Shillman posed the question – “do [fund investors] want the board of directors and the managers of your companies to spend time and energy on environmental, social and governance issues or do [they] want them to spend all of their time and energy on increasing the value of [their] shares?”  His response: “I’m rather sure that an overwhelming number of them would choose the latter.”  Many would argue the data shows unless you do a good amount of the former, you can’t deliver on the latter.

That said, it would be wrong to describe Shillman as an ESG sceptic – it is rather more complex than that.  He believes the integration of ESG factors in corporate decision making is important and he takes pride in Cognex’s impressive track record in this regard.  But he believes it should be left to companies to determine whether and how they integrate ESG concerns, not institutional investors. 

Shillman wrote the above in his company’s 2018 Annual Report.  There has obviously been a lot of water under the bridge since then.  A new consensus has emerged that the ultimate beneficiaries of funds – citizens – expect large, institutional fund managers to do precisely what Shillman argued against, when it comes to investing their life savings, looking after their pension pots, and so on.  It is clear – the aftermath of Covid-19, and the reaction to the tragic murder of George Floyd in the US, have turbo charged the focus around ESG, and lifted the prominence of the “S” and the “G” in ESG. There is no doubt the #MeToo campaign and backlash against fiscal austerity before 2020 had an impact before this too.

Over summer, we carried out a survey of over 22,000 respondents in 11 markets as part of our ongoing Trust Barometer.  This underlined the importance attached by the public to the ESG profile of businesses today.  It revealed that in the face of the Covid-19 pandemic, people want brands to protect the well-being and safety of their employees and suppliers even if it means suffering big financial losses until the pandemic ends (90%).  After the death of George Floyd shone a light on racial injustice and precipitated statements of solidarity with the black community from business leaders, respondents said brands in the U.S. must first get their own house in order by setting an example within their organization (64%), by reflecting the full diversity of the country in their communications (63%) and by making products accessible and suitable to all communities (61%).  The consequences of businesses not meeting expectations now are stark – for example, 60% of all respondents said they will buy or boycott a brand based on its stand on racial injustice. 

Furthermore, investors increasingly do not see ESG integration and financial returns as an either/or choice but two sides of the same coin.  Our latest Investor Trust survey of 607 institutional investors, representing investment firms that collectively manage over $9 trillion in assets, had 54% of respondents stating that ESG initiatives led to a favourable impact on growth and 47% saying it boosts the return on investment.  A good example where a poor ESG profile damages the financial standing of a business is the UK fast fashion chain, Boohoo, which lost a third of its market value in July after controversies relating to its supply chain were exposed.

This is all corroborated by data on ESG funds flows this year.  Refinitiv’s Sustainable Finance Review shows that in the first half of 2020 nearly $200bn in sustainable bonds was issued globally – an increase of almost half, year-on-year, and double the amount raised in H1 2018.  Remarkably much of this growth took place in Q2, when the pandemic was at its worst, with $130bn raised, the highest quarterly amount ever.  Likewise social bond issuance has rocketed  with already more than double the total amount raised in 2020 than for the whole of 2019, driven by capital raising for COVID-19 related recovery efforts. 

This trend is only likely to continue.  Millennials – those born between 1981 and 1996 – were significant drivers of the growth in demand for ESG products, long before the Covid era started and their influence is set to escalate.  According to a 2018 U.S. Trust Insights on Wealth and Worth® survey, 87% of millennial high net investors say a company’s ESG record is an important consideration in their decision about whether to invest or not.  And there is a huge, inter-generational transfer of wealth currently ongoing with around US$24 trillion expected to come under the control of millennials from this year.

So the truth is that in this post-pandemic world, it is actually the free market which is demanding ESG factors are integrated into corporate business decisions – fund managers are simply following the orders of investors.

Having lived through that, it has been refreshing to see so many, particularly in business, waking up to the reality of what has been happening over the decades to so many families of black heritage in the US, UK and elsewhere in the wake of the murder of George Floyd in Minneapolis.  There is no denying the impact on all of us of what happened to Floyd. Yesterday, it led protestors – of all races and backgrounds – to tear down a statute of the 17^th century slave trader, Edward Colston in Bristol, the UK’s sixth biggest city.

In the past most business leaders would have run a million miles from an issue like this. Not this time. Many have broken their silence to speak out. CEOs, from Amazon’s Jeff Bezos to Zoom’s Eric Yuan, have queued up to condemn what has happened. One can lambast business for only now having acknowledged what has been going after all these years, or you can focus on the positive – welcome their voices to the table and encourage them to do more and act. I prefer the latter.

As John Streur, CEO of Calvert Research and Management – one of the biggest responsible investment companies in the world – said last week, systemic racism is an ESG (environmental, social and governance) issue but the ESG investment community has failed to properly address it. “Responsible investors have come to trust ESG research and investment strategies to avoid investing in corporations that are lagging on taking needed action to address human rights violations and to take real action to drive needed change” he said but “as a group, we are failing to meet these needs.” Streur argues that more forceful action is needed by investors, company leaders and boards. He is right. 

