One of the core beliefs of this website and our “procurement with purpose” initiative generally is that business can and should be a force for positive change in terms of wider environmental, social and economic issues. That’s where we differ from themore extreme campaigners in areas such as climate change or evenmodern slavery.
For instance, if we closed every coal mine and oil well in the world tomorrow, there would be huge effects on millions of people, with war, famine and economic collapse the likely outcome. Change has to be handled carefully, and responsible businesses, whatever sector they work in, have a key role to play. Businesses are also directly responding to their own stakeholders, including shareholders, and two recent examples showed how that can have a direct impact on behaviour.
UK supermarket giant Tesco agreed to new targets for selling healthier food after action from a consortium of investors, led by responsible investment charity and campaigning group ShareAction. In February they put forward what is thought to be the first nutrition-based shareholder resolution at a FTSE 100 company. After this encouragement, Tesco announced earlier this month it had committed to a “major new programme of reformulation” to improve the health profile of its products by 2025. Amongst a number of new commitments, firm aims to increase sales of healthy products as a proportion of total sales from 58% to 65% and also plans to change its ready meals so at least two-thirds of them contain at least one of the recommended five pieces of vegetables or fruit that we should eat every day.
Similarly, HSBC, one of the largest banks in the world, agreed to stop investing in coal mines and coal-fired power stations in the face of investor and customer pressure. The firm pledged to stop funding the mining and burning of thermal coal by 2030 in rich countries and by 2040 in emerging nations.
Activists are also having success in driving for more transparency. Often, this can have a beneficial effect, without even calling directly for the organisation to make major changes. We all know that data and information is key to any successful change, so simply asking a firm to publish information on emissions, diversity, or modern slavery policies can be a first step in achieving positive movement. If the organisation has to gather data, and can then see how it benchmarks against others, it is more likely to commit to improvement.
However, we shouldn’t think all shareholders are becoming lovely, kind, soft-hearted folk. A warning note comes from Danone. That firm has a long-held reputation for putting wider issues very high on its agenda, with a “responsible capitalism” approach put in place by the firms founding Riboud dynasty.
But activist investment firms aren’t happy with the financial performance, pointing out that since Executive Chairman Emmanuel Faber took over in 2014, the share price has risen by just 11%, whilst that of rival Nestle has jumped by 43%. In the face of this investor pressure, initially the Board agreed to appoint a new CEO with Faber staying as chairman, but now he is simply leaving.
In 2020 Danone, became the first top French company to use a new law, changing its statutes to give itself an official mission to protect public health and the planet. Faber said then that his group had “toppled the statue of Milton Friedman”, the American monetarist economist who influenced Margaret Thatcher. “We want finance to serve the economy, and the economy to serve the people,” he said.
We have argued in other articles that “doing the right thing” in terms of purposeful procurement (and business) should be good for business. Behaving in this manner should not be seen as a cost, but as a positive opportunity for shareholders as well as for the wider ESG and UN SDG agendas. The Danone experience certainly does not disprove that theory - it is impossible to say as outsiders whether Danone’s business has suffered because of its “responsible capitalism” approach. (Cynics also wonder whether a leading supplier of bottled water can really be a paragon of sustainable virtue). As another comparator, Unilever’s share price is up some 60% since 2014 despite recent falls, and that firm has been at the absolute forefront of the sustainable business movement in its own markets.
So it may well be that other factors or failures have led to Danone’s disappointing financial results. But Faber’s departure shows that shareholders are not going to simply accept that “doing good” is an excuse for sub-par business performance.