money growing and falling off a tree

Last week, conservation biologist and PhD candidate Cassie Freund sat down with CEES board member Alan Palmiter, Wake Forest’s William T. Wilson, III, Presidential Chair for Business Law. The two talked about his new article about what is now, in his view, a monumental shift in which capitalism has begun to heal itself – giving it an important role in making a more healthy planet.

The following is a transcript of that conversation, edited for brevity and clarity.

Wake Forest Law School professor Alan Palmiter

Wake Forest Law School professor and CEES board member Alan Palmiter

Cassie Freund: We’re going to kick this off with a very high-level question about your piece, about this thing called ESG. What is ESG?

Alan Palmiter: The piece is about capitalism discovering ESG. ESG is a set of initials that mean Environment, Social, and Governance. They have to do with what happens in every business. The first calls on companies to focus on their impact on the environment.  You’ve got to be concerned about your carbon footprint, because a big carbon footprint is expensive, and some customers won’t want your products if you’ve got a big carbon footprint.  And you’ve got to worry about water use, again because it’s so important to the bottom line. Some refer to the E in environment as Planet.

Social is people. Every business has to be concerned about its employees.  It’s got to pay them fair wages and make sure they’re healthy enough to be productive. For example, many businesses are now saying, “I don’t want you to get sick, I want you to get vaccinated.” Every business has to worry about its people, as well as people in its supply chain. For example, it would be devastating to a business if it sourced its raw materials from slave labor. Customers would say, “That’s a problem.” Government would, too. And you’ve got to be concerned about your customers. Are you making products that will increase their happiness and well-being?  If not, they’ll stop buying from you. Some refer to the S in social as People.

Governance is basically wide-awake leadership. It’s business leaders who understand everything in the business is connected and understand how they all relate to making a profit. You need governance that’s focused on profits, but it’s wide awake profits. If it’s, let’s say, profits derived from slave labor or from dumping things into streams, that won’t do. Governance also means that business leaders must have diverse perspectives. The diversity, equity, inclusion movement is part of governance. Some refer to the G in governance as Profits.

So, that’s ESG in a nutshell. And if you think about it, it’s simply about being fully awake, recognizing how everything is inter-connected, and acting on this.

CF: And so what is the difference between ESG and CSR, corporate social responsibility?

AP: CSR sounds like you’re giving away money…. It’s gotten a bad reputation.

CF: Okay, so it’s kind of a branding problem.

AP: Yeah, and CSR mentions social responsiblity, but it doesn’t really mention environment or governance. So the business and investment communities have said, “Let’s go to something that is more all-inclusive.” Another way of talking about ESG is triple bottom line: planet, people, profits. If you want profits, the most profitable strategy is to have a business that is working on all cylinders, doing full and real ESG.

CF: Okay, so I’m not really sure how to put this properly, but do these expectations of ESG scale to the size of the company? I’m thinking about Amazon. They do “E” [environment], but they do little “e”… they don’t do a lot of “big E”.

AP: They’re trying. We have got to understand everybody is pursuing ESG, but there is no fully “ESG company.” There never will be. We will always fall from grace. There will always be some leaders who are not fully awake. Let’s talk about Amazon, Amazon is pursuing ESG and they’re saying “We’re going to be changing our fleet of trucks to be all electric pretty soon.” Is it fast enough? I don’t know. Do they really mean it? I think so, because electric trucks are so much better, more profitable than the old internal combustion engine trucks. For one thing, fossil fuels are about to become really expensive. Another thing is that the old trucks have maintenance costs. And they don’t last as long.

So, Amazon’s trying – and, you know, Amazon is apparently doing crappy things in some of its warehouses. That’s not good, that’s not profitable.  The company’s leadership has to become more fully awake.

I think Jeff Bezos… might be only partially awake. If he realizes that it’s in his best interests to be more awake, he might come out of his somewhat groggy state. Remember the ESG movement – and the article that I wrote – don’t say people have to be good to do ESG. All they have to do is wake up a bit and notice how things are inter-connected. And they make more money if they do.

CF: Alright.