Companies are corporate citizens which pay taxes – this in turn helps fund policing. Nevermind the clear moral imperative to act, business leaders have duty to act when the fundamental human rights of groups in society – which make up substantial numbers of their employees and customers – are being violated, as is the case here.

However, for the plethora of CEOs’ statements to be credible and not to be seen as tokenistic, PR driven gestures, they must be backed by the right action. Predictably, the statements have been followed by scrutiny of what companies have done about race inequalities in their own backyards – for starters, when the statement comes from a CEO on an all white board with an all white executive team, it totally undermines the authority of the company concerned, as Nike has discovered. So what should businesses do? Here are some things to think about (this is not an exhaustive list)…

There is no point making any comment on the outrage of Floyd’s killing and in support of the Black Lives Matter movement unless the whole of the board and senior executive team subscribe to the sentiment and want to do something about it, because without their buy-in, change is unlikely to happen. Stamping out racism – direct or indirect – in any organisation is a collective endeavour.

Be brutally honest about why the firm has only chosen to pipe up about such issues now. In the UK, where fewer CEOs have said anything about the Black Lives Matter movement, CEOs might want to explain why their companies did not speak out after the racist murder of the black teenager, Stephen Lawrence, in 1993 and following the publication of the report of the Stephen Lawrence Inquiry in 1999 which found there was widespread institutional racism against black people in Britain. The truth is COVID-19 and modern social media has helped shine a light on continuing race inequalities like never before and it has brought a big reality check to a lot of people.

Look at your own company’s diversity statistics, publish them if you don’t already do so, and come clean about why they are not what they should be, particularly in your boardroom and with regard to your executive leadership team. Don’t be shy of admitting unconscious bias and a tendency to recruit and promote in one’s own image, where that is an issue.  

Over a third of our largest listed companies in the UK are likely to miss the target to have at least one director from an ethnic minority by 2021 according to the government sponsored Parker Review. During my several years of working as a corporate lawyer in the City London – which likes to boast about being the world’s leading, international, financial centre – I was almost always the only face of black heritage in the room. At every gathering of senior business leaders I spoke to as Shadow Business Secretary whilst serving in Parliament, I cannot remember there ever being another black face in the room either. Unless these problems are acknowledged, you can’t address them.

As the Parker Review pointed out, developing candidates for your pipeline and planning for succession in a systematic way is crucial. Companies must put in place systems to identify, nurture and promote people of colour within their workplaces to ensure there is a pipeline of Board capable candidates, and they should ensure their managerial and executive teams reflect the importance of diversity to their organisations. The data in 2020 does not support the nonsense which is parroted about there not being sufficient black candidates for senior roles – there are plenty if you look for them. If your head-hunters tell you there aren’t enough black candidates, get rid of them and find better recruiters. 

The City is surrounded by incredibly diverse boroughs but the workplaces there look nothing like the communities around it in inner-London like Lambeth where I grew up. By all means make donations to charities working to reduce race inequalities and get far more involved in community action initiatives in those areas, but what are you going to do to ensure more young black people from those communities make it into your work places, deal rooms and trading floors? 

Advanced, which is the third largest software company in the UK (I am a non-executive director on its Board) has a recruitment process which is completely non-biased, not based on your CV or background.  We have two tests for candidates to complete from which we recruit and we then focus on internal mobility – training these people through our own training programmes and moving on their career. Last year over 60% of all vacant roles in the business were filled internally through people progressing. More of this kind of thing is needed across the corporate landscape to break down barriers to progress.

Above all, whilst social justice demands there be change, shareholder value does too. In their recently published report on diversity, McKinsey found that in the case of ethnic and cultural diversity, top-quartile companies outperformed those in the fourth one by 36% in profitability.  Put simply: if you allow race inequalities to persist in your company, it will adversely impact on the bottom line.

The role of business in rebuilding out of this crisis and fashioning a new kind of innovation economy where productive businesses, the state, and citizens work together to create wealth, reduce inequalities and ensure that globalisation works for many more people is vital – it would be impossible without enterprise.  You enter public service to make a positive difference to as many lives as possible – the truth is, during my time parliament, I came to realise that there is even more capacity to do this in the private sector, which is why it was always my intention to return to it.

Of course, there are different business models, practices and behaviours.  Since my time as Shadow Business Secretary I have been a vocal advocate of long term value creation, as opposed to the fast-buck, and of firms that not only seek returns for shareholders and investors, but prioritise looking out for other stakeholders – employees, customers, suppliers and communities – as well.  It is for this reason that ensuring environmental, social and governance factors (“ESG”) are properly integrated into corporate decision making is so important. Afterall, business and society are mutually dependent – there is no such thing as a “free” market given that the private sector relies on the state to maintain our roads, provide a digital infrastructure, sustain a national health service and so on.

This perspective is based not only on hard evidence but also life experience.  I was born into a family of entrepreneurs and would have not had the opportunities I had were it not for the power of enterprise.  After leaving full time education, I spent just under a decade working as a corporate employment lawyer – at the coalface of the “S” in ESG – in the City and for industry.  I then spent a decade in various senior roles in Parliament leading on public policy which had ESG at its core.

This is why I am now throwing my energies into working as a strategic corporate advisor to companies on business-critical issues that impact on reputation and their narrative – ESG in particular.

