business news in context, analysis with attitude

The Wall Street Journal reports that "companies’ mentions of green and social initiatives during earnings calls have fallen off sharply in recent quarters, reversing a more boastful approach taken over the past few years amid intensifying pressure from some investors and conservative activists."

The story says that "executives at U.S.-listed companies mentioned 'environmental, social and governance,' 'ESG,' 'diversity, equity and inclusion,' 'DEI' or 'sustainability' on 575 earnings calls from April 1 to June 5, down 31% from the same period last year, according to data from financial-research platform AlphaSense. That is the largest such year-over-year decline and the fifth consecutive quarter of year-over-year drops, following a pickup in these discussions and corporate social efforts in the wake of the police killing of George Floyd in May 2020."

The Journal notes that "finance chiefs and other executives have significantly quieted down in public settings about their environmental and employee diversity efforts as opposition has mounted from a confluence of interests: investors who want companies to focus on their operations, not the social good, and conservative groups and political leaders who have seized on corporate support of such causes to rally 'anti-woke' constituents - for example, calling for boycotts of brands that advertise their support of the LGBT community in the wake of recent disputes with Target and Bud Light."

However, to some degree, this just means that executives are avoiding engaging in the conversation while not really changing their behavior.

The Journal writes that "there is little sign that public companies are pulling back from the initiatives themselves, such as DEI employee training and emissions reductions.

"Companies still regularly voluntarily issue detailed sustainability reports, disclose greenhouse-gas emissions and tie a portion of their executive compensation to ESG metrics. Businesses are also busy preparing soon-to-be-unveiled new climate-disclosure requirements from the Securities and Exchange Commission by creating systems for collecting data and managing future compliance costs.

"What’s more, 70% of U.S. chief executives said that their company’s ESG programs improve their financial performance, up from 37% a year earlier, according to a KPMG survey released last October."

KC's View:

I always chuckle a bit when I hear or read complaints about the so-called "woke mob" that is bullying companies into paying attention to things such as diversity, sustainability, and social issues.

That's because there's also an "anti-woke mob" out there that is just bullying companies from the other direction.  

I've never been crazy about the "woke" word, but it was just a few days ago that entrepreneur Mark Cuban suggested that businesses focus on these issues because companies know "people want to do business with companies that care about their customers,” which he then described as a quality that is “an American trait he says reflects who we are as a country.”

By the way, that's all their customers.  Not just one segment.

The thing is, diversity can be smart business because it means the people in the room where it happens actually reflect a variety of backgrounds, upbringings, and perspectives, which means that leadership does not represent a monolithic view.

Sustainability can be smart business because more often than not, these initiatives save money.  They require an initial investment, but reflect intelligent long-term thinking.

A focus on social issues can be smart business because a company's existing and potential stakeholders - employees and customers - are affected by them.  One of the things that most businesses try to do is expand their customer base so they can grow their sales and profits.

I would argue that it is entirely fair to suggest that factoring diversity, sustainability and social issues into a business's operations may not be in synch with achieving short-term profits.  Rather, it requires a more long-term focus.

For me, the bottom line is this.  If people want to invest in companies that put short-term profits first, that do not consider diversity, sustainability and social issues when developing their strategic priorities, that's fine.  Invest in such companies.  But if you want to invest in companies that do pay attention to such things, then you can do that.