicly condemned the bill. A larger consumer-facing business such as Tesco, for example, would risk alienating large numbers of conservative-minded shoppers if it did so. “You can understand their hesitancy,” Davis said, noting that where political engagement is concerned, “there is still a line that many companies will not cross”. Simon Mundy
ESG poised to be a key component in M&A space
When entrepreneurs created ESG-friendly start-ups in the last decade, they usually did so because they were so passionate about a cause — or so frustrated about the mainstream market — that they were willing to strike out on their own, even if the strategy seemed risky.
How times change. In the last year, there has been a frenzy of merger and acquisition activity in the ESG world, as established companies rush to buy ESG-friendly tiddlers to bolt on some green credentials to their existing operations, and stave off criticism from investors.
In the first half of 2021, 140 low-carbon energy M&A transactions were completed globally, each worth more than $50m. Moreover, two blockbuster deals included Goldman Sachs acquiring ESG-focused asset manager NN Investment Partners for €1.6bn and Blackstone purchasing Sphera, an ESG data and consulting group, for $1.4bn, both meant to boost sustainability credibility.
Where climate change meets business, markets and politics. Explore the FT’s coverage here.
Are you curious about the FT’s environmental sustainability commitments? Find out more about our science-based targets here
And if this survey from EY is any guide, the frenzied deal making is likely to continue in 2022, making some of the founders of those ESG start-ups very happy (ie rich).
The numbers are striking. According to the survey, almost two-thirds of global CEOs expect their companies to pursue acquisitions in the next 12 months — up from 48 per cent at the start of 2021.
What is even more striking is that 99 per cent of the CEOs surveyed said they were factoring in ESG issues when they made these acquisitions. which makes us wonder who those 1 per cent contrarians are, but that is another matter).
Only 6 per cent say they have actually walked away from a deal due to ESG concerns, EY found — which either suggests that these ESG concerns are only skin deep, or that the companies they are looking at already comply.
Either way, it’s becoming clear that corporate boards are no longer willing to ignore the need to uphold ESG values. Moreover, financiers say that when companies do engage in these deals they are being more discerning.
ESG is maturing, but it is now being held to a higher standard, Joyce Chang, chair of global research at JPMorgan, told Moral Money, arguing that investors are waving a flag of caution before agreeing to be wooed by sustainability claims, especially in the M&A space.
It is easy to see why investors are becoming more cautious. Last year there was a wave of hype around the idea that ESG strategies were good for investors. Morgan Stanley economists, for example, released two widely read reports that argued that ESG strategies boosted investor returns — and reduced the downside volatility.
However, this week a team of economists affiliated with Columbia released their own research, which took aim at the Morgan Stanley claims: this argues that ESG strategies usually force investors to make modest sacrifices in their returns.
Columbia’s researchers are not alone in their hesitation — 65 per cent of CEOs admit that they have encountered resistance from investors when pushing ESG-focused M&A deals, which created tension versus lowering risk.
Comments like these, however, are unlikely to deter corporate boards. Nor the host of entrepreneurs who are hoping to ride the green wave. Take Trevor Neilson. He used to work in the VC world, but last year he left it to co-found WasteFuel, a waste-to-energy start-up.
That once seemed like a risky career move. But Neilson is so confident that his company will be acquired by one of their investors (who have already become their top customers), or grow into the next “climate unicorn”, that he argues being an entrepreneur is now the “safe” option — compared with the VC world. Kristen Talman
Chart of the day
Environmental threats dominate the list of world’s most critical long-term risks, according to a recent poll of almost 1,000 experts and officials.
In the World Economic Forum’s annual global risks report, survey respondents pointed to “climate action failure” as the top long-term threat over the next decade. The report predicted that the “disorderly climate transition” was set to continue — and warned that a transition that did not consider “societal implications” risked exacerbating existing inequalities and feeding larger geopolitical tensions.
Beyond Meat, one of the leading players in alternative proteins, may soon need an alternative strategy. In this smart piece, Emiko Terazono explains how the plant-based meat company has become one of the most heavily shorted companies on the US market.