The first steps in this new chapter have involved me working with three companies, mainly in a non-executive capacity, to help their leaderships build value in the long term for investors and shareholders, in addition to delivering for other stakeholders and society as whole. Each seeks to maximise returns for investors but are conscious that this must go hand in hand with delivering shared value for stakeholders and society too.

Advanced is the UK’s third largest software company and I sit on its board as a non-executive director.  Advanced is the UK’s third largest provider of business software and services, with a £254m turnover, over 19,000 customers and 2,400 employees with operations in the UK, Australia, Canada, France, India, Ireland, and the US.  During the pandemic it has paid all staff for their time in isolation, whether sick or at risk but unable to work from home – even those who fall outside of the sick pay policy which include those still within their first six month probationary period.  As a signatory to the Social Mobility Pledge, Advanced has a radical recruitment process which is non-biased and not based on one’s CV or background but on candidates completing two aptitude tests.

Signal AI’s Artificial Intelligence-powered solutions provide communications professionals, compliance and risk experts, in-house and agency teams, and senior business leaders with the information they need to be in the know. The company, for whom I’m working as an advisor, has raised over $49.5 million in investment from four funding rounds and has over 150 employees.  At the start of the lockdown the company gave every employee £200 in order to help them adjust to working from home, and a fruit and veg pack.  They also offered their services free to parts of government to help the country deal with corona virus.

Finally, at the start of the year I was delighted to join Digital Identity Net UK, which is a UK-curated company that provides consumers with a single gateway to the validated identity data held about them by their banks and other trusted custodians of transactional and behavioural data. This empowers the consumer to leverage their identity, decide who has access to it, and how they share it, to build a better quality of digital life.  The founders believe corporate responsibility is entirely compatible with significant revenue and profit generation so the firm will fund a Social Benefit Trust, with a progressively defined portion of profits, to promote wider social benefit by charitable giving There is a special social purpose clause written into the constitution of the company and the investor base is diverse, not dominated by any one individual or organisation.

I am looking forward to working with these great, innovative companies, and with others, investors and shareholders – here and abroad – in building a new stakeholder economy in the wake of the crisis in the months and years ahead.

Instinctively, many corporate leaders will want to steer clear of the rancorous debates which, in the U.S., will crescendo into November’s presidential election. Hiding away, getting on with returning to profit, trying to improve the battered share price and restoring a decent dividend will preoccupy many CEOs. Some will quietly drop commitments to look out for other stakeholders and the environment, citing the pandemic as an excuse.  This would be a huge error, not least because around a third of U.K. workers surveyed don’t have confidence in their firms’ leaders’ approach to navigating the current crisis, with a global survey showing that less than a third of respondents believe CEOs are doing an outstanding job dealing with coronavirus.

When it comes to the pandemic, there have been false comparisons made with times of war.  There are those who predict that once this crisis passes we can look forward to advances similar to those that followed World War II.  The societal changes and post war consensus of the 1940s were a by-product of the shared experience of people of all backgrounds and classes fighting side by side against fascism, leading to a collective demand for greater equality thereafter. It was against this backdrop that the 1945 U.K. Labour administration was elected which went on to create our National Health Service, which is playing such an important role in saving lives today. 

There was also a determination to prevent the world being ravaged again by the division and forces that led to the war. So from 1941 U.K. Prime Minister Winston Churchill and U.S. President Roosevelt led the establishment of the liberal international rule-based order which, ever since, has underpinned liberal democracy and trade across the globe, and guarded against authoritarianism and oppression. This struck a chord with President Roosevelt’s “New Deal” with the idea that nations would work on a multilateral basis to “improve labour standards, economic advancement, and social security.”

However, although we may now be fighting a war of sorts, albeit against an invisible enemy—coronavirus—we have been doing so separately in our own homes, in our own family units. Yes, our incredible key workers are putting themselves at risk to keep us safe but the great mass of our populations have had to stay indoors and abstain from doing things–they have not had to face the horror of leaving home, picking up arms and risking life and death in the same way as the war generation. Furthermore, the experience of coronavirus is not equally shared. For example, in the U.S. and the U.K. it disproportionately kills people of colour, and the people and places with the lowest incomes are the most vulnerable to job losses.  

And, far from precipitating international co-operation akin to what we saw under Roosevelt and Churchill, today we have witnessed countries going it alone, dealing with this crisis in a haphazard and uncoordinated way. The current U.S. President, Donald Trump, has even turned on the very international institution—the World Health Organisation—under whose auspices world leaders should be coming together to solve this global problem.

This is very tricky terrain for the C-suite of any company to navigate.

Many employees will return to work over the next few months hoping they still have a job, only to be told they don’t. 

The U.K.’s Office for Budget Responsibility has this morning published its latest estimate of the total cost of the government’s coronavirus policy interventions: a whopping £123 billion in 2020-21.

Quite rightly there are demands for a new social contract involving key workers being properly rewarded for their incredible work. 

Funding all of this will involve tax increases but who will be asked to pay for them?

