3
min read

ESG is V2 of capitalism

Capitalism seeks profit. ESG investing benefits shareholders, social, and the environment.

Introduction

We hear that ESG and capitalism in conflict. But is it really? Capitalism is an economic system in which private ownerships tailor to public markets, in the pursuit of profit for themselves and shareholders. Sustainability market and ESG mandates has been long ignored and are now being factored in. A new market is emerging, tailoring to sustainability and ESG mandates. This is a problem when shareholders are unaware of the potential. Investors stick to traditional methods of capital gain when investing in ESG ultimately leads to short-term profits that is traditional capitalism.

In unison: Capitalism & ESG

Modern capitalism suggest corporations to pursue social or environmental causes if such pursuit is in their self-interest, but consider why they would feel compelled to do so: to increase market reputation? To abide with social mandates? What benefit could there be for them? Does it lead back to profit?

In ignoring ESG, companies are passing a cost to the citizen body. Nestlé was taking water from Ontario for zero cost. After numerous community boycotts, the Ontario government finally responded with new water bottling policies. So this begs the question: why are public assets being given away for free? Why should a company be given handouts like that?

Capitalism and ESG mandates are not mutually exclusive and they are more than just shareholder value.  The two have more in common than most people realize as they both focus on creating value for shareholders: investors through profitable growth, employees with safe working conditions and better pay, customers with a sense of security that their products will be made ethically – and the list goes on. Appealing to ESG mandates are an integral part of creating sustainable organizations through the pursuit of growth.

Renewal of Traditional Capitalism

Traditional aspect of capitalism seeks to maximize returns by providing desired services and products. Many investors consider ESG to be a part of this pursuit of growth as they improve the bottom line. When the bottom-line is focused, it leaves a trail of positives: economic growth, living standards, healthier environment and wellbeing. Sustainability aspect in ESG ultimately enables better waste management, efficiency, and a reduction of waste. Furthermore, ESG can increase trust, engagement, and profit while decreasing costs. This market-centric approach leads to better economic decision and shareholder profit. A bottom-up-centric focus enforces traditional values of capitalism, supporting short-term milestones of growth.

Investing in ESG is Investing in Business

68% of organizations have yet to invest in ESG, relying on short-term milestones for profit. Traditional ideas of  ESG mandates are a win-win for both social and environmental causes while still maintaining the pursuit of profit, which is what capitalism has always been about. So don't be afraid to embrace ESGs in your next corporate and investment strategy  – chances are, you might like them more than expected.

ESG mandates are motivated by a belief that ESG practices are better for business, not only do practices appeal from an ethical standpoint, but also increases shareholder and investor support - a positive feedback linking to greater profits. In the book, “Values: Building a Better World for All” written by Mark Carney, a former governor of the Bank of England and Bank of Canada and currently the chair of Glasgow Financial Alliance for Net Zero (GFANZ), argues ESG factors are directly linked to financial self-interest as they support innovation and productivity. The resulting impact is a reduction of energy use and to combat climate change among other influences to ensure continuity of operations. Looking at ESG from this lens, one might consider ESG the next version of capitalism.

Conclusion

Capitalism seeks business profit through the pursuit of self-interest. As Mark Carney agrees, investing in ESG benefits from the bottom-up, creating a positive-feedback loop through impacting the environment and thus society. An impact on society ultimately impacts shareholders, leading to business growth.


Topic inspired by Nawar Alsaadi - thank you!

Emma Chiu

Product Analyst

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