Have economic justice efforts like impact investment and ESG (environmental, social and governance) analysis been captured by Wall Street? That’s the provocative thesis that Marjorie Kelly advances forcefully in her new book, Wealth Supremacy.
In the below excerpt, Kelly explains why someone like herself, who over the past few decades has helped to advance the field of socially responsible investing, has concluded that responsible investing has too often gone astray. Instead, Kelly contends, the task ahead requires systemic economic change and transformation.
The following text is excerpted from Wealth Supremacy: How the Extractive Economy and the Biased Rules of Capitalism Drive Today’s Crises, published by Berrett-Koehler Publishers www.bkconnection.com copyright © 2023. Reprinted with permission of Berrett-Koehler Publishers.
I’ve observed up close how the system has forced those of us working for change to keep our discourse inside the paradigm-as-is.
If naming can trap us, it can also help to free us. Indeed, there’s an insidious danger in not naming. Without challenging the bias woven through the system, our change efforts may at best be inadequate. At worst, they may legitimize the system as it is, delaying transformation.
I say this after more than 30 years as a journalist, theorist, and consultant advocating progressive business and responsible investing. I’ve observed up close how the system has forced those of us working for change to keep our discourse inside the paradigm-as-is.
Environmental consultants to corporations are reluctant to say ecosystems matter because life matters. They emphasize to corporations how sustainability practices impact risk, cost savings, and brand positioning and thus can improve the bottom line. Corporate social responsibility (CSR) leaders and ethics officers speak of how good practices protect reputation and enhance profits.
Even among impact investors—the most radical among ethical investors, committed to making deliberate, positive impact with their investments—two-thirds say they seek “market rate” returns. Implicitly, what they/we are saying (what investment advisors may intimidate us into believing) is that profits must never suffer.1 Even if such profits are the force advancing ecological crisis and worker suffering.
Will responsible investing result in lower returns? Our answers make no difference. The question itself keeps us within the old paradigm.
I’ve been part of these various corporate whisperer communities for decades. I cofounded Business Ethics magazine in 1987 because I believed good businesspeople could change the world, and I met many trying to do so. As I interviewed company founders and leaders in corporate social responsibility, sustainability, ethics, and responsible investing, I heard often about the struggle to make the business case—to speak the lingua franca of the system, trying to convince it to change. I penned a 2004 piece titled, “Holy Grail Found: Absolute, Definitive Proof CSR Pays Off.” Reviewing findings from two massive metastudies, I wrote that “thirty years and 112 studies later,” it had been proven: CSR goes hand in hand with financial outperformance.2
That was nearly two decades ago, but the question is still being asked: Will responsible investing result in lower returns? Our answers make no difference. The question itself keeps us within the old paradigm, where gains to capital come first. We’re forced to explain, beseechingly: no matter what social change we seek, financial income will never be compromised.
This enforced submission to capital bias has entrapped and enfeebled all the fields of corporate whispering, even as these fields have flourished as career paths. I’ve known these fields since their infancy. I went to a meeting of the Social Investing Forum in 1989, at that time the field’s only trade association, when the sum total of attendees was sixteen, all of us fitting around one conference table. SRI is today called ESG (encompassing environmental, social, and governance issues), and the field boasts $35 trillion in assets—a third of global assets under management, loosely defined.3 You could attend a conference every month, if you were foolish enough to want to.
Over my years at Business Ethics and my more recent years at the Democracy Collaborative, I have watched fields like corporate social responsibility and sustainability consulting similarly grow into massive professional communities. I saw most major corporations add ethics officers. I watched as CSR and sustainability reporting templates were designed from scratch, and by 2019, 90 percent of corporations in the S&P 500 published such reports.4
Over the same years, I saw corporations to which I’d given Business Ethics Awards hire union-busting attorneys, send jobs overseas, do massive layoffs once considered anathema, send executive pay into the stratosphere. Demand tax cuts from cities simply to stay, or in order to move. Lobby against the very values—like environmental sustainability—companies professed to embrace. All the while plastics were filling the ocean, birds were disappearing, coral reefs were dying, and carbon emissions were soaring. And worker income was stagnating.
Resistance Is Futile
All of these change efforts are admirable. These are good people doing good work. Yet that work has failed to touch the essence of the system. The reverse happened: the system subsumed change efforts into itself. The metaphor that springs to mind is from old Star Trek episodes featuring the Borg, the spacefaring race of cybernetic organisms who traveled the galaxies in massive, metallic, cube-shaped spaceships; as they encountered other species and worlds, they absorbed everything into the Borg collective. All creatures, all worlds, were to become part of this single giant machine. The Borg’s motto: “resistance is futile.”
