The conscious capitalism movement, popularized by Whole Foods Market Inc. (WFM) founder John Mackey, was once thought to be hippie-ish, anti-establishment – even disruptive. Now, however, it is being quietly but surely integrated into the business strategies of companies in every imaginable sector.
“[Conscious capitalism] isn’t just sitting with the crunchy folks; it’s a mainstream issue,” said Ali Hartman, principal, ESG strategy & stakeholder engagement of the New York-based asset management firm KKR, addressing a crowd at the 2016 Conscious Capitalism Investor Summit held in New York on Thursday. The “ESG” in her title is an increasingly common acronym for environmental, social and governance.
Just how commonplace has the movement become? One telling sign that Wall Street is taking ESG principles seriously: In March 2016 Morningstar launched a brand-new sustainability rating for funds, whose purpose is to provide (as the Morningstar site describes it) “a reliable, objective way to evaluate how investments are meeting environmental, social, and governance challenges.”
What is Conscious Capitalism?
Diane-Charlotte Simon, Associate Investment Analyst and Researcher for the Global Commission on Pollution, Health, and Development, told Investopedia, "Conscious Capitalism goes beyond the risk approach to sustainability; it aims to seize the opportunities related to it and is based on the idea that business can and should be a force for good in society. The four principles of Conscious Capitalism are: Higher Purpose, Stakeholder Orientation, Conscious Leadership and Conscious Culture. It is a broad concept including sustainability, ESG criteria, impact investing, stakeholders engagement and CSR in the core company's business model."
Should Private Companies Take Over Government Responsibilities?
Conscious capitalism can be described as sustainable development at the private sector level. This, of course, begs the question as to whether the notions of sustainability even belong in the private sector: Aren’t those areas the domain of federal governments? To which, proponents of conscious capitalism argue that in the modern day, the private sector has overtaken governments in terms not only of capital, but also of impact.
According to Tomicah Tillemann, senior fellow and director of the Bretton Woods II initiative at the Washington, D.C.-based non-profit New America, “There [are] not enough resources in all of government" to address problems of the modern day. Speaking at the Conscious Capitalism Investor Summit in New York on Thursday, he elaborated that some of the pressing concerns of the 21st century did not plague the governments of previous eras: for example, the effects of climate change, pandemics like the Zika virus and global terrorism. What's more, such phenomena create massive market volatility.
This volatility, argues Tillemann, is precisely why it’s in the best interests of banks and private enterprise to rush in where governments fear to tread. “[Volatility] is very expensive, even more so if you are an investor relying on compounded growth. As a quirk of mathematics, it’s much easier to compound growth in a stable environment. Once you have volatility, you have to work harder to achieve long-term goals.”
In previous decades, companies typically concerned themselves with ESG largely out of the fear of litigation or government penalties. The conscious capitalism movement would argue that those days are over, and that conducting business with a social conscience actually gives any given business an advantage over its competitors. According to Laura Roberts, CEO of the Phoenix, Ariz.-based chemical company Pantheon Enterprises, ethical business practices lead to fewer conflicts with employees, outside vendors and customers. “You’re a lot more productive,” she said, addressing the New York summit’s audience. “People are a lot happier. There’s something magical that happens that does make a difference.”
‘A Little Less Bad’
Awareness is one thing; convincing leaders in the private sector to retool their thinking is another challenge altogether. One leader in the conscious capitalism movement who seeks to address this issue is Trevor Neilson, CEO and co-founder of i(x) investments and founder of the Global Philanthropy Group. Neilson runs i(x) alongside Howard Buffett, Warren Buffett's grandson. Addressing Thursday's summit, Neilson said, “It’s time to start thinking about being a little less bad. Our whole company is built on the premise that there is an evolving consciousness in the world… that people understand interdependence and reject the b.s. dichotomy of being profit-driven versus passion-driven.”