Chapter review: Moral Money

Introduction & context 

Moral Money is chapter 10 of Gillian Tett’s 2021 book, Anthro-vision: A New Way to See in Business and Life. Tett is an anthropologist by academic training and an influential financial journalist and editor at the Financial Times by profession. One of the things anthropologists key on is areas of silence about things that groups, tribes and people do not talk about.

The message here is generally positive. But the good news is packaged with cautionary observations about human nature that most readers here will be familiar with by now. The good news is that concern in American society for dealing with climate change really is beginning to influence the business community in beneficial ways. Some people may be aware of that, but I wasn’t. The caution is that humans will be human, even in the face major threat. The threat turns out to be what is useful here, but it isn’t concern for the climate. It is concern for power and wealth.

On August 19, 2019, I raised the matter of business morals in a post entitled Big Business Morality: Considering More Than Just Shareholders? That post was triggered by a letter that CEOs of ~200 major companies signed, e.g., Walmart, United Airlines, Amazon, Apple, Dow, Exxon Mobile, BP (British Petroleum), etc. These people are members of a powerful but quiet organization called the Business Roundtable. 

On its face, the letter seemed to be a repudiation of Milton Friedman’s narrow ideology that CEOs with a social conscience were “subversive” and a threat to the only moral imperative any company should have, namely profit. But because the language of the letter was both non-binding and hopelessly vague, I concluded it was just an empty PR stunt. I read the intent as only to try to make businesses look like they cared about something meaningful other than profit and not a meaningful expression of  something else. The open letter is here -- see the “Statement on the Purpose of a Corporation.” The five business principles the CEOs claimed to want to follow seemed to repudiate the idea that social conscience is subversive and bad for economic markets. Instead of a statement of worship of profit, they expressed some form of a social conscience.

 

Moral money

Tett starts by pointing out that in general and for a long time, companies and economic markets have largely ignored the costs of dealing with externalities, including various kinds of damage to the environment and society. That makes sense because ignoring those costs generally increases profit. Exceptions arise when government passes laws that make companies deal with externalities. The corporate attitude was to let society and government deal with the damage companies leave in their wake as they generate as much profit as possible, as fast as possible. The belief was that whatever damage companies create is more than offset by the social good and wealth the companies created. 

The Business Roundtable letter linked to above expressed what is now commonly referred to in the business community as ESG, environmental, social and governance, principles. Tett described what drove the CEOs to write and sign that letter:

“.... investors were shunning fossil oil and gas stock because they feared that the sector would not be as profitable in the future as it had been in the past, because governments were clamping down on the use of fossil fuel, and consumers were agitating over climate change. That had created anxiety about ‘stranded assets,’ shorthand for the idea that the oil and gas reserves that fossil fuel companies owned might turn out to be worthless, making the company less valuable than investors had assumed. Or to put it another way, issues such as the environment has previously seemed to sit outside investors’ and economists’ models. They were called ‘externalities’ and often ignored. Now the externalities were threatening to become so important that they were overturning the models. The idea of keeping them ‘external’ looked increasingly ridiculous --- as any anthropologist knew it was.

The way that most investors framed this dramatic shift in attitude was in terms of the rise of the ‘sustainability’ movement or ‘green finance’ --- or with reference to [ESG principles]. Another frame that was also used was ‘stakeholderism,’ or the idea that people running companies should not simply aim to produce returns for shareholders --- as men such as Milton Friedman .... had once argued .... but to protect the interests of all stakeholders: employees, the wider society, suppliers, and so on.”

Tett described the mindset change that the Business Roundtable CEOs were expressing as one of changing from a narrow tunnel vision lens to a wider lateral vision lens that anthropologists try to view the world through. Tett takes this as evidence that the lateral vision mindset has gone a long way toward shifting attitudes in the business community, and on balance the change is for the better.

Tett admits that when she first saw the Business Roundtable letter and a hoard of emails from businesses about their commitment to ESG, her silent response was “ESG should stand for eye-roll, sneer and groan.” She didn't buy it.

Since Tett is influential and a well-known journalist, she was given direct access to some of the CEOs who signed the letter. Her interviews with them convinced her that their mindset change was real and there was more substance to the letter than she initially believed. She keyed in on key words and phrases, ESG, sustainability, green business, etc., and probed their real meanings in all of her areas of major contact. She found the same thing she saw in the CEO world in the financial sector and in the government and philanthropy sectors. Many investors were looking to finance companies with a broader mindset than just brass knuckles profit. 