Microsoft’s CEO, Satya Nadella, says we have seen the equivalent two years’ of digital progression in two months. Great for big tech but this will undoubtedly lead to household names in traditional sectors, like high street retail, going under. Upskilling and training redundant workers to adapt will be essential. We must also guard against further market concentration in the hands of the dominant players that are left standing and a reduction in competition (which is needed for a healthy functioning market). 

So we should use this moment to reform capitalism and foster a new kind of innovation economy where productive businesses, the state, and citizens work together to create wealth, reduce inequalities and ensure that globalisation works for many more people.   

In this context, there will be a lot of scrutiny of business, which has an important role to play, and will be operating alongside a bigger and more active state. But, as ever, opportunist, populist politicians will be looking to exploit this situation for their own cynical ends.

The populist Left will seek to use this moment to impose punitive and extreme measures on enterprise, and implement policies that will certainly not deliver growth or nurture an environment in which under-pressure firms can recover and get people back to work. 

On the populist Right, many of the main protagonists are currently in office. Their knee jerk decision making, based on ideology and emotion as opposed facts and evidence, and their wild policy ideas, have left them exposed as ill-equipped to meet the needs of this moment. President Trump’s suggestion that we inject ourselves with disinfectant provides a good example.

As ever, they will be looking for scapegoats with whom to park the blame for their incompetence.  Our countries do need to build more resilient domestic supply chains for strategic reasons to withstand the type of shock we have experienced. Yet these populists will demand a more drastic approach. There will be calls for deglobalisation and a degree of isolation as a means of protecting citizens, when this crisis has illustrated the importance of co-ordination and collaboration. 

The result—a perfect storm for companies during a pandemic induced global downturn: demands for more red tape, much more regulation, and punitive business taxation at the behest of the populist Left; and, calls for disproportionate restrictions on immigration, more protectionism, and nationalism, at the behest of the populist Right. Both will impede business and trade.

Business needs to see off this threat by acting to ensure that in a post coronavirus world a regulated, social market economy delivers the goods for more people. Everyone must play their part so CEOs need to become more vocal and activist in addressing environmental, social and governance (ESG) concerns, not less. They are in a good position to do so. Were it not for their firms’ technologies, enabling us to remain connected to our nearest and dearest, the experience of lockdown would have been a whole lot worse. If companies seize the moment and are in the vanguard of building back a better and fairer economy, those who stand in the way of enterprise will be deprived of the oxygen they need to whip up fear, anger and anti-business sentiment.

Blackrock’s chief executive Larry Fink had just penned a second annual letter in January making this argument, following last August’s Business Roundtable statement by US CEOs declaring that shareholders and stakeholders long-term interests are “inseparable.”

If anything, the case for stakeholder capitalism has been given added urgency by the nightmare we are living through. This week, in what they describe as the “COVID era”, founder and chair of the World Economic Forum, Klaus Schwab, along with business leaders from Bank of America, IKEA, Maersk and Royal Dutch Shell reaffirmed their commitment to take account of these environmental, social and governance issues (ESG) pledging “to stand at society’s service, to help preserve and rebuild a viable society and economy, and to do all we can for our stakeholders.” Schwab said “the COVID-19 crisis is a litmus test that shows who has been ‘swimming naked’ while endorsing stakeholder capitalism”—he is right.

Commendably, a host of firms have met the challenge and pledged to not to axe jobs, at least for the moment, in the midst of the pandemic including Danone, Marsh McLennan, Morgan Stanley, Paypal, Starbucks and Visa. However, the longer lockdowns continue in different economies the harder it will be to maintain this stance, particularly if they are extended beyond three months. Redundancies might come to be seen as a necessity for business survival. On March 20, the U.K. finance minister, Rishi Sunak MP pledged to support firms by covering 80 percent of employees’ salaries for a period of three months—it is unclear the extent to which government measures such as this, that have helped fend off layoffs so far, will continue indefinitely. What will firms do if state support is withdrawn prematurely?

And when some semblance of normality returns, the pressures on CEOs to put ESG concerns to one side as they seek to meet expectations to speedily restore profitability in the near term, after investors have faced a prolonged period of dividend cancellations and a huge drop in share prices, cannot be overstated. However, there are reasons why they should not throw their new found fervour for ESG overboard–three in particular.

First, there is growing body of evidence that their customers and the public in general will punish them if they do so. Stakeholders are watching carefully to see whether companies make good on all the promises that have been made to look out for others in the current climate. Up until now the environmental—“E”—part of ESG has attracted most attention; COVID-19 has brought the “S” part under the spotlight like never before. 

Edelman, the global communications, has just published a 12-market study on the critical role brands are expected to play by the public during the pandemic. They interviewed 12,000 people including in Brazil, China, Germany, India, South Africa, South Korea, the U.K. and U.S. 52% of respondents said brands must do everything they can to protect the well-being and financial security of their employees and their suppliers, even if it means suffering big financial losses until the pandemic ends. Furthermore, a sizeable proportion said they had already punished companies they perceived to be doing the wrong thing, with a third saying they had convinced other people to stop using a brand they felt was not acting appropriately in response to the pandemic.