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The Borg most recently has captured nearly the entire field of responsible investing. This field was created by people like the fierce and visionary founder of Trillium Asset Management and other key organizations in the field, the late Joan Bavaria, with whom my wife worked for seventeen years; we socialized regularly with Joan and her partner in the years before she died. Joan never failed to take a controversial stand when it was right standing up for gay rights, for example, long before it was fashionable. She and others like her created the vision of using capital to change the world, and today’s subfields of impact investing and shareholder activism retain that visionary spirit. ESG too often does not.
In a powerful exposé, “The ESG Mirage,” Bloomberg Businessweek showed how the concept of ESG has been hollowed out. The story told of how MSCI, the largest ESG rating company, has inverted the meaning of social and ecological impact. The original idea was to measure the impact of business on society and the environment. But MSCI’s ESG measures now do the opposite: they measure how social and ecological problems will impact corporations and shareholders.
When we whisper into executive and investor ears that capital income will only be enhanced, we deliver a message fatal to change: capital must come first.
Consider what it means when MSCI raises a company ecological rating based on “water stress.” We might think this means the company is putting less stress on water systems. Wrong. It measures whether there is sufficient water to sustain production.5
Translation: clean water matters if it benefits corporations. And corporations exist to benefit capital. That’s the Borg of capital bias capturing sustainability.
Of all the money retail investors have invested in sustainable or ESG funds globally, an estimated 60 percent has gone into funds using MSCI ratings. The “sustainable” companies making it into these ESG funds include nearly 90 percent of the S&P 500.6
I’m sorry to say I aided and abetted this swindle. With others, I spent decades trying to prove ethical investing/ESG would enhance profits, and MSCI took us at our word. ESG ratings now are only about enhancing profits.
Cognitive scientist George Lakoff put the problem this way: when we invoke the frame, we reinforce the frame.7 When we whisper into executive and investor ears that capital income will only be enhanced, we deliver a message fatal to change: capital must come first.
Moral Capitalism Is as Impossible as Moral Racism
Instead of system change, many are calling today for what amounts to a gentler version of the system-as-is. Liberal economist Branko Milanovic, who researched income inequality for the World Bank for nearly two decades and now teaches at City University of New York, writes that all economic systems today are capitalist, that even communism was a way station to capitalism, and that all we can hope for is to soften it around the edges, so it evolves into a “people’s capitalism” or an “egalitarian capitalism.”
President Biden, unveiling a plan to raise taxes on corporations and billionaires, reassured the nation, “I’m a capitalist.”8 Pope Francis is working with multimillionaire Lynn Forester de Rothschild, encouraging business leaders to adopt inclusive capitalism. Michael Kazin, formerly editor of the leftist Dissent magazine, in his latest book terms his egalitarian vision “moral capitalism.”9
There’s a reason we don’t talk about “moral racism” or “egalitarian sexism” or “rethinking imperialism.” We know these are impossible. A system of bias cannot be made moral.
Capitalism is a system of bias. Bias isn’t a minor feature or a side effect but the system’s deep nature. The implication is clear: moral capitalism is impossible. What we need isn’t improved capitalism but a next system.
- Dean Hand et al., “Annual Impact Investor Survey 2020,” Global Impact Investing Network (GIIN), (June 11, 2020): xv, https://thegiin.org/research/publication/impinv-survey-2020/.
- Marjorie Kelly, “Holy Grail Found,” Business Ethics, Winter 2004, https://www.marjoriekelly.org/wp-content/uploads/2021/09/Vol18No04HolyGrailFound.pdf.
- “ESG Assets Rising to $50 Trillion Will Reshape $140.5 Trillion of Global AUM by 2025, Finds Bloomberg Intelligence,” Press Statement, Bloomberg Intelligence, July 21, 2021, https://www.bloomberg.com/company/press/esg-assets-rising-to-50-trillion-will-reshape-140-5-trillion-of-global-aum-by-2025-finds-bloomberg-intelligence.
- Tim Stobierski, “15 Eye-Opening Corporate Social Responsibility Statistics,” Harvard Business School Online’s Business Insights Blog, June 15, 2021, https://online.hbs.edu/blog/post/corporate-social-responsibility-statistics.
- Cam Simpson, Akshat Rathi, and Saijel Kishan, “The ESG Mirage,” December 10, 2021, in Bloomberg’s The Big Take podcast, https://www.bloomberg.com/news/audio/2021-12-10/the-esg-mirage-podcast.
- Simpson et al., “The ESG Mirage.”
- George Lakoff, Don’t Think of an Elephant (White River Junction, Vermont: Chelsea Green Publishing, 2004).
- President Joseph Biden, “Remarks by President Biden on the Economy,” The White House, September 16, 2021, https://www.whitehouse.gov/briefing-room/speeches-remarks/2021/09/16/remarks-by-president-biden-on-the-economy-4.
- Michael Kazin, What It Took to Win: A History of the Democratic Party (New York: Farrar, Straus and Giroux, 2022).