There is no apolitical path to a truly sustainable economy. That means corporate sustainability leaders will need to become more — not less — politically engaged.
In his book Winners Take All, Anand Giridharadas writes that, ‘if you are trying to shape the world for the better, you are engaging in a political act.’ When companies take it upon themselves to improve the state of the world, Giridharadas believes that they (unwittingly) subvert democracy, crowd out grassroots civic engagement and undermine the legitimacy of the public sector. Whether they mean to or not, they constrain the terms of debate, ensuring that priority is given to “win-win” solutions that do not fundamentally challenge the unequal distribution of wealth and power in today’s society.
Companies, Giridharadas concludes, should stop trying to solve public problems by apolitical means and instead leave ‘changing the world’ to politicians and the people.
I half agree. Giridharadas is right that the task of creating an economy that delivers shared prosperity within ecological limits is a fundamentally political one. But I think it’s a mistake to simply ask the private sector to get out of the way.
Whether we like it or not, companies are powerful political actors. They may not vote in elections, but many are nonetheless extremely effective at ensuring their voice gets heard by legislators and regulators. Armies of corporate lobbyists operate in all the major political capitals of the world and companies spend billions on campaigns to influence policy, public opinion and social norms.
The trouble is that most of that money and influence is, today, being used to further causes that benefit the few rather than the many. But there is no iron law of corporate political engagement that dictates that this must always and everywhere be the case. Different companies have different interests, and many stand to gain from political reforms that would make capitalism more inclusive and more sustainable.
Corporate citizenship 2.0
Today, thousands of companies go beyond regulatory compliance in some aspect or other of their sustainability performance. Imagine the impact if those companies were to lobby policymakers to raise the bar so that their competitors were compelled by regulation to meet the same standards that they have chosen to meet voluntarily. In doing so, they would merely be pursuing their own enlightened self-interest.
It’s already happening in places. Take the politics of climate change. For decades, with few exceptions, the only companies that actively engaged in climate policy were fossil fuel companies. But that began to change around about 2013. In the two years prior to the Paris Agreement, the We Mean Business Coalition and others mobilised more than 1,000 businesses and investors in support of ambitious policy action on climate change. (The story of corporate climate activism in the lead up to Paris is well told by Nigel Topping, CEO of the We Mean Business Coalition, here).
The level of political engagement from the progressive corporate climate lobby dipped somewhat post-Paris, but is now starting to ramp up again. In April 2019, a group of more than 50 companies sent an open letter to EU leaders ahead of an important summit, calling on them to deliver a strategy for achieving ‘climate neutrality’ by 2050 at the latest. A similar letter signed by more than 130 UK businesses (including Volans) was sent to the UK Government in May 2019, calling for legislation to be brought forward that commits future governments to achieving net zero emissions by 2050.
This new wave of engagement from companies is partly a response to the steep climb in public concern about climate breakdown that we’ve seen over the last 12 months. But it’s also, in part, a result of companies that have made significant investments to lower their own carbon footprint, and pledged to go further in the years to come, drawing the logical conclusion that stronger action from policymakers on issues like carbon pricing serves their interests. Cross-sector advocacy groups such as the Climate Leadership Council or the Carbon Pricing Leadership Coalition have become one important channel for these companies to express their views.
Many industry associations, though, continue to act as a brake on the development of meaningful climate policy solutions as they tend to defend the interests of their slowest-moving members. A recent InfluenceMap report looks at the record of eight of Europe’s largest trade groups, finding that only one — Eurelectric, which represents the electric utility sector — scores above 50 out of 100 for pro-climate policy engagement. The other seven trade groups investigated — representing industries from chemicals to automotive — all score between 32 and 42 out of 100. A score below 50 implies opposition to ‘meaningful and ambitious’ climate policy.
Intriguingly, InfluenceMap also compares the positions taken by these industry associations with those of their leading members and finds that, in six out of the eight cases, the industry association lags behind its members in terms of support for effective climate policies. The worst of these, BusinessEurope, a cross-sector association, lags a full 21 points behind its members.
There are signs that companies are waking up to the need to do something about this mismatch, partly prompted by increasing scrutiny from institutional investors. InfluenceMap reports that, ‘following a challenge by institutional investors led by the Church of England Pension Board, Sweden’s AP7 and BNP Paribas Asset Management major European companies including BASF, Glencore, RWE, Shell, Equinor and Heidelberg Cement have reviewed, or have committed to review, their trade group memberships.’
Going one step further, Alan Jope, CEO of Unilever, has written publicly to all trade associations of which the company is a member, asking for clarity on whether they are committed to achieving net zero emissions by 2050. In his letter, he states that:
‘It is increasingly clear that tackling climate change at the speed and scale necessary requires wider transformational changes to the systems in which we operate. This requires strong government policy that creates the right context for further change and accelerated business action… We are entering a critical period for climate action, as governments consider whether to raise their national climate ambition ahead of the UN Climate Change Conference — COP26 — in 2020. We would invite all our trade associations and business groups that are engaged on climate policy to consider whether the level of ambition for which they are advocating is truly consistent with the deep emissions cuts implicit in the Paris Agreement and that the latest science makes clear are necessary.’
