ESG STAKEHOLDER CAPITALISM AND CHINA’S COMMON PROSPERITY?

BY HAZEL HENDERSON* – ETHICAL MARKETS

“In the spirit of going beyond today’s polarization and trying to find areas of agreement and issues on which we can respectfully dialogue, it’s time to explore possible synergies in the current ideologies and stances on stock markets and investing between our 21st century’s de facto “co-superpowers”: the USA and China. Just to define their relative ranking in today’s globalized economies: the USA, as measured by GDP outranks China, and by PPP (Purchasing Power Parity), China is the world’s largest economy. Both have been historically successful in creating prosperity for millions in their own countries and around the world, while both have achieved this using fossil-fueled extraction of the planet’s now endangered natural resources and biodiversity. China has 1.2 billion people while the USA has 333 million. Both will meet at the global summit on today’s now-evident climate crises in Glasgow, Scotland in November 2021. Both nations are cooperating on reducing greenhouse gas emissions. They are also neck and neck on developing AI and quantum computing, according to New Scientist, Oct 2, 2021.

Two stunning examples of the differences and similarities between these two superpowers are documented in Bloomberg Business Week, Oct 4, 2021:  On the USA side: we read of the many high-rolling Wall Streeters’ political donations, including hedge fund icons, Ken Griffin of Citadel ($5 million); as well as Interactive Brokers founder, Thomas Peterffy ($250,000); buyout pioneer John Childs ($250,000); and Paul Tudor Jones, founder of JUST Capital ($400,000), as well as John Paulson and former Trump Secretary of Commerce Wilbur Ross (amounts not revealed). These billionaires’ contributions went to the re-election of Florida’s Republican governor, Ron DeSantis, who has forbidden Florida‘s local school boards and teachers to allow schoolchildren to wear masks, withheld state- funds for these local schools, and kept Florida open, resulting in the 10th worst death rate in the USA from the Covid virus—- the second-worst in the world.

On the Chinese side: we read of the massive $300 billion debt of China’s biggest real estate developer, Evergrande Group, now roiling global bond markets, and unable to finish construction of apartments bought by 1.5 million Chinese buyers. Evergrande’s founder CEO, Hui Ka Yan, born into grinding poverty in 1958 in Hunan province, said in a 2018 speech,” I really hoped I could leave the village. Everything for me and Evergrande is given by the party, the state, and society “. Yet China’s President Xi Jin Ping and the Communist Party are now changing course and focusing on social stability over sheer growth —calling for “moderate prosperity“ and  “common prosperity“.  Hui is China’s second richest man, after Alibaba’s Jack Ma, both targets of the Politburo’s crackdown on billionaires, rich party members, and massively-profitable Chinese companies in education, social media, and electronic fintech and their various IPOs. The new Politburo slogan is “Houses are for living in, not for speculation“.

The long-held cultural norms of both superpowers actually seem rather familiar. For example, the widespread public support for US President Joe Biden’s large “Build Back Better“ bill in Congress is scheduled to be paid for by finally getting the over 50 US companies who paid no taxes in 2020, as well as billionaires such as Jeff Bezos, Elon Musk, Peter Thiel and others, to “Pay their fair share“. Pushback from market-players who believe in “trickle-down” economic textbooks warn of inflation and massive debts burdening our childrens’ future, say these bills are wasteful spending and must be cut down. The bill’s supporters respond that these government funds, in any case, are vital investments in our future and finally shoring up our forgotten poor and middle class families. These “trickle-up“ investments are for educating our children, cutting child poverty, providing childcare to allow parents to return to the workforce, and investing in green electricity and infrastructure to compete with China and the world. These investments of $3.5 trillion (now in contention) are over a ten-year period and only represent 1.2% of GDP in this next period. If GDP were overhauled to include an asset account, these investments would be valued in, thus cutting most countries’ “debt-to-GDP ratios“ by up to 50 % with a few keystrokes.

Key leaders in ethical, socially-responsible, impact, and ESG investing were contacted to comment on all these issues. So far, Jeff Gitterman, Co-Founding Partner of Gitterman Wealth Management, LLC of New Jersey, also a leader introducing mainstream Wall Street financial players to the United Nations (UN), also hosted the “Great Re-Pricing Conference“. Gitterman adds “While China and US have many ideological differences, they both have a reliance on natural resources and an equal risk to the ravages of climate change. Perhaps the UN’s Sustainable Development Goals (SDGs) which they both adopted in 2015 with all other UN member countries, are the one framework where these two superpowers can find common ground. Unlike other frameworks like ESG, that have lack of conformity, the SDGs come out of a multilateral need for a habitat that we can thrive in. Maybe one day, China and the US will compete on adherence and fostering the SDGs.”

