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End Flap: Social Justice and the Money River

April 29, 2022
The backlash to environmental, social and governance initiatives may bring its own backlash.

Early in my career, a man I respected very much told me that trying to restrict the flow of money in business through laws and regulations is like using barriers to manage the flow of a river. It can be done, but if you don’t know what you’re doing, the river will burst those dams and levees into splinters.

That came to mind as I was working on an upcoming cover story, for our July issue, about corporate social justice initiatives. They’re starting to engender a backlash, from conservative legislators and others.

The movement broadly known as environmental, social and governance (ESG) has taken hold among many top U.S. and world corporations, including members of the food & beverage industry. It’s an umbrella term that covers sustainability, diversity in hiring and other aspects of social justice.

Generally speaking, corporations, especially those with high consumer exposure, don’t undertake such initiatives unless they have broad inherent appeal. But some of them are starting to attract negative attention – and an active backlash.

Perhaps the most prominent recent example of this was the case of Bradley Gayton, erstwhile general counsel for the Coca-Cola Co. Shortly after assuming that position in early 2021, Gayton, who is Black, sent what would become a notorious letter to several law firms demanding that they increase the proportion of Black attorneys on their staffs, by specific margins, if they wanted to keep Coca-Cola’s business.

Gayton was eased out of his job shortly afterward, and his replacement ended up explicitly disavowing his approach. Conservative groups did an end-zone dance that, in my opinion, was justified. Gayton arguably went too far, and it frankly doesn’t speak well of Coca-Cola that they let him get away with it in the first place, then threw him under the bus.

But now some opponents of ESG initiatives are trying to write their backlash into law.

Conservative groups have been pushing legislation at the state level that would dictate where investment houses must put, and keep, their money. A frequent subject of this legislation is investment in fossil fuels. Late last year, Texas passed a law to keep state funds away from investment firms that divest from fossil fuels; other states are considering similar legislation.

That approach is transferrable to the food industry, as we’re seeing in Nebraska. In late March, five state senators signed a letter urging the state agency that invests public funds to pull them from an investment house that they feel is anti-cattle. The letter refers to “so-called ‘Environmental, Social, Governance’ (ESG) policies which placed harsh restrictions on the cattle industry in the United States.”

I’m not sure that political advocates, no matter where they’re coming from, really want to go down this road.

For one thing, when you tell money managers to invest, or not, in this or that thing for political reasons, you’re basically telling them to put politics above their fiduciary duty. If a company wants to divest from, say, the beef processing sector, it does so because it feels the future of beef is sketchy enough to make investing in it an unacceptable risk.

I personally would be dubious about such an approach, but that isn’t the point. Investors, especially institutional ones, have to be free to make decisions based purely on maximizing returns; restricting them for political purposes might very well end up being a disservice to the investors – which means the state’s taxpayers.

More broadly, anyone getting indignant about this or that aspect of ESG should take a step back and consider what ESG as a general concept is all about. There’s a reason it’s been so widely adopted by major American corporations: It’s mostly an anodyne bundle of feel-good concepts. Everyone favors a cleaner environment, justice and equality in the workplace, and so on. Advocates who pit themselves against that, consistently and across the board, are not going to end up looking good in the long run.

The backlash against ESG initiatives will no doubt continue. But if it goes too far, watch out for a backlash to the backlash that could send the whole thing sideways – like a river bursting its levee.

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