• Justin Seek, Credit Analyst
  • December 1, 2020
  • LinkedIn

The invisible hand of the ballot box - the private sector’s new global role

Forty-eight hours after the historic 2020 US presidential election, environmentalists, progressives, and globalists sighed in relief. As the results unfolded, the world watched on with bated breath, fully aware that the policies that emerge from this national election will have global consequences. With inequality levels at all-time highs, a global health pandemic that has claimed more than a million lives, and more frequent and intense climate induced natural disasters, now, perhaps more than ever, there is an imperative need for governments to pursue a more inclusive, unifying and sustainable agenda.

However, it seems that the democratic institution of “one man one vote”, has given way to something more akin to “mo money mo problems”.1 To put this into perspective, the “mo money” of the 2020 US elections came to $14 billion in total spending2 compared with the total 2016 election spending of $6.5 billion.3 The vast proportion of this campaign financing was derived from corporations, leading to the “mo problems” of how “wealthy institutions translate their economic power to political power”.4 Yet, I pose that this also offers an opportunity to regain political power that has been seemingly lost to plutocrats. With the collective actions of consumers and investors increasingly affecting corporate behaviour through their bottom line, corporate agendas, and by extension national and global policies, can be forced to change.               

As we have seen consistently, crises, such as those mentioned above, negatively impact vulnerable populations the most. The global concentration of wealth has accelerated over the last 40 years, as the rules of globalization have led to a self-perpetuating cycle of where “wealth begets power, which begets more wealth”.5 In America, the “average pre-tax income of the bottom 50% of adults has stagnated since 1980 at about $16,000,” whilst, the “average pre-tax income of the top 1% adults rose from $420,000 to approx. $1.3 million”.6 This wealth inequality is not just confined to the US, but prevalent across the globe, as illustrated by how “just eight individuals, all men [majority American], own as much wealth as the poorest half of the world’s population”.7

The effects of social inequality, caused by prioritising shareholder wealth over stakeholder interest, have been made salient during the Covid-19 pandemic. For the first time in two decades, global poverty is expected to increase with up-to an estimated 115 million people pushed into extreme poverty.8 In contrast, those who have been able to invest their wealth in the booming stock markets have not just been unaffected by the recession of the real economy, but have actually seen their portfolio wealth increase in value.9

Fortunately, an unparalled opportunity is emerging for individuals and investors to increasingly influence the power of policy and channel capital to more productive areas. We are witnessing a budding revolution as consumer sentiment, and ever more often, behaviour, increasingly converges around sustainability and mitigating the impacts of social inequality and climate change. As the socially conscious millenial generation stand on the cusp to inherit an estimated $68 trillion,10 and individuals “search for investments and products that fit their personal and moral values or, at the very least, integrate sustainability considerations”,11 the influence of these key demographic groups on corporate decision-making will be substantial.

We are already seeing this influence in capital markets, with the explosion of ESG Funds and the growth of global impact investing assets. ESG investing, which takes into account environmental, social and governance factors when considering which companies to invest in, is looking to reach “USD 160 trillion by 2036”.12 ESG funds in Europe are set to outnumber conventional funds by 2025, with “more than three-quarters of 300 investors, including pension funds and insurance companies, saying they would stop investing in traditional funds in favour of ESG funds by 2022”.13 Impact investing, where investors look to finance companies that are intentionally seeking to make a positive social or environmental impact, is also becoming an increasingly popular theme, with total assets under management growing by 42%, from US $502 billion in 2018 to US $715 billion in 2019.14

As we see these growth trends continue across the world and incorporate a shift towards the maximization of stakeholder value; individuals, consumers and investors are implementing a new type of checks and balances on corporations for when government policy fails to deliver. An example of this was in 2017 with the US withdrawal from the Paris Climate Agreement. 30 CEOs, from some of the largest companies, wrote an open letter specifically citing that participation in the agreement “strengthens our competitiveness in global markets” and that “our suppliers, customers, and communities will benefit”.15 These enormous corporations, yielding from sectors as diverse as financial, industrial and technology, maintained their commitment to the Accord, thereby demonstrating their understanding that a pursuit of sustainability ultimately drives the maximization of shareholder value. As businesses that are beholden to both shareholders and stakeholders, their commitment to mitigating negative social and environmental impact can counteract poor policy.

With the realities of social inequality and climate change fast approaching, we can no longer depend solely on governments to keep our best interests in mind. The vast wealth held by the private sector, which yields a powerful influence on policy, brings with it the shared responsibility of combatting the ailments of our planet. At times, it may feel that we are losing control of our social contracts, but as consumers and investors, it is important to remember that we can duly influence corporations, and by extension governments, through our choices and actions. By combining collective action with financial players focused on ESG and impact investing, the trillions of dollars available at the top can be channeled down towards more sustainable initiatives. To ensure continual real progress in our social and environmental impact, we must wield not just the ballot in the box but also the ballot in the boardroom.