• Responsible Investing
  • ESG
  • Solutions

Will companies embrace a more inclusive form of capitalism?

Just before COVID-19, some of the world’s biggest companies pledged to look beyond the pursuit of profit alone to consider the interests of a wider group of stakeholders, including employees and local communities. But are they ready to back up their words with actions?

Will companies embrace a more inclusive form of capitalism?

Failing to live up to expectations

In August 2019, the leaders of 181 American companies pledged to look after the interests of customers, suppliers, employees and local communities as well as shareholders. But as COVID-19 spread around the world in early 2020, and economies locked down to contain the virus, those commitments were put to the test, along with companies’ finances.

According to a report published in September 2020, called the Test of Corporate Purpose (TCP), companies that signed the pledge have failed to behave better than other US and European businesses.

Amazon has been criticised for failing its employees

Take Amazon, whose leader, Jeff Bezos, signed the agreement. The online retailer’s revenues soared as lockdowns turbocharged demand for its services. But the company has been criticised for failing its employees, many of whom have complained about poor working conditions in its warehouses.

Similarly, some restaurant chains have asked staff to continue working without paid sick leave. Airlines have furloughed or laid off employees, renegotiated contracts with suppliers at lower rates, taken government aid, yet still sought to pay large bonuses to senior staff.

Reaping the rewards

Other companies have done better. Telecoms firms have raised the pay of frontline staff to thank them for keeping essential communications operational during the pandemic. Food retailers have sped up payments to support farmers and other small suppliers. Consumer-goods firms have made donations to the international relief effort.

Such behaviour is praiseworthy, but research suggests that it also pays off in terms of stock-market performance and financial health.

The world is moving away from the idea that the sole purpose of a company should be to generate profit for shareholders

Increasingly, the world is moving away from the idea that the sole purpose of a company should be to generate profit for shareholders. The escalating climate crisis highlights the damage done when companies focus solely on profits and ignore wider concerns.

It is getting easier to measure how companies are behaving on issues of social importance, but there is a risk that some will focus on easy wins and engage in “box-ticking” to improve their performance. Investors, policymakers and wider society need to be alert to this danger, known as “purpose washing”, where the real ambition is to generate good headlines rather than actually do good.

Three points to remember

  • The pandemic has put the spotlight on companies whose behaviour does not mirror public pledges to look after the environment or address social concerns, such as the way they treat their employees.
  • Some businesses indulge in “purpose washing”, where they focus on promoting a positive image rather than making real improvements to their behaviour and practices.
  • Society, including investors, increasingly recognise that companies that look after people and the environment are more likely to be successful over the long term.

Related views

Important information

THIS IS A MARKETING COMMUNICATION

Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (AIGSL). Unless stated otherwise any views and opinions are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. Information contained herein has been obtained from sources believed to be reliable, but has not been independently verified by Aviva Investors and is not guaranteed to be accurate. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. Nothing in this material, including any references to specific securities, assets classes and financial markets is intended to or should be construed as advice or recommendations of any nature. Some data shown are hypothetical or projected and may not come to pass as stated due to changes in market conditions and are not guarantees of future outcomes. This material is not a recommendation to sell or purchase any investment.

The information contained herein is for general guidance only. It is the responsibility of any person or persons in possession of this information to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. The information contained herein does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorised or to any person to whom it would be unlawful to make such offer or solicitation.

In Europe this document is issued by Aviva Investors Luxembourg S.A. Registered Office: 2 rue du Fort Bourbon, 1st Floor, 1249 Luxembourg. Supervised by Commission de Surveillance du Secteur Financier. An Aviva company. In the UK this document is by Aviva Investors Global Services Limited. Registered in England No. 1151805. Registered Office: 80 Fenchurch Street, London, EC3M 4AE. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119178. In Switzerland, this document is issued by Aviva Investors Schweiz GmbH.

In Singapore, this material is being circulated by way of an arrangement with Aviva Investors Asia Pte. Limited (AIAPL). Please note that AIAPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIAPL in respect of any matters arising from, or in connection with, this material. AIAPL, a company incorporated under the laws of Singapore with registration number 200813519W, holds a valid Capital Markets Services Licence to carry out fund management activities issued under the Securities and Futures Act (Singapore Statute Cap. 289) and Asian Exempt Financial Adviser for the purposes of the Financial Advisers Act (Singapore Statute Cap.110). Registered Office: 138 Market Street, #05-01 CapitaGreen, Singapore 048946.