AP: This is a big mindset change. This is one of the biggest paradigm shifts in human history. Since 12,000 years ago when we humans started to farm and to have commerce with strangers, we began to delude ourselves into believing that things are not inter-connected. We thought that if you had a commercial relationship with somebody, and you said, “I’m going to sell you three goats if you give me so much of your wheat,” while you knew that one of those goats was sick and would soon die, you discovered you could get away with it. But now we are learning in business – particularly big business, which is under the watchful eye of big institutional investors — that if you sell a goat that’s sick, you’re in trouble. You can get sued. Your customers can give you bad reviews that can go viral. You won’t be trusted when you try to sell your goats the next time.

CF: So Amazon is in the process. Is there a company that comes to your mind as one that is a leader in ESG?

AP: I want to say Patagonia, though some of its employee reviews are a bit iffy. Maybe Patagonia is figuring things out, but maybe not.  Patagonia, for example, sends out emails to customers like me and says, “Don’t buy our products unless you absolutely have to.” Why? Because that’s the best way for Patagonia to promote itself. The next time I think of buying clothing I’m going to think only of Patagonia. So, maybe it treats customers well.  But I’m not sure how it does with its employees.

CF: Levi’s has also started saying, “Don’t buy unless you absolutely have to.”

AP: Oh my gosh…you see how fast ESG happens – or how fast the customer part of ESG can happen?

CF: In your piece, you talk about ExxonMobil as a company that seems to be very much NOT working on ESG. Can you say more about why you think ExxonMobil is doing very poorly?

AP: Well, it’s done quite poorly over the past five years. And it’s not what I say. Just look at the consensus on Wall Street! The consensus on Wall Street – over the past five years — is that the company doesn’t seem to have much of a future. I’ll give you some numbers. Ready?

In the last five years, Exxon stock price has gone down 28%. The market has more than doubled. ExxonMobil is the world’s biggest oil and gas company, and we’re still using oil and gas, but its stock price went down. The market basically was saying, “This is a company in deep trouble.”

But there are glimmers of hope.  There was a palace coup a few months ago, and there are now two new renewable-energy folks on the board of directors. And lately its stock price is going up.

The stock market might be thinking – just in the last few weeks – that maybe it is transitioning to renewables. Things happen fast with ESG.  In fact, I assert they are happening exponentially.  Well, I don’t assert.  That’s what the data show.

“This is a big mindset change. This is one of the biggest paradigm shifts in human history.”

CF: Which brings me to my next question for you. Do you think it’s going to happen fast enough – this move toward seeing that everything is inter-connected? We’re in race right now, we have to make changes yesterday – as I know you’re aware of – to prevent some pretty catastrophic things from happening.

AP: Catastrophic things are happening in nature, which has its own feedback loops. It is really, really scary. (Holds up phone) How long did it take for this to take over the world? Steve Jobs showed up on stage with his black outfit 13 years ago – no? That’s all, and the first iPhone was crappy. How fast was it before smart phones were not crappy?

CF: Really fast.

AP: So people really gobbled up the iPhones and all the apps that soon came with them. And then the cheaper and sometimes better knockoffs arrived. How many people own a smart phone in the world? Billions… apparently global cell phone adoption is now like 80%.

In all of this, I’m not trying to convince you. I’m just saying to you, this is the way it is. We’ve got the advantage that we do things in our financial markets on a minute-by-minute basis. We make decisions about whether a company is doing well, not doing so well. And we do that in an accelerating way. Although nature’s also doing some bad stuff in an accelerating way, she’s on an annual cycle. Our capitalism runs on faster cycles.

CF: I mean in some ways that’s encouraging, but my final question for you, what do you say to someone who is still skeptical?

AP: Capital markets have been delusional for 12,000 years. I understand those who say, “Look at the past. Look at the way that companies have thought they can get away with dumping, cheating, hurting others, and it didn’t affect them. They still made money, despite all the harm they caused. They have been plunderers.

CF: That’s how we got to where we are.

AP: We did. And if you said to me that companies were plunderers, I probably would agree with that. Can a company still be a plunderer today? Maybe. But not for long. And not profitably.

CF: How do you think of yourself? Are you an environmentalist? Are you a capitalist? How do you conceive of your worldview?

AP: I’d like to believe that I’m a humanist. I’m Pro Humanitate. That’s my condition: I’m a human being. And I want to be – right now –a human do-er. I then want to be part of the inter-connected world and to just be a human be-ing.

If we’re human beings, our being, our existence is completely connected to nature. We’re with the fungi, we’re with the air… We are, as human beings, completely interconnected.

Alan Palmiter’s thinkpiece, titled “Capitalism, heal thyself”, can be downloaded here.