This suggests companies must clearly articulate what they are doing to help their employees, suppliers and local communities through the crisis. Firms making layoffs or salary cuts which subsequently announce big dividend payments, share buy-backs or generous executive compensation should expect to be given a very rough ride, particularly if they have taken advantage of state financial support. The sensitivities around such issues will linger long after any social restrictions have been lifted.

Secondly, there is a growing body of evidence that companies featuring on ESG indices and ESG funds have proved more resilient during this crisis. So the appetite to invest in companies that score well on ESG criteria will increase once the pandemic relents—the crisis has only added weight to the commercial case for ESG investing and for firms being conscious of ESG factors.

Tessa Walsh, ESG financing editor at financial data provider Refinitiv LPC, describes the direction of travel: “In the post-corona virus landscape, the appetite to invest in ESG products will go up because we are seeing data that suggests ESG fund performance has been better than other types of funds, which is quite a strong predictor. When the volatility hit, ESG funds did not see as heavy outflows.”

Walsh puts this down to the long term approach of firms in this space: “The fact ESG conscious companies tend to be more long term in their thinking and in their governance practices has meant they are more resilient and better able to account for long term risks as they are more prepared for upheaval on the scale we are experiencing. This is where the ‘G’ in ESG is coming to the fore.”

Data collated by Refintiv supports this, showing that Global green bond volumes are only 3% down on this quarter last year—$36.82 billion for the first quarter of 2020 compared to $38.06 billion for the same time last year. Likewise, so far this year 59% of U.S. ESG exchange traded funds are doing better than the S&P 500 Index while 60% of European ESG ETFs have beaten the MSCI Europe Index according to research by Bloomberg Intelligence.

Above all, if public pressure and the commercial imperative doesn’t convince business leaders to stick with their commitments on ESG, governments inevitably will demand more of business, resorting to legislation if needed. The quid pro quo for the unprecedented fiscal support given to companies by governments through the crisis will be an expectation that business step ups and makes good on the stakeholder agenda. The fact financial services failed to appreciate this in the wake of the global financial crash helped fuel political populism and extremism over the last decade. Surely it is better for business to take the lead and act, rather than being forced to so so. Being proactive will also help increase much needed trust in business – a win, win all round.

In his new UN role his focus will be on significantly shifting public and private finance markets and mobilizing the private sector investment needed to achieve the goal of limiting temperature increases to 1.5 degrees, as set out at the 2015 UN Climate Change Conference in Paris. The prime minister, not wanting to lose out on the action, has also named Carney as his finance adviser for the UN’s 26th Climate Change Conference (COP26) which takes place in Glasgow this November.

Carney has warned that “climate change will affect the value of virtually every financial asset” and the Bank will now be stress testing the resilience of the biggest financial services institutions to the physical and transition risks associated with different possible climate scenarios, and the financial system’s exposure to climate-related risk more broadly. Last month, he sided with Greta Thunberg in her clash with president Trump over the urgency of this issue – he said her warnings, that we have only eight years of emitting carbon at the current rate, if there is to be 67 per cent chance of limiting an increase in global temperatures to 1.5 degrees, were right. With regard to the climate emergency, he has said the question for every company, every financial institution, every asset manager, pension fund or insurer is: “what’s your plan?”

If we are to limit temperature level increases, not only do we need to limit our carbon emissions and reduce our use of natural resources, but we must regenerate and reuse natural assets. Since industrialisation, consumption has followed a linear model – where firms take natural materials, use them to make a product, then sell them to the consumer who later bins the material when it no longer serves its purpose. Not only does this increase energy use and generate an enormous amount of waste, but it leaves companies exposed when those finite materials dry up or the price of them increases. This is simply not “unsustainable”, in every sense of the word. 

Consequently, many businesses are moving towards a circular economy model that looks to restore and regenerate materials. Isn’t this simple recycling? No. As the World Economic Forum’s 2020 Circularity Gap Report points out, “modest improvements in waste recycling are being overtaken by the sheer volume of virgin materials being sourced and used to fuel our growth.” Also “recycling”, a broad term, can include incineration and recycling environmentally harmful products, and is itself energy intensive. However, the circular economy seeks to do more. The aim is to design out the waste in the first place, ensure the products are made to have several lifecycles, use materials that can easily BE separated and reused, and ensure the energy used in the process is renewable. 

The environmental benefits are undeniable. An Ellen MacArthur Foundation and Material Economics report estimates that applying circular economy strategies to the production of cement, aluminium, steel and plastics can lead to a 40 per cent drop in emissions from those goods alone by 2050. But there are huge economic benefits to be had too. Research by McKinsey suggests the circular economy could boost Europe’s resource productivity by 3 percent by 2030, generating cost savings of €600bn a year and €1.8 trillion more in other economic benefits. So in answer to Carney’s question, the UK becoming a leader in the circular economy must be part of our plan.

One company leading the way is the British-German owned firm, Pentatonic. I was invited last summer to Berlin to speak to their staff team about Brexit (full disclosure – they funded the trip) which gave me an insight into what they do. They describe their mission thus: “Man has already produced enough plastic and glass to fulfil our needs forever – it’s all out there, it’s just a case of reincarnating rather than burying it. And with enough creativity, each incarnation can be better than the last.” 

