Robert Armstrong in the Financial Times provides his strong perspective on the role of ESG investing. Whilst there is much in his view with which I disagree, he makes several useful points as well. He makes the critical point that is not possible for “shareholders’ economic interests and the social good (to) always harmonise over the long run.” This view is one that is too often ignored by proponents of ESG investing in their goal of having their cake and eating it too. Armstrong correctly notes that “corporate leaders must sometimes make choices that benefit stakeholders at the cost of shareholders.” I believe that view is a healthy dose of realism in this discussion.
He correctly notes that when “companies subordinate everything to maximisation of shareholder value, it backfires.” I would note that the example he uses focuses on IBM’s focus on a specific earnings per share target. Â I am not sure that earnings per share are necessarily the best target for creating longterm shareholder value although I fully support his point that exclusively focusing on shareholder value is not always helpful for a company’s long term survival.
Armstrong goes on to say that “(s)hareholder capitalism is an excellent way to manage our corporate economy and we should stick with it.” However throughout his perspective he neither cites studies that specifically prove this point nor the increasing number of studies that show a focus on ESG can deliver greater shareholder value. I find it interesting that proponents of a pure shareholder value perspective require academic proof of the ESG value proposition without requiring a similar standard of support for their own assumptions.
Finally Armstrong addresses a substantive issue related to public policy and politics. He notes that “(m)ost US companies are incorporated in states where the law requires them to put shareholders first” which while true ignores the efforts by B-Lab to make changes in this approach. But perhaps my greatest criticism relates to his final point that “democratic action and the rule of law, . . . allow us to, for example, set minimum wages, tax carbon emissions and change campaign finance laws.” This factually correct statement ignores the significant and successful efforts by corporations and wealthy individuals to subvert the democratic process through the use of their economic wealth to avoid these goals being achieved.
