Sarah Harte: Corporate world's move away from 'woke capitalism' may come back to bite it

Elon Musk has called ESG a 'scam' perpetrated by 'phoney social justice warriors', but as Musk has just suggested 'a literal dick-measuring contest' with Mark Zuckerberg, let’s ignore his pearls of wisdom. Picture: Ludovic Marin/ Pool Photo via AP

‘A failure of corporate governance’ seems to be the consensus of the shenanigans at RTÉ. It’s one of those exceptionally boring sentences that makes the eyes glaze over. Let’s be honest, people really want to know ‘who dunnit’, and are they for the high jump?

In a broader context, environmental, social, and governance (ESG), or what American Republicans pejoratively call "woke capitalism" has been in the news, both at home and away.

Elon Musk has called ESG a “scam” perpetrated by “phoney social justice warriors”, but as Musk has just suggested “a literal dick-measuring contest” with Mark Zuckerberg, let’s ignore his pearls of wisdom.

What is ESG? Basically, it’s a set of standards that looks beyond shareholder profits to measure a business’s impact on society and the environment, and how transparent it is and includes hiring practices like diversity and inequality.

Republicans who are unhappy with what they see as a distraction from pure commerce (or who want to save polluting companies from having to report their actual emissions) are proposing legislation restricting states from doing business with companies that practise ESG.

In truth, it’s another iteration of the culture wars, this time at the intersection of politics and the economy. But there may be incipient signs of a rethink here too. 

Break with Pride

Last week, it was reported that Irish tech company Intercom experienced “employee unrest” after a new policy saw it break with its support for Pride. 

It’s a marked change from 2022, when Intercom celebrated with the theme “out in the world and bringing people in” and declared on its website that Pride was “a celebration and a display of solidarity” with the LGBTQ+ community.

Last week, it was reported that Irish tech company Intercom experienced 'employee unrest' after a new policy saw it break with its support for Pride.

Intercom’s chief executive Eoghan McCabe reportedly attributed the changed policy to two disparate factors, the need in a tough environment for tech to focus on the core business and profit, and also that Pride got “wrapped up, unfortunately, within some circles in kind of more divisive and political issues”, he said.

The first rationale perhaps pertains to a common-sense view that in times of economic headwinds, it makes sense to keep a sharp eye on the bottom line but the second hints at more ideological thinking in the background.

At Intercom, employee resource groups (ERGs) are reportedly being given less support, with no holding events for individual communities within the office or promotion of ERGs on the company’s internal communications or social media channels.

ERGs are voluntary, employee-led groups formed around a shared characteristic such as gender, ethnicity, or disability. 

Their purpose is to foster a sense of equality and belonging to an organisation or company, to promote a more diverse workforce, and to integrate people into the greater company.

The Intercom chief executive was reported as citing a wider trend of declining corporate support for ERGs.

The recent judgment of the US Supreme Court in the context of affirmative action in universities is an interesting backdrop to this statement. 

Legal challenges

It potentially impacts ESG and in particular corporate diversity initiatives with a wave of legal challenges expected to hamper companies’ ability to use race as a factor in training, mentorship, and leadership initiatives.

Obviously, our law is different from the States and race hasn’t really hit the legal headlines here nor thankfully do we have a Supreme Court packed full of reactionaries. But this kind of big-ticket American stuff is interesting because we import so many American corporate practices.

So is ESG, a paragon or pariah? Some conservatives (Milton Friedman types who see profit maximisation as a social responsibility) believe it interferes with their beloved free market. Some left-wingers view it as tokenistic lip service giving a company reputational legitimacy while endorsing the neoliberalism lurking beneath the surface.

But it remains ‘sexy’ in the corporate world, probably in part because ESG has swarmed a vast industry of consultants and rankers who are highly paid to make the corporate world "a better place". 

The fact that much of the corporate world has embraced ESG so warmly is probably a sign that it’s at best ameliorative in its effect rather than transformative.

Does that mean it has no merit? Okay, some may think that capitalism has no more moral legitimacy than a loaded dice game but surely it’s better to do well while doing good (or trying to).

One criticism that seems to hold water is that it’s hard to concretely measure how much is achieved with ESG. There is no clear ESG accounting standard and ESG metrics are not part of a company’s financial reporting. 

Founding chairman of the Sustainability Accounting Standards Board and a visiting professor at Oxford Robert Eccles has called “ESG accounting [a] mess”.

And some companies definitely pull a fast one. As a New York Times columnist put it in the context of race: “A Black Lives Matter advertisement does not make up for the McDonald’s exploitative relationship to labor and the environment.” 

There are many glaring holes in how Western companies score on their environmental footprint in particular, with dirty manufacturing quietly being outsourced to other parts of the world. This allows companies to crow about being carbon neutral while the reverse is true.

On the environmental issue, the cavalry may be coming. A new European Corporate Sustainability Reporting Directive will come into force around mid-2024. 

Greenwashing

It aims to end greenwashing and lay the groundwork for sustainability reporting standards globally. The final text isn’t firmed up yet, and it remains unclear exactly which companies will fall under its remit but in a week when the UN secretary-general said “climate change is out of control”, let’s roll with it.

Boardrooms are not fuzzy places so realistically if ESG is viewed as good for ‘biz’ then they’ll run with it. Last year, after Roe v Wade led to abortion being outlawed in certain American states, Citigroup bank announced it would provide travel benefits to employees seeking abortions outside their home states. Other companies quickly followed suit with similar policies.

Citigroup’s move enraged dozens of Republican lawmakers who said the bank’s responsibility was to maximise shareholder profits rather than to divert funds towards ideological causes.

But, arguably, the CEO and board were not actually hijacking the company to express their private political preferences but rather attracting younger, more progressive customers, therefore, fulfilling their fiduciary duty by looking out for shareholders’ interests.

Focus on financial targets

So, will more employers reassess ESG policies to focus solely on financial targets as Intercom appear to be doing?

It depends on what employees, investors, and customers allow. If companies want to hang onto younger employees with greater priorities around inequality, then changes to diversity policies will have to be approached carefully, unless of course the economy tanks in which case it’s tough luck kids, back to work.

Customers obviously have more power. A joint study this year from management consulting firm McKinsey and Nielsen IQ has concluded customers care about ESG. 

Consumers particularly scrutinise brands more closely to assess how they communicate their sustainability credentials making sure that companies are not faking it by ‘greenwashing”.

Given the magnitude of the environmental crisis, many socially conscious investors will accept lower returns in return for companies aiming for a cleaner, more sustainable world economy. As the flames literally lick our backsides, this seems wise.

Obviously, there may be unknown things going on at Intercom, but on the face of it, its break with Pride and rowing back on ERGs seems a pity. 

Against a marked backdrop of a rise in homophobia and transphobia, there must be an emotional benefit to companies messaging to employees "We stand with you". 

It will be interesting to see what plays out at Intercom and in other workplaces. It would seem naive though not to factor in reputational risk in the all-important court of public opinion.