Launched in 2017, medium-sized and growing fast, Pentatonic co-creates products for customers using cutting edge manufacturing, allowing their clients to operate more sustainably, using the circular economy model. Their UK CEO, Jamie Hall – formerly the general manager of NikeLab, Nike’s innovation business unit – sees a huge opportunity for British firms here. Far from seeing the latest pronouncements of central bankers and bankers on the need to act on the climate crisis as bandwagon jumping, Hall told me “it’s exhilarating to see their focus on this and the viability of the circular economy as a good investment proposition.” He puts it well when he says “if you create great products at great prices which hold their value, you incentivise people to reuse which will facilitate a complete sea change, at scale, in how we operate.” Big corporations can see the business case for it – Pentatonic’s customers include Burger King, Heron Preston, New Era, Nike and Starbucks. 

So it’s a win-win all round – the circular economy is good for business and good for the environment. If the UK seizes the moment to become a world leader in this sphere, it could be great for our economy too.

More than 3,000 participants will be attending to hear speakers including Donald Trump, the US president, Angela Merkel, the German chancellor, and Greta Thunberg, the green activist. Sajid Javid, the UK’s chancellor of the exchequer, will also be attending. Among those backing the event is BlackRock, one of the biggest fund managers in the world, handling $7 trillion (£5.4 trillion) of assets. BlackRock’s CEO Larry Fink made big news last week with his annual letter to CEOs.

Not only did he reiterate the argument he made in his 2018 letter that “a company cannot achieve long-term profits without embracing purpose and considering the needs of a broad range of stakeholders”, but he said that, going forward, BlackRock will adopt a number of measures to play its part in reducing climate change, including selling its holdings of companies that derive more than 25 per cent of their revenue from thermal coal.

Fink said that “given growing investment risks surrounding sustainability, we will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them.” This is pretty radical stuff relative to previous practices in many big businesses.

The move by BlackRock follows the declaration signed last summer by more than 180 CEOs and released by the Business Roundtable (an association of the leaders of the US’ biggest companies), which explicitly sought to move away from shareholder primacy to a more inclusive commitment to all stakeholders.

Its chair, Jamie Dimon, who also leads US investment banking giant JP Morgan, was clear: “Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term. These modernised principles reflect the business community’s unwavering commitment to continue to push for an economy that serves all.” It seems that every business leader is now talking about how important “ESG” – economic, social and governance – issues are to their decision making.

Some will say this is nothing new, but this was not where the debate was centred at the beginning of the last decade. On the contrary – there was active resistance to the need to change and move towards a broader, more inclusive definition of value creation.

The first major speech I gave as HM opposition’s shadow business secretary at Bloomberg’s London HQ in the autumn of 2011 was all about the merits of businesses taking account of other stakeholders, in addition to shareholders, not just because it is the right thing to do but because it adds to shareholder value in the long term.

Harvard University’s Mark Kramer and Michael Porter had written a seminal piece in the Harvard Business Review earlier that year setting out the core argument, which I championed. They said that “at a very basic level, the competitiveness of a company and the health of the communities around it are closely intertwined. A business needs a successful community, not only to create demand for its products but also to provide critical public assets and a supportive environment. A community needs successful businesses to provide jobs and wealth creation opportunities for its citizens.”

This core proposition is uncontroversial now but we were denounced at the time by political opponents and a significant number of business figures for engaging in “anti-business” rhetoric simply for making the stakeholder argument, despite the fact many of those making the case for it were other business people.

I remember speaking alongside Ed Miliband (then the leader of the opposition) at a private dinner of senior business folk who headed up companies and financial institutions that are household names – both of us (Ed in particular) were given a very rough ride by those attending. The general attitude was to ignore the flaws in the current model of doing business, which had only recently been exposed in awful technicolour by the global financial crash of 2008/09. It was only when the 2016 EU referendum came along that I think real momentum built behind the need for a new approach in the UK. The referendum served as a wake-up call for so many business leaders – a lot of them told me it brought them face to face for the first time with the growing public anger there wa,s and still is, towards a form of capitalism that many of their firms’ customers and employees believe is broken.

There has been a welcome sea change since then. In the UK new think tanks have emerged dedicated to the agenda, including New Financial, Radix, and the Centre for Progressive Policy. The challenge now will be to make the commitment to all stakeholders a concrete reality – that won’t be easy. 

First, it requires the buy-in and engagement of shareholders, not only managers, and there is a perennial problem of the absent and disengaged shareholder. As the ONS figures illustrated last week, a lot of those who hold UK stock don’t even live here – the proportion of UK-domiciled companies’ quoted shares by value owned by investors outside the UK has increased from 36 per cent in 2000 to around 55 per cent today.

Second, though changes have been made to the Companies Act enabling directors legally to pay due regard to other stakeholders, they are under huge pressure to maximise returns in the short term to investors and shareholders – in many cases if they fail to deliver the financial returns rapidly for shareholders in the short term they still face the threat of being removed.

