In a world of inequality, social unrest and climate change, business leaders and the investing community are calling for change. A few decades ago, the movement took the form of ESG investing, as asset owners were encouraged to align their capital with companies demonstrating higher environmental, social and governance standards. Today, the philosophy has incarnated as Stakeholder Capitalism. One year ago, the Business Roundtable put forth a clarion call for businesses to prioritise a wider set of stakeholders than shareholders, and proponents argue that it is already a roaring success.

“Stakeholder Capitalism is Working” claims Imperative 21, a prominent coalition of organisations dedicated to advancing stakeholder principles. The litmus of success, according to the site, is that the top 20% of companies ranked on Just Capital’s index of America’s most “just companies” have outperformed the bottom 20% on the same index by 4.7% through “the current bear market and the first signs of recovery.” Just Capital is a nonprofit, founded by Paul Tudor Jones II, Deepak Chopra, Arianna Huffington and others who advocate that capitalism can and should be a force for good.

While these efforts are laudable for many reasons, the success logic strikes me as strange.  Measuring a movement meant to deprioritise shareholder returns, by investor returns, is a circular reference. The entire raison d’etre for stakeholder capitalism is the notion that shareholder-first capitalism has failed to produce the kind of flourishing and equitable society we assumed that unbridled free-market economics would bring us. Measuring the success of stakeholder capitalism by increased profits for investors undergirds the exact paradigm it is supposedly trying to undo.

Similarly, ESG managers have built entire practices on the ‘do well by doing good’ argument, and are also now claiming that funds focused on environmental, social and governance concerns are outperforming traditional investment benchmarks during Covid-19. The thesis is that companies which score higher on ESG metrics are more resilient and better able to weather exogenous shocks like pandemics or climate disruptions. This argument has attracted even greater interest in the asset class, which saw record inflows during the recent crisis.