What ESG? When there was profound US uncertainty, businesses watched balance sheet implications

RASHMEE ROSHAN LALL November 19, 2020

In the era of ESG – Environmental, Social, and Corporate Governance criteria for investment in a business – I’m struck by the way investors reacted to the prolonged uncertainty about the US presidential election in the days immediately after the Nov. 3 vote.

Within 72 hours of the nail-biter, investors were cheery, buying stocks and sending the S&P 500 futures up nearly 2 per cent on the morning of November 5.

It was particularly interesting to note the take offered by DealBook, the excellent New York Times daily newsletter on business and policy.

Investors, said DealBook, “like the idea of divided government. The prospect of a Democratic president and Republican Senate, and therefore political gridlock, appeals to Wall Street. Investors are betting that higher taxes and regulatory crackdowns on health care and tech companies are unlikely, and that Joe Biden would run a more moderate, predictable administration on other policies”.

That’s pragmatic but possibly quite a way across to the other side of a principled view of how government should work and business should enmesh with principled governance.

DealBoook quoted Mike Novogratz, a former hedge fund manager who supports Joe Biden, the Democratic challenger of President Donald Trump: “It’s kind of the best of both worlds”.

And Willy Walker, the CEO of Walker & Dunlop, a commercial real estate company, who said that divided government is “generally speaking, a good outcome for business”.

Reading this, one has to wonder what to make of the corporate world’s repeated promises to serve stakeholders other than shareholders. To serve the greater common good.

Not too long ago, the Financial Times asked Ford Foundation president Darren Walker about his reprisal of Andrew Carnegie’s 130-year-old ‘The Gospel of Wealth’, which is considered a foundational document in the field of philanthropy.

Mr Walker’s version, called ‘From Generosity to Justice’, urges philanthropists to work on the root causes — rather than just the consequences — of injustice. And it argues for companies to create a more inclusive model of capitalism.

The FT asked Mr Walker if ESG “is being used like indulgences in the medieval Catholic church; that companies are using ESG to avoid the hard questions about justice”.

Mr Walker offered a frank response: “I think ESG can absolutely be distorted for the purpose of greenwashing and I think it’s why there is some scepticism when a company announces a new ESG initiative because there’s often insufficient depth and details . . . ”