Thirdly, there will be the inevitable contradictions between the grand promises made and the behaviour of businesses, which will need to be addressed. These contradictions will provide great copy for a firm’s detractors in the media and lead to charges of hypocrisy – particularly when controversial CEO remuneration packages that reward firm performance seemingly run counter to ESG concerns and are brought to light. For example, at the WEF summit itself, reporters will be watching closely to see which company leaders are quoted as saying action is needed on climate change, having arrived at the summit by private jet or helicopter. The list goes on.

However, none of this should stand in the way of firms taking action on pushing the stakeholder agenda forward – the bigger risk in the long term is that they don’t. Just ask aircraft manufacturer Boeing, which stands accused of putting profits and short-term shareholder returns over safety following the crashes of two of its 737 Max planes, which killed more than 300 people.

US senators have accused Boeing of building “flying coffins” and a “pattern of deliberate concealment” as it sought to secure approval for the planes to fly. This is backed up by internal emails released earlier this month showing Boeing employees boasting about bullying regulators to approve the plane. And it has hit the bottom line hard – Boeing’s share price has lost more than a quarter of its value over the last 12 months, with the estimated total cost of the fallout coming in at around $20bn according to analysts at the Bank of America Merrill Lynch. A salutary lesson for all.

It was a disappointing general election for my party, the Liberal Democrats, but that should not obscure the progress that was made. We gained 1.2 million more votes relative to 2017 with our vote share increasing by 4.2 per cent, compared with the Conservatives who gained 330,000 votes and their vote share increasing by 1.2 per cent. Our share of the vote increased in every region of the UK – in areas that voted Leave and Remain in 2016 – but we are now one seat down compared with 2017. 

As ever, we suffered from being squeezed out by the two big main parties in our anachronistic, unjust first-past-the-post electoral system. We now have 11 MPs, whereas under a system of proportional representation, we would now have 74 MPs.

In many contests, we achieved some of the biggest ever swings in election history. In the Cities of London and Westminster, where I was the candidate, we almost trebled our vote share by 19.6 per cent to 30.7 per cent, while the new Conservative MP lost 6.7 per cent and Labour shed 11.2 per cent of their vote shares respectively compared to 2017. The Tories credited the prime minister with retaining the seat but, above all, they have Jeremy Corbyn to thank for that. 

I found visceral dislike for Boris Johnson among Tory voters and strong opposition to Brexit on the overwhelming majority of doorsteps in the constituency, an area where half of the residents are non-UK born, with one in five being born in another European Union member state. However, fear of Corbyn coming to power overrode all else – so many people told me they were voting Tory for that reason in spite of hating Brexit. That is why it came as no surprise to me that Labour went down to its worst defeat since 1935 losing 7.9 per cent of its vote nationally, with more than 2.6 million voters deserting it. 

Our local campaign was a team effort. We were blessed to have a superb staff and awesome local party. I am incredibly proud of what we have achieved and cannot thank them all enough for their tremendous efforts. As I said on election night, we set out to climb Everest but, alas, although we were not far from the summit, we did not quite reach it – this was in spite of the remarkable campaign of the Westminster and City of London Lib Dems, not because of it.

I am also proud to have been part of a group of centre-ground MPs who were among the most prominent, unapologetic pro-Europeans in the last parliament who left the two main parties but lost our individual battles last week. 

The group includes Luciana Berger, Mike Gapes, David Gauke, Dominic Grieve, Sam Gyimah, Dr Phillip Lee, Chris Leslie, Anna Soubry, Antoinette Sandbach, Angela Smith and Dr Sarah Wollaston. I was so sorry to see my fellow Liberal Democrats Jo Swinson and Tom Brake, and lots of good Labour people, lose their seats too. We all stood up for our principles and what we believed in – we certainly did not choose the easy route.

Going forward, we must accept the choice the people have made both to re-elect Johnson and the Conservatives into government, and for Labour to continue as the official opposition. Now the dust has settled, it is in all our interests that they live up to the trust invested in them. I will always argue the UK is better off, safer and strong in the EU, but it’s clear we will be leaving the EU next month. 

In so doing, it is vital that we leave the EU over the course of next year in a way that minimises the damage to our already fragile economy. The official economic data released last Monday almost went unnoticed because of the election but they were sobering. The quarterly GDP figures showed no growth to October 2019. Services were pretty sluggish with minimal increases, along with falls in both the production and construction sectors. 

Things have not gotten any better since October. The IHS Markit/CIPS Purchasing Managers’ Index survey released earlier this month showed the UK manufacturing downturn continuing into November with new orders falling for the seventh month in a row. There was a decline in construction output and a renewed drop in activity across the services sector as well, with the fastest pace of decline for eight months.

Brexit uncertainty has loomed in the background so, in the short term, there will undoubtedly be a boost in confidence simply as a result of there being more political certainty on the course the country will now follow. Sterling and UK equities rallied off the back of the decisive election result and the threat of a Corbyn government receding. However, as many commentators have noted, the growth slowdown of the past three years has lasted long enough to be regarded as a trend. To arrest this decline will require substantial investment. 

Whether we see the scale of investment required will depend on the future trading relationship negotiated with the EU next year and whether a trade deal is concluded by the time the transition period expires this time next year. 

The prime minister insists he won’t extend the transition period but the EU’s chief negotiator, Michel Barnier, says it is impossible to get a comprehensive free trade deal finalised in that timeframe, leaving open the prospect of an effective no-deal Brexit from 2021.