Few will be surprised that Unilever features on InfluenceMap’s ‘A-List of climate policy engagement’, which identifies 20 companies that are global leaders in terms of a combination of their level of support for strong climate policies and the intensity of their engagement on the topic. Alongside some “usual suspects” like Unilever and IKEA, the list is dominated by a group of European utilities such as Enel, Iberdrola and SSE.
Dylan Tanner, Executive Director and Co-Founder of InfluenceMap, calls on the ‘silent majority’ of companies in sectors like finance, tech, retail and healthcare to step up their pro-climate lobbying efforts:
‘Companies tend to focus their strategic lobbying on a small number of issues that ultimately affect their survival. For the fossil fuel economy, climate policy is one of these, and this priority is reflected in the intensity of lobbying from both individual companies and their trade groups… However, if deployed tactically, the combined political capital of the technology, healthcare, finance and other sectors (largely uninvolved in climate policy advocacy at present) has the potential to overcome this policy blockage.’
In 2018, Tanner points out, ‘the combined market value of Facebook, Amazon, Alphabet, Microsoft and Apple exceeded $4 trillion, not far behind the aggregate $5 trillion market value of the entire global oil and gas production sector.’ If Big Tech, which has little to lose from stronger climate policies, were to use its political muscle to counteract the rearguard action being fought by Big Oil, the impact could be transformative.
Lobbying for fundamental market reforms
Though climate breakdown is fast becoming the defining political issue of our times, it is by no means the only subject on which companies have an opportunity — and responsibility — to use their political influence for good. In recent years, we have seen many brands taking progressive stands on social issues such as minority rights and gender equality.
This kind of ‘brand activism’ is admirable — and can be effective — but there’s another category of issues that companies tend not to go near. These are the fundamental, structural issues that underpin the economy’s failure to deliver inclusive prosperity within ecological limits — issues like monopoly power, tax avoidance and shareholder primacy.
In each of these cases, there are millions of companies that stand to gain from stronger enforcement of existing legislation and reforms that address the root of the problem. Yet, as with lobbying on climate policy, those companies tend to be less vocal and less well organised than the companies that stand to gain from a prolongation of the status quo.
These issues — monopoly power, tax avoidance and shareholder primacy — tend to pit the interests of a small number of large companies against those of a large number of small companies. Monopoly power is good for monopolists, but every other business that seeks to compete in markets that are currently over-concentrated should be clamouring for stronger antitrust enforcement.
Likewise, governments’ failure to clamp down on tax avoidance disproportionately benefits a small number of vast corporations that have refined the dark art of driving a coach and horses through every loophole in every tax code. Meanwhile, tax avoidance harms the vast majority of companies that, either because they hold themselves to a higher ethical standard, or simply because they’re too small to route their profits via an offshore tax haven, don’t engage in it.
Finally, shareholder primacy, though widely acknowledged to be a key driver of contemporary capitalism’s unsustainability, scarcely registers as a political issue at all. The prevailing assumption seems to be that, because companies can to some degree opt out of shareholder primacy — by becoming a B Corporation, for example — it is unnecessary to challenge shareholder primacy via political channels.
However, this view fails to take into account the fact that, even when companies governed by shareholder primacy are in a minority, they can skew markets in ways that harm their non-shareholder-value-maximising competitors. Companies that monomaniacally pursue shareholder value maximisation (SVM) will externalise costs wherever possible, which undermines the competitiveness of other companies that take a more holistic view of corporate purpose. You don’t need many SVM companies in a market to trigger a race to the bottom in terms of social and environmental standards.
The most important measure of sustainability leadership
Climate breakdown, monopoly power, tax avoidance, shareholder primacy — on each of these issues, then, there is a silent majority of companies that stands to gain from enlightened political action — albeit a shifting coalition depending on the issue. (Dylan Tanner may be right to identify Big Tech as a potential champion of stronger climate policies, but they’re unlikely to lead the way on antitrust enforcement!)
The challenge is to organise the relevant silent majority and give it a voice. Most industry associations are dominated by their largest members, meaning that the views of the predominantly smaller companies that would favour, for example, a more muscular approach to combating monopoly power, are not well represented in political capitals. There are business-to-business platforms that have the potential to change that dynamic — the B Corp movement on shareholder primacy, for example; or SME networks, like the Federation of Small Businesses in the UK, on antitrust enforcement — but they are, for the most part, yet to really take on the role of doggedly championing political reform.
It may seem far-fetched to expect corporate citizens to lead the charge towards a fairer economic system, but, given the right conditions, enlightened self-interest can win out. And those who champion sustainability from within companies should take note of the conclusion of a recent report by the Environmental Defense Fund: policy engagement, the NGO argues, is now ‘the most important measure of sustainability leadership.’