Is ESG prompting the end of shareholder primacy?

Is ESG prompting the end of shareholder primacy?


Shareholder supremacy has been a really dangerous
notion in many ways. The system we operate within has been so focussed
on short-term profit creation at the expense of people and the planet that
that approach is no longer an option. Directors now need to look more and more at
ESG type issues as both risks and opportunities, and it’s ‘Stakeholder
Capitalism’. Looking at the investment landscape today,
there is certainly a significant change and a relatively fast-moving change.
90% of the decisionmakers in M&A processes as investors
are looking at ESG issues. There is more of an appetite to acquire businesses
that already have strong ESG credentials. It’s a new way of
looking at companies. You’re also looking at some of these so-called
non-financial aspects, which at least in my opinion are financial,
because ultimately they impact your bottom line. Between 2016 and 2018 alone, there was a 38%
increase in assets with an ESG or responsible lens. If you are a business
who wants to be highly valued, and you want to reduce the risks that are
popping up in your due diligence, you better get your ESG measurements in order. The current problem with ESG due diligence
is, that it is not yet clear what the real value-drivers are in a transaction,
from an ESG perspective. Professionals like lawyers will be called
upon to help develop a framework for due diligence to preserve
that value. The B Team is a group of global business leaders
and civil society leaders who together, agree that business-as-usual
is no longer an option. It’s not enough to lead by brave action
in your own company anymore because if we are to deliver the Sustainable
Development Goals we have to change the system that we operate
within. There’s a moral reason for it, but it’s
also good for business. There are very much reputational issues around
companies that are perceived to be trying to operate in a sustainable, long-term
was as opposed to very short-term, profit focussed only ones. When I came across ESG for the first time,
I thought this was just another management fad, or some consultants talking
about stuff. I very quickly came to the conclusion that
this was important and perhaps even mission-critical for businesses
going forward. An economic system that is focussed on the
short-term, has left us with a burning planet, has left
us with a broken social contract. We have a decade to deliver on the vision
that will allow us to create an inclusive economy for all and we had better
get busy.

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About the Author: Oren Garnes

4 Comments

  1. How is ESG any different to the hundreds of thousands of other laws & regulations that need to be taken into consideration when pursuing shareholder wealth maximization?! I’m not saying more regulations (including ESG) is necessarily a good thing for society, but the debate of profit maximizing versus ESG ignores the reality of the last several hundred years.

  2. This is so dumb. Esg doesn't prove a company is working for the future. It only shows they know how to game the system. Giving people what they want. No company would have ever do anything was it not popular opinion. It is paperstraws. All for the show.

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