Do the Monday blues get you down? We have something to jazz up the start of your week and keep you informed too. Starting on January 24, we will be publishing on Mondays, complementing our award-winning coverage on Wednesdays and Fridays. Since our launch in June 2019, Moral Money has endeavoured to deliver the fullest possible range of news and analysis on sustainable business and finance, as that agenda has taken the business world by storm. So, from next week, join us for Moral Mondays, as we take you deeper inside the push for a more sustainable world economy.
As for today, Simon Monday — no, too much, sorry, Mundy — digs into the debate over whether companies can thrive by pursuing sustainability and profits at the same time. And Kristen Talman and I have a report on the US labour movement, which has found new energy thanks to investor interest in the Amazon and Starbucks fights. Patrick Temple-West
Amazon and Starbucks face new ESG headache: unions
Unionisation efforts in the US are coming to a head. Amazon warehouse workers in Alabama will be voting by mail starting on February 4, kicking off the second unionisation effort at the retail giant. On Monday, tech workers at The New York Times will start voting to organise after a heated campaign over the past few months.
After decades of union-busting, companies have almost pounded organised labour into oblivion. Just 6 per cent of private-sector workers are in a union, according to the labour department. But now, union efforts at Amazon and Starbucks have rejuvenated the labour movement, and ESG-minded investors are putting new pressure on companies concerning their union practices.
Starbucks has already started warning investors of the risks presented by this increasingly controversial situation.
“Our responses to any union organising efforts could negatively impact how our brand is perceived and have adverse effects on our business,” it said in a November regulatory filing.
“Businesses cannot ignore the fact that they cannot treat their workers as a commodity,” said Jonas Kron, chief advocacy officer at Trillium Asset Management. The ESG community had been happy for some time to discuss environmental issues, but “there has been a slow-building of awareness about the ‘S’,” he added.
During the first unionisation attempt at Amazon last year, a group of 70 investors asked the company to not interfere with the process, claiming it went against its own human rights principles. Separately, Trillium and other investors urged Starbucks to respect the decision of workers at an outlet in Buffalo, New York, who last month voted to unionise — the first time the company had faced such a move.
Amazon and Starbucks offer a cautionary tale — even employers with relatively decent benefits can have employees launching unionisation drives. This year, Amazon raised the average pay for 125,000 warehouse workers to $18 per hour in the US, almost double the federal minimum wage, while pledging $700m to retrain 100,000 employees for advanced roles over the next five years. Starbucks offers healthcare benefits and tuition reimbursement for baristas, a rarity in the service industry.
Corporate union efforts appear likely to be one of the biggest business stories of the year. Just as some companies were caught off-guard by surging investor concern about climate change, neglecting labour issues could prove costly for slow-footed businesses; particularly since restive employees seem increasingly willing to vote with their feet, and the Biden administration is pledging to boost workers’ bargaining power. Kristen Talman and Patrick Temple-West
Does stakeholder capitalism pay its way?
The debate over corporate sustainability strategies had a couple of punchy new contributions in recent days. In his annual January missive, Larry Fink hit out at claims that stakeholder capitalism is a “woke” agenda, arguing that companies rely on mutually beneficial relationships with employees, communities and others if they are to prosper. That contrasted with a characteristically sharp intervention from the high-profile British investor Terry Smith, who accused consumer goods producer Unilever of having “lost the plot” with its vaunted purpose-driven agenda.
Both comments added fresh fuel to the argument over whether companies’ pursuit of sustainability goals helps or hinders their profitability and returns to shareholders. But what do the data show?
Two reports out this week provide some new food for thought. One comes from Corporate Knights, which runs the sustainability-focused Global 100 index. The index scores all listed global companies with more than $1bn in revenue on 23 metrics, ranging from racial diversity to the percentage of revenue derived from low-carbon activities. Since the index was set up in 2005, it has returned 331 per cent, against 279 per cent for the All-Country World index.
But a look at the long-run chart, above, makes clear that this outperformance is a recent development, accompanying a surge of green investment plans in response to pandemic-driven economic turmoil. And it’s far from clear that it will be sustained for long, as share prices in some of the most highly regarded sustainability performers come under pressure.
When I spoke this week to Henrik Andersen, chief executive of Danish wind turbine maker Vestas — which secured the top spot in Corporate Knights’ latest sustainability ranking — he highlighted the company’s efforts to tackle the environmental effects of its entire supply chain, and to build a focus on sustainability in each of its 29,000 employees. Yet Vestas’ share price has fallen almost a third over the past year, as investors switched their focus from its impact on carbon emissions to its surging input costs. It’s far from an outlier: as Patrick and Kristen noted recently, valuations in the clean energy companies dramatically underperformed the oil and gas sector last year.
Still, another new report this week offered new ammunition to those who argue that companies with a “multi-stakeholder” approach have healthier prospects over the long term. Published by think-tank FCLT and the Wharton School, it assessed companies on both “talk” — mentions of sustainability-related issues in their annual reports — and “walk” — environmental, social and governance performance, as assessed by MSCI and others.
Using data from 2010-2020, the study assessed more than 3,000 big global companies’ performance over one-, two- and three-year time spans. Those that scored highly on both “walk” and “talk” generated 4 per cent higher investor returns and 1.5 per cent greater revenue growth than the average over a three-year period, with lower volatility. Interestingly, they also showed a much more long-term approach to strategy: they invested twice as much in research and development as peers, relative to sales, and were 50 per cent more likely to issue long-term guidance.
Due caution is needed when considering reports such as these. For one thing, there is still no sort of consensus about what truly constitutes a sustainable company (for more on this, watch the informative Davos Agenda panel that Gillian moderated yesterday). Standards of disclosure vary wildly between countries, industries and individual companies, making comprehensive apples-to-apples comparisons impossible.
With the push for a common global set of sustainability standards, and tightening regulations around climate-related disclosures in the US, Europe and beyond, far more robust data sets may emerge to shed more conclusive light on the relationship between sustainability strategies and financial performance. For the foreseeable future, the likes of Fink and Smith will have ample scope for argument. Simon Mundy
Chart of the day
The ESG analysis team at JPMorgan has just published a useful dive into the hydrogen sector, widely seen as a crucial pillar of the emerging green economy. While hydrogen-related stocks had a rough year in 2021, they note, government strategies took some big steps forward. That’s set to drive huge growth over the next decade in “green hydrogen” capacity — produced through electrolysis using renewable energy.
While corporate leaders are enthusiastically talking up their embrace of enlightened capitalism, investors see their statements as “shallow and flimsy, lacking substance and any mechanisms for accountability”, write Bob Eccles and two fellow Oxford academics in this interesting piece for Fortune, based on interviews with dozens of big global asset managers, asset owners and company leaders.
The global tech sector has been raking in huge sums from earbuds and other increasingly tiny electronic items. But what happens when they are discarded — and what does that mean for the global pollution crisis? Don’t miss this excellent, graphic-rich report from the FT’s Alexandra Heal.