The culture wars trap for sustainable business

The world of socially responsible business has come a long way over the last few decades.

In a world where most countries are committing to net zero to combat climate change, it’s leading businesses that are furthest ahead. And the idea of ESG investing has emerged from a backwater to become positively mainstream.

So perhaps it isn’t surprising that there’s something of a backlash. An inevitable sign of success, you say? Well, maybe. But there’s more to it. In fact, I would go so far as to say that this is an extremely dangerous moment.

Consider some of the recent headline stories. 

HSBC’s head of responsible investing is suspended, and then leaves, after having given a presentation pushing back against ESG orthodoxy. Ben & Jerry’s chooses not to sell its ice cream in Israel due to its political position, and then finds parent company Unilever selling its Israel business to a franchise over its head. Disney takes a position on a Florida bill on education, cast by its critics (but not its supporters) as anti-gay rights – and then finds the state government revokes its privileges in managing Disneyland.

Yes, the world of socially responsible business has come a long way. It used to be about large multinational corporations recognising they could have a major impact on society, and seeking to keep this within the bounds that reasonable people would accept. A hard enough thing to do in the era of climate change.

And ESG was meant to be about seeing strong sustainability performance as a proxy for good management, particularly in relation to non-financial risks. 

But it has gone beyond that. The progressive politicians and many of the young new entrants into the workforce are demanding that companies take public positions on divisive political issues. Indeed, they can be attacked if they stay silent.

The inevitable sting in the tail is that pleasing one side ends up offending the other. 

So the companies that gave in and “made a stand” are ridiculed and attacked for “woke virtue signalling” and abandoning their core purpose – which is to make money by adding value to society through their products and services. “Go woke, go broke” is the refrain.

And the backlash has found numerous explosive outlets in recent months. For example, via Elon Musk, whose company Tesla has arguably made the biggest single contribution in recent times in forcing the pace towards post-fossil-fuel road transport. And yet Standard & Poor’s excluded Tesla from its ESG index earlier in 2022, and provoked a high profile rebuke from Musk himself. 

“ESG is a scam. It has been weaponised by phony social justice warriors,” he said. S&P countered that factors relating to Tesla’s practices led to its overall apparently disappointing score. But Musk wasn’t alone in thinking that it might have had more to do with ESG being a vehicle for leftist activism, not the neutral and objective system it projects.

The backlash is becoming institutionalised. In the US, Republican senators and congressmen have started to put forward legislative measures to prevent public pensions from following “politically motivated” investment strategies.

In Minnesota, a bill was introduced to prohibit the State Board of Investment from investing in companies that boycott high emitting industries, such as mining and energy, and would similarly bar the state or any of its agencies in doing business with them.

Likewise, financial and similar companies would be prohibited from refusing to provide a service to someone based on their political affiliations and related factors. 

This is a pretty disastrous outcome, let’s be clear. The power of sustainable business was that it was a voice that could be respected across the traditional political divides. It could provide reliable feedback to politicians on the state of the world as seen via multiple supply chains, and the state of innovation and best practice in responding to problems. 

By indulging the need to line up on specifically political questions not directly related to such matters, to virtue signal to one side of the divide, it was an open invitation for a counter-attack from the other side. Play stupid games, get stupid prizes.

That isn’t to say that a niche company can’t choose to use political identity as part of its marketing. If Ben & Jerry’s wants to be the ice cream loved by the left and shunned by the right, that is a perfectly viable niche for them. But that’s obviously not where parent corporation Unilever would want to follow, in spite of its strong commitment to sustainable business. 

The split that’s happening is real, and it forces businesses to adapt, as they need to for all major changes to their operating environment.

Right now, there is every sign that the US – perhaps then followed by others – is beginning the process of splitting everything. The two political identities can no longer tolerate overlap. The space that used to be the shared common American story has become a no-man’s land.

Left and right already consume different information sources – hence they no longer agree on reality, not just on policy. On current trajectory, they will soon consume all media, social media, and other goods and services on a similar split. There will be right-leaning financial organisations, because PayPal banned controversial figures from its services. There will be right-leaning internet infrastructure providers, because Amazon suspended its services to Trump supporters and Twitter alternative Parler. And so on. 

The danger – and perhaps now inevitability – is that the sustainable business movement ends up being relegated to one half of the political divide. It then becomes the thing that the other half of businesses need to react against in order to appeal to their customers.

And this isn’t a US-only challenge. In the UK a number of former Brexit campaigners are gearing up to target net-zero policies. They are doing so with the line that “they”, the unaccountable out-of-touch elites (government, civil service and “woke corporations”), are imposing this “net-zero madness” on ordinary people and so putting up their bills, making their life harder.

You may say that’s a claim that doesn’t stand up to scrutiny. The truth is that often it doesn’t, but sometimes it does, particularly where there is some short-term pain for long term gain or even just badly thought-through initiatives.

Outside of the climate debate, for business this can occur when companies mistake partisan political opinions for corporate values. UK bank Halifax recently promoted on Twitter that it encouraged its employees to put their pronouns on their name badge. When some reacted negatively, it told them that they should close their accounts if they didn’t agree with Halifax’s values. Apparently, the message of embracing diversity has been subverted to mean that you’re not welcome if you don’t conform to a fixed position. In other words, if you’re not on the “right side” of the growing divide.

Give the anti-net zero, anti “woke” campaigners a few such gifts, things that they can use to convince ordinary people that they need to stand up against you, then don’t be surprised when they succeed.

Businesses do best when they are pragmatic entities, able to see the world clearly because they don’t view it through ideological lenses, and able to act quickly when it is in their interest to do so. That’s exactly why they have embraced net zero, and are leading the charge for practical, affordable solutions. But it can all be lost with some bad choices along the way.