Will ESG also shape Politics?

The Economist published a provocative piece on mob rule in its second edition of 2021, entitled “Madison’s Nightmare,” which closed with an enlightening warning by arguing that “The age of democratic naivety died on January 6. It is time for an age of democratic sophistication.”

At the core of the text is Alexis de Tocqueville’s formula to uphold democracy: Do not rely on the Constitution alone for the Herculean task of defending democracy; a country must have a self-reliant and educated population, alongside an elite that recognizes that its first duty is to educate the democracy. Will this suggestion resonate in the corporate world?

After the January 6 insurrection, we saw a flurry of analyses that linked the mob’s actions to the calls President Trump made that day at the “Save America” rally. We have to question this narrow view and consider the possibility that the Capitol attack was triggered by events much earlier than the rally. I also think the responsibility falls onto many more people than just Trump.

One piece of evidence of wider responsibility is that dozens of Republican Congress members voted against certifying the election, in line with the Capitol mob’s wishes, even after the invasion. Just recently, the Republican Party has declared that the event was a “legitimate political discourse.”

Predicting that the broader responsibility-seeking movement would occur, technology and social media companies blocked the president’s accounts, as well as many of the amplifying voices, on an app that was becoming a haven for extremists. Companies like Marriott, Airbnb, and Dow Chemical announced they would suspend donations to the members of Congress who voted against the American election certification. Citibank, Goldman Sachs, and JPMorgan, among others, announced that they were suspending all donations while “reassessing internal financing policies.” All of these actions show a legitimate and welcome concern; however, these measures ought not to erase the debate regarding past behaviors.

One of the biggest donors to political movements in the United States, billionaire Charles Koch, reopened discussion of responsibility for past conduct. Along with his brother David, who died in 2019, he helped boost the Tea Party movement and the far-right wing of the Republican Party in the United States. He carried out a meaculpa in his most recent book, Believe in People.

Koch analyzed that sectarianism pushes parties to extremes with destructive policies. He asked: “Can America survive as a country if our citizens despise one another?” He answered: “Boy, did we screw up!”

It is essential to stress Mr. Koch’s admission: No one with a critical sense, especially no executive or entrepreneur who has reached a leadership position, can claim that what we saw on January 6 was a surprise.

Trump was elected in 2016, prefacing the election by saying he would not accept the election results if he were not declared the winner. From then on, we saw four years of him creating a parallel reality. The press and other independent institutions were commonly painted as enemies of the people, all while he promoted hatred and division to retain his power.

While this was obvious, it did not prevent many companies from making statements supporting the president on several occasions, just as several CEOs had no qualms about posing for photos at White House events with Trump. Similarly, many companies used their lobbying superstructures to push agendas championed by Trump in the arenas of the environment and social protection. One can argue that company and business leaders who have supported and financed the movements that helped this vision are responsible for creating the toxic environment, at least according to Charles Koch.

It is unreasonable to explain that this kind of engagement is being done in opposition to unions, NGOs, and other entities that were advocating a policy agenda more aligned with the Left and, therefore, less friendly to businesses. Corporations and donors could have done that without fomenting movements based on extremism, bigotry, and disdain for science.

The investment to push the Trumpist agenda may have achieved positive returns in the short term, with the approval of a tax-cut package, but it will have a substantial negative cost in the long run, through the wounds it left on society. However, the business world has long adhered to the idea that a company’s business model cannot be sustainable if it seeks results only in the short term, with a strategy that compromises its long-term business model. With that in mind, it will be valuable to explore the hypothesis if the long-term view ought to include a company’s political positions and political support.

From a business perspective, perhaps no one expressed the vision for companies’ roles better than Larry Fink, president and CEO of BlackRock: “The public’s expectations of your company have never been higher. […] Every company must not only aim at financial performance but also clearly show how it makes a positive contribution to society. Without a sense of purpose, no company, whether public or private, can reach its full potential.”

Will spreading the environmental, social, and governance (ESG) agenda change the political engagement of companies? Should ESG have been more prominent before 2016, and if so, would those movements cited by Koch have received so much financial support?

These questions are necessary for an environment in which lobbying is a driving force that shapes public policy and legislation. Through that lens, it is crucial to explore how this ultimately resonates with the future of capitalism.

According to a report from Americans for Financial Reform, the financial sector’s political spending skyrocketed by 50 percent between the 2015–16 and 2019–20 election cycles, reaching $2.9 billion spent in 2020.A World Economic Forum poll released in 2022, named social unrest as one of the three “red” (highest) risks for the next 10 years; in other words: crises in our institutions are a core risk for economic development.

In July 2020, Martin Wolf published an article in the Financial Times advocating that the post-COVID world demands “citizenship, a concept that goes back to the city-states of the Greeks and Rome. It is more than just a political idea. As Aristotle also said: ‘man is a political animal’. We are only fully human, he thought, as active participants in a political community.”

In the context of the landmark 2010 Supreme Court ruling in Citizens United v FEC — the decision that enabled corporations and other outside groups to spend unlimited funds on elections -it seems paramount to comprehend that companies have a crucial role in reimagining a more sustainable social contract.

Therefore, the way companies interact in the political arena is a cornerstone. It is not sufficient for one’s product or service to be sustainable and adhere to the ESG framework; how the company engages with politics to shape agendas is crucial. The political contributions and political behaviors of global corporations must be contrasted with their ESG commitments.

In this process, the companies’ public statements and their leaders’ behaviors also need to be cross-checked against the corresponding ESG policy. Are they aligned, or is there a chimera scenario: the company as the political animal and the corporate being.