Just paying lip service?

David Harrison, manager of the Rathbone Global Sustainability Fund, having seen first-hand the growing trend of responsible capitalism in America, makes the case for getting up close to see whether companies are really serving all their stakeholders, or just paying lip service.

Blah blah blah light sign on wall

Long gone are the heady days when corporations had a laser focus on shareholder returns. Serving the shareholders was a business’ raison d’etre — that is, until economic and productivity growth started to slow. With growth now at worryingly low levels, we can no longer ignore the evidence: this narrow focus hasn’t worked.

The tide has really gone out on that way of thinking. This was clearly demonstrated last August, when the group of leading US executives known as the Business Roundtable very publicly rejected this narrow focus of the past and heralded a new commitment to serving all of their stakeholders.

This transformation in the thinking of CEOs at some of the world’s biggest companies shows how much demand has grown for a more responsible capitalism that recognises long-term profits are dependent on a thriving ecosystem of customers, suppliers, employees, communities and the environment — as well as shareholders.

We’ve recently published a report on responsible capitalism which chimes with the assertion that for companies to prosper in the long run, they need to challenge themselves to do more. Long-term investors should care about responsible capitalism — even if they don’t necessarily care about the societal benefits. By ignoring their wider ecosystem, companies make themselves less competitive.

But are businesses just paying lip service to sustainability in order to stay in vogue? Over the past year, I’ve taken a couple of trips to the US to meet some current and potential investments on their home turf and I was delighted to find a society that is much more aware of the environmental and social costs of consumption and doing business than I have ever seen before.

Nevermind what President Trump says, the home of capitalism is actually pursuing green, and I’ve seen a visible increase from my first visit last March to my latest visit in November . It turns out that responsible capitalism is running hot over in the US, and it looks like it isn’t simply a flash in the pan. American businesspeople can be some of the most cynical in the world when it comes to money. If they are coming round to sustainability and environmental considerations, anyone can.

Beware the greenwash

I love the ‘can-do’ American business culture and respect many of its companies, but over there, being a good corporate citizen is sometimes a secondary consideration for US management. Europe, by contrast, has a lot of faults, but when it comes to sustainability it’s streets ahead. So to increasingly see US companies address environmental and societal issues is fantastic.

But while it’s great to see this growing wave of sustainable thinking among American businesspeople, I reckon you need to be slightly careful of the hype — some questionable businesses are trying to ‘greenwash’ themselves to fit in with the sustainability mood.

As you would expect, the West Coast leads the way in sustainability, both among businesses and consumers. But during my visit, I was surprised by just how much the East Coast and Midwestern centres have caught up. Reusable coffee cups are everywhere, more and more taxis are hybrids, and there were a few electric buses too. I saw quite a few cyclists as well. This is big news in Illinois which, along with neighbouring Michigan, is car country.

Apples and pears

The trouble is that this stuff is all pretty hard to measure, especially from my desk in London (see our related article on corporate responsibility in Rathbones’ latest InvestmentInsights). Every business has a different approach to sustainability and some are far more effective than others. That’s why I go to visit these companies. I want to make sure they aren’t just fobbing off necessary issues, ensuring that they are truly on board with doing business the right way. We want to be able to talk to the managers of the businesses that we invest in, knowing that they are listening — that they want to hear what we and other investors like us have to say.

That’s really where active management comes into its own. I need to be all over these businesses to make sure they really are doing what they say they are. If their sustainability efforts fall by the wayside, their share price will likely suffer too. Lip service cannot be disguised forever and it’s my job to spot the fakes.

Important legal information

This area of the site is for professional advisers

Please read this page before proceeding, it explains certain legal and regulatory restrictions applicable to the distribution of this information. It is your responsibility to inform yourselves of and to observe all applicable laws and regulations of the relevant jurisdiction.

This section of the website is directed only at investment advisers and other financial intermediaries who are authorised and regulated by the Financial Conduct Authority (FCA).

The information provided in this site is directed at UK investment advisers only and must not be circulated to private clients or to the general public. It does not constitute an offer to sell, or solicit an offer to purchase any investments by anyone in any jurisdiction in which such offer or solicitation is not authorised or in which a member of the Rathbone Group is not authorised to do so.

I confirm that I am an investment intermediary authorised and regulated by the Financial Conduct Authority. I have read and understood the legal information and risk warnings below:

Important Information (Terms and Conditions)

The information contained on this site is believed to be accurate at the date of publication but no warranty of accuracy is given and the information is subject to change without notice. Any opinions or estimates included herein constitute a judgement as of the date of publication and are subject to change without notice. Furthermore, no responsibility is accepted for the accuracy of any information contained within sites provided by third parties that may have links to or from our pages.

Rathbone Investment Management Limited ("RIM") is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered Office: Port of Liverpool Building, Pier Head, Liverpool L3 1NW. Registered in England No 01448919.

In accordance with regulations, all electronic communications and telephone calls between Rathbones and its clients are recorded and stored for a minimum period of six months.

The information provided in this site is directed at UK investors only. It does not constitute an offer to sell, or solicit an offer to purchase any investments by anyone in any jurisdiction in which such offer or solicitation is not authorised or in which a member of the Rathbone Group is not authorised to do so.

In particular, the information herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in France and the United States of America to or for the benefit of United States persons (being resident in the United States of America or partnerships or corporations organised under the laws of the United States of America or any state, territory or possession thereof).

In order to comply with money laundering and other regulations, additional documentation for identification purposes may be required.

Rathbones shall have no liability for any data transmission errors such as data loss, damage or alteration of any kind including, but not limited to, any direct, indirect or consequential damage arising out of the use of services provided or referred to in this website.

Past performance should not be seen as an indication of future performance.

The value of investments and the income from them can fall as well as rise and you may not get back the amount originally invested, particularly if your client does not continue with the investment over the longer term.

Changes in the rate of exchange between currencies may cause the value of an investment to go up or down.

Interest rate fluctuations are likely to affect the capital value of investments within bond funds. When long term interest rates rise the capital value of units is likely to fall and vice versa. The effect will be more apparent on funds that invest significantly in long dated securities. The value of capital and income will fluctuate as interest rates and credit ratings of the issuing companies change.

Tax levels and reliefs are those currently applicable and may change and the value of any tax advantage will depend on individual circumstances.

Investing in emerging markets or small companies may be potentially volatile, as these investments are high risk.

The design, text and images are owned, except as expressly stated by members of the Rathbone Group. They may not be copied, transmitted, displayed, performed, distributed, licensed, altered, framed, stored or otherwise used in whole or in part or in any manner without the written consent of Rathbones except to the extent permitted and under the procedures specified in the copyright Designs and Patents Act 1988, as amended and then only with notices of Rathbones' rights.

Rate this page:
Average: 5 (1 vote)

Subscribe to the In the KNOW blog email