There was a major convergence of thinking going on that she was unaware of until she opened her mind (applied lateral vision) to the possibility that ESG stood for something other than eye-roll, sneer and groan.

Over time, Tett kept listening and refined her understanding of what was going on as she learned more. She describes it like this:

“But do people like [USB Bank chairman Axel] Weber really believe this stuff? .... The idea that banks were selling ESG products seemed a little like priests in the medieval Catholic church selling ‘indulgences’ .... the noise in the system [ESG, sustainability, green, etc.] was concealing a more important area of silence.

The issue at stake revolved around risk management. If you listened to the noise around ESG, it seemed that the movement was all about activism: vocal campaigners were calling for social and environmental change, and companies and financial groups were shouting about what they were doing to support this. But if you looked more closely at ESG, with an anthropologist’s lens, it was clear that there was a second factor at work that was less openly discussed: self-interest. A growing number of business and financial leaders were using ESG to protect themselves. The activists who had initially launched the EGS movement a decade or two earlier usually did not want to admit this.

But while activists who wanted proactively wanted to change the world had started the ESG movement, by 2017 it seemed that many investors has the less ambitious goal of simply avoiding doing any harm to the wider world. ‘That’s the sustainability crew,’ I told colleagues. Then there was a bigger --- and even less ambitious --- cohort who were primarily interested in ESG because they wanted to avoid doing harm to themselves. That category included asset managers who did not want to lose money on fossil fuel stranded assets, or invest in companies that faced reputation risks, be that around sexual abuse inside the office .... or human rights abuse in the supply chain or racial issues .... Similarly, corporate boards did not want to be tripped up by nasty surprises, or see shareholders flee or scandals erupt that might cause executives to lose their jobs.

Did this make the whole venture hypocritical? Many journalists thought so. However, I saw it as a victory of sorts for the original founders of the movement. History shows that when a revolution takes place, it tends to succeed not when a tiny minority of committed activists embrace a cause, but when a silent majority decide that it is too dangerous or pointless to resist change. ESG was nearing this tipping point since the mainstream was starting to be pulled along by the tide, even if they did not want to define themselves as activists at all.”

Tett speculated that by 2017, there was enough worry among CEOs that there was too much uncertainty and instability. At the 2017 Davos meeting, business leaders expressed the realization that progress could go in reverse and history seems to go in pendulum-like trends. The 2008 financial crisis obliterated the previous rock solid belief that financial innovation was always good. The crisis was caused by financial innovations, CDOs and the like, that most people did not and could not understand. That undermined the rock solid belief that free-market capitalism could solve all problems.

So, the corporate and finance worlds embraced ESG. Tett estimates that by the autumn of 2019, at least $32 trillion had been invested by ESG standards. Some estimates were higher. But ESG wasn’t based only on concern about people or the environment. As Tett put it, “there was a more negative, less discussed incentive too: a fear of metaphorical pitchforks.” 

For moral authority for ESG and a social conscience, and in opposition to Friedman’s assertion that social conscience is subversive, Tett points to Adam Smith’s second book published in 1759, The Theory of Moral Sentiments. There, Smith argued that markets and commerce could work only if there was a shared moral and social foundation among the business sector, government and the rest of society.  

A last point: a comparison with Christian nationalism 

It took Tett a combination of (i) her open-mindedness, life experiences, intelligence and academic training, (ii) a lot of time and persistence, and (iii) access to high level executives in business and finance, to finally arrive at this description of the motives behind the mindset change from narrow to lateral. She admits that her story faces a lot of disbelief and misunderstanding:

“.... journalists faced a story that was developing in a slow-moving, elliptical trend because of clunky acronyms and technical jargon that alienated outsiders. [the same thing that led to the 2008 financial disaster] .... The EGS sector was also opaque and fragmented, since it had been run in a cottage-industry style: .... It was tough to get an overarching picture of what was underway. .... ESG was everywhere but nowhere.”

IMO, that description of ESG sounds a lot like Christian nationalism. Powerful, fragmented, hard to see in clear detail and everywhere but nowhere. There really are complex things in our society that are hard to see and understand, and thus easy to dismiss as a mirage.

Questions: Has public agitation about climate change had an impact on the development of ESG, or is the business community just spewing deceptive public relations to minimize losses and lawsuits? Is it possible to be both cynical and not-cynical about ESG, i.e., to have mixed and maybe even contradictory motives?