In all probability, the transition period will need to be extended, but whether Johnson can persuade a Tory parliamentary party, which is more hardline on Brexit than ever, to do so is another matter. The biggest danger for him is that after victory in his first election, the economy goes south because he can’t persuade his colleagues to take less of a hardline position on the future relationship with the EU. In that scenario, if he does not face them down he could go the way of one of his predecessors, John Major, with disaster following an election win.

We have just started using a Google Home device in the Umunna household. It’s a smart speaker similar to Amazon Alexa that answers your questions, gets the news, plays songs, and enables you to control other apps, (like Spotify), hands free, using your own voice. We weren’t really following yesterday’s Wimbledon men’s final so during the match I asked Google Home and it told me what the current score was.

According to a report from this January, almost a quarter (21 per cent) of adults in the US now own a smart speaker with the figures rising, and here in the UK we seem to be following the same trend. At the very least, policymakers need to be consistent in their approach to the ever increasing tech usage – but this is not the case at present.

One example is the US authorities. On the one hand, they seem keen to ensure that the enormous tech companies play by the rules and contribute to the common good. So at the end of last week the US Federal Trade Commission (which performs much the same functions as the UK’s Consumer and Markets Authority) reportedly approved a $5bn (£4bn) settlement with Facebook over allegations that the latter had inappropriately shared information belonging to 87 million users with the now defunct Cambridge Analytica political consulting firm.

On the other hand, in a knee-jerk response coloured by economic nationalism, Donald Trump has threatened to hit French goods with extra tariffs in retaliation for the French government announcing last week the imposition of a 3 per cent levy on large, mostly US, digital companies’ local revenues. 

President Emmanuel Macron’s administration in Paris is of the view that the tech companies are paying little or no tax. The French tech tax will apply to tech companies with global sales of over €750m (£673m) which make more than €25m (£22m) in France.

The advent of new technologies, the rise of automation, artificial intelligence and digitisation has brought many benefits, facilitating better and more efficient methods of communication, knowledge acquisition, working, shopping, spending our leisure time, travelling and generally organising our lives. It has the potential to revolutionise public services. 

But the advent of the new super-tech platforms in particular has concentrated power and wealth in the hands of a small number of people, new technologies are being used to facilitate abuse, crime and terrorism and to enable foreign powers to challenge our democratic processes and national security. One need only look at the increasing amount of police time and resources taken up with dealing with cybercrime and online fraud, to see the downside

Vast quantities of our personal data is now held by others, not necessarily within our control, and public policy and legal frameworks are struggling to keep pace. We cannot stand idly by and not intervene in the public interest to address these problems.

Labour’s Shadow Chancellor John McDonnell has talked about Labour’s answer to all of this being “socialism with an iPad”, meaning making Britain a leading power in technology. It’s a good soundbite but the ideological dogma of yesteryear can’t provide a comprehensive route map to the solutions to these very modern of issues.

The old, left-right fulcrum, around which politics revolved in the 20th century, is not an appropriate prism through which to view these very 21st century challenges. We want our data privacy respected as a core property right – a right-wing proposition – but to get the best rewards from the data revolution we need universal access to data, public platforms, and high accountability and transparency – left-wing propositions. It follows that we shouldn’t pretend the answers will exclusively come from either ideological pre-disposition. So what should our approach be in ensuring these new technologies are used for the common good at home and abroad?

Britain needs a sophisticated, multitrack approach. The first track must be about making the most of the opportunities these technologies present in the UK. That means using all the levers of government to encourage the take-up and adoption of them which will help massively increase UK productivity, necessary to facilitate higher wages. 

In addition, this will help ensure we create new jobs in this country to replace those displaced by automation and technological advance. Reindustrialising those areas which have been deindustrialised over time with these new industries must be a priority.

The second track should focus on using the new technologies to improve public service delivery. They can help accelerate and optimise administrative processes and improve citizens’ experience of various services which can often be slow and inefficient. The efficiency gains will also save the Exchequer a lot of money which could be better used in other ways.

The third track must be about setting the right limits on these new technologies. They carry risks which are increasingly a focus of public debate: invasion of privacy, bullying or monopolistic behaviour by digital giants, misuse of personal data, tax evasion by firms with “intangible” profits, reckless testing and commercialisation of new technologies like driverless cars and private drones, the harnessing of such technologies by security threats, like criminals and terrorists, and geopolitical challengers, like China, which is increasingly integrating its AI strategies with its foreign policy.

The final track should address ownership and equality because too many of the rewards of these new technologies accrue to a relatively small number of individuals, exacerbating inequalities. New ownership structures must be developed to ensure greater distribution of the benefits – both to workers and wider society.

Our goal must be a constantly evolving body of democratised and repurposed regulation that tracks the realities of new technologies as they emerge and are applied, and starts from the principle that citizens, not governments or firms, should have the most power. 

President Macron gets this. It is quite clear that Trump with his narrow nationalism does not. If the big tech companies are all made to pay their fair share and abide by the rules, all peoples and their governments – including Trump’s – will benefit.