Social Purpose Investing The misguided use of “social purpose“ is a serious danger to improve the way most of us are doing business today.
Thus ambassadors for the value of social purpose for business (and much more) important: customers and even non-customers should take this criticism seriously and answer it responsibly and comprehensively.
However, I disagree in one important point with Woolridge and that is the claim that social purpose evokes a serious risk for the liberality of markets.
First, no serious advocate for the current idea of social purpose for business wants to turn the wheel back to the 1850s. But what is wrong to say: We made some mistakes and are going to correct this. In Germany many rivers were literally dead due to industrial sewage in the 1970s. Today, you can again drink the water and eat the fish of many of them.
Second, the market is not just an abstract concept, it consists of human beings! Thus, the consumers will decide in the end. It’s absolutely okay to withdraw social purpose from your business agenda. But please don’t complain if people decide to turn away from your products. And yes, even Hellmann mayonnaise can be produced more socially responsible and eco-friendly
Moreover, is there room to scope out an intermediate position?
An example, the Living Wage Foundation, which advocates for companies to pay an independently determined living wage above the minimum regulatory threshold.
But are companies signing up falling into the trap Wooldridge warns of? Or are they undertaking actions that both improve the distribution of income within their firms and lift their financial performance?
This is ultimately an empirical question (we have an exciting research project on the go at the moment). But in principle it is possible to sketch out a complementarity in this and many other areas of corporate activity.
However, many of the other ‘ills’ the purpose movement is concerned about are examples of market failure or social objectives. That corporations are not best placed or appropriately incentivized to solve, at least not on their own.
For example, global net zero objectives. If carbon pricing becomes aligned with the scale of the externality and the remaining carbon budget.
Corporate and financial sector climate objectives have a role to play. But as a compliment not a substitute for good policy.
The consumer increasingly wants to know the ethics and impact of the business they buy stuff from, evidencing this is a smart financial decision.