First BlackRock, and then Goldman Sachs. Money is stepping in to drive sustainable change in places where regulation is not.
BlackRock CEO Larry Fink's annual letter to corporate CEOs was a call to action on climate change.
And this week, Goldman CEO David Solomon, speaking at the World Economic Forum in Davos, said the bank will no longer take a company public if it doesn't have a diverse board of directors.
As world leaders wrapped up a week of high-level talk at Davos, the theme was clear: Our house is (still) on fire, and we need new, more diverse leadership for a new kind of capitalism -- called stakeholder capitalism -- to fix it.
The mood in Davos: The global economic system is at a major tipping point. This was highlighted by one exchange in particular: Time magazine Person of the Year Greta Thunberg, the teenage climate activist from Sweden, responded to criticism that she should study economics by tweeting, "My gap year ends in August, but it doesn't take a college degree in economics to realise that our remaining 1.5° carbon budget and ongoing fossil fuel subsidies and investments don't add up."
The point about stakeholder capitalism is that if companies continue to put narrow, short-term profitability above all else, rather than seeing their companies as actors in a connected system of stakeholders, community, and planet, they will be responsible for the fallout caused by excess emissions, waste, and income inequality -- and their profits will likely come under threat in the process.
In the BlackRock letter, Larry Fink predicted an accelerated reallocation of capital, coming faster than we see the evidence of climate change itself. And he talked about the responsibility of CEOs in an interconnected world. "We believe that all investors, along with regulators, insurers, and the public, need a clearer picture of how companies are managing sustainability-related questions," wrote Fink in the letter. "This data should extend beyond climate to questions around how each company serves its full set of stakeholders, such as the diversity of its workforce, the sustainability of its supply chain, or how well it protects its customers' data. Each company's prospects for growth are inextricable from its ability to operate sustainably and serve its full set of stakeholders. The importance of serving stakeholders and embracing purpose is becoming increasingly central to the way that companies understand their role in society. As I have written in past letters, a company cannot achieve long-term profits without embracing purpose and considering the needs of a broad range of stakeholders."
From Davos, Goldman's Solomon echoed the stakeholder message. "I'm a big believer that unless you take care of your stakeholders more broadly, in the medium and long term you won't deliver outstanding returns," Solomon told CNBC.
He then stressed the need for diversity with a strong statement, which is part of a broad movement for greater gender and racial diversity on boards of publicly traded companies. "I think from a governance perspective, diversity on boards is a very, very important issue, and we've been very, very focused on it," he said in the interview. "I look back at IPOs over the last four years, and the performance of IPOs where there's been a woman on the board in the U.S. is significantly better than the performance of IPOs where there hasn't been a woman on the board. And so starting on July 1st, in the U.S. and Europe, we're not going to take a company public unless there's at least one diverse board candidate, with a focus on women, and we're going to move toward 2021 requesting two."
California was the first U.S. state to actually mandate that boards of publicly listed companies include women. India, Germany, Australia, Norway, Spain, France, Italy, Denmark, Finland, Iceland, the Netherlands, Belgium, and Israel had already instituted similar rules or guidelines, following heated debates on the merits of this type of affirmative action.
The announcement by Solomon places the emphasis on value creation from diversity. When more women and minorities sit on boards, companies are more likely to evaluate stakeholder viewpoints and integrate a more purposeful approach into corporate strategy.
The message from Davos is clear: Listen to your stakeholders, and act with environmental and social purpose.