All this intersects with the shape of these superpowers’ financial markets, beliefs, values, and behavioral norms of their respective players. Chinese billionaires acknowledge the error of their profit-maximizing ways and are now donating large sums to charities, raising employees wages and benefits, and re-committing their allegiance to China’s future. In the USA, financial markets and billionaires are pushing back with op-eds, furiously lobbying Congressmembers, and donating huge sums to Republican candidates like Ron DeSantis and a Trump re-run. Fossil fuel companies still in denial or questioning the science of climate change and their own research indicating their role in it, will be grilled by US Congressional committees, as executives of tobacco companies were before them.

Meanwhile, another parity has emerged between the USA and China, based on demographic realities: both are now experiencing drastic declines in their fertility rates. These are partly due to the Covid virus, but also as reported by Canadian social scientists, Darrell Bricker and John Ibbitson in “Empty Planet“ (2018). These trends, based on exhaustive public opinion surveys in many countries, indicate that the huge global shift of populations from rural areas into mega-cities, has changed peoples’ calculus on family size, since children are no longer an asset on their farms, but now a liability in small urban apartments. In addition, as the world’s women have continually empowered themselves, attained education, and become entrepreneurs, they are taking charge of their own bodies and fertility, in spite of male-dominant cultures.

For example, in China, where the one-child policy was rescinded, authorities are now allowing 3 children per woman. Yet, even in China, and most European countries with below-replacement fertility, even when special subsidies are offered, there are few takers. Women in many countries exchange millions of “morning after” pills and are opting to be single parents or to avoid child-bearing altogether. As Indian physicist, Ashok Khosla, CEO of Development Alternatives, discovered in his computer program some years ago, if rural women were offered small loans and a solar panel, some 3 million annual births in India would be avoided. All this calls into question the reigning metrics in macroeconomics which now rule globalization processes worldwide: all price-system dominated, as GDP and all other macro-indicators of countries’ economic growth. GDP growth, is also based on population increases. Thus, eventually, the world’s women will control global GDP growth rates too!

These shared global realities, along with pandemics spread by zoonotic diseases, climate change, and ecosystem and biodiversity losses —are changing the cultural paradigms in all financial markets and in both China and the USA, as I reported in “Reframing The Politics of Polarization”. Meanwhile, the next generation in both the USA and China, as well as worldwide, are in street demonstrations of “Fridays for Future “schoolchildren by the millions. They demand that their parents take some responsibility for their “fairytales of money-making and GDP growth”, as Greta Thunberg, their leader stated at the United Nations (UN). While in China, young people share their feelings online, in the USA, children are bringing lawsuits, funded by Our Children’s Trust, demanding that the government stop jeopardizing their future lives from attaining life, liberty, and their pursuit of happiness, as the US Constitution ratifies. (www.ourchildrenstrust.org )

The key question is whether a global paradigm shift is at work in both superpowers, as well as all countries — based on recognition of these shared global scientific realities. These hard truths are gradually modifying ideologies and economic paradigms about what is valuable, the purpose of finance, and the need to reform financial markets, as I explored in ”Building a Win-Win World: Life Beyond Economic Warfare“ (1996, 2004 e-book). Obsolete economic textbooks still rely on the price-system, at a time when prices are now revealed as a function of human ignorance! Prices are always historic and externalities are still allowed in balance sheets of businesses and government agencies, as we document in “Ending Externalities: Toward Full-Spectrum Accounting“ (2016). So, we are still backing into the future looking through rearview mirrors and confusing values between markets and their larger enfolding societies. So what of the exhortations of the US Business Roundtable‘s 180 executives who state their new adherence beyond shareholder values to stakeholder values? Or Larry Fink, CEO of Blackrock’s almost $10 trillion of assets under management? Beyond his annual letters to his portfolio companies to adhere to these stakeholders and more ethical, purpose-driven missions, Fink will now allow his some $2 trillion of institutional investors to vote their own proxies. How do the 40 years of ESG screening stack up regarding US and global corporations for compliance with socially-responsible norms and ESG, ethical impact investing? This critique is heartfelt, since I have been deeply involved in all these efforts over the past 40 years. They were deeply necessary to engage existing incumbent firms and begin the task of reasoning for the new ethical standards without which markets cannot function.

As the IPCC’s research shows, global economism and financialization are still predatory on social and environmental values as I report in “Mapping the Global Transition to the Solar Age” (2014). They have not yet succeeded in showing any appreciable results since the 1997 Kyoto Protocol, in terms of protecting the planet’s resources or halting global warming of the Earth’s atmosphere and oceans. Thousands of ESG researchers now in all major financial firms are still trying to squeeze social and ecological values into the price-system’s money terms! NGOs including Carbon Tracker, Greenpeace, Friends of the Earth, the World Resource Institute, Influence Map, and many others, offer bleak reality checks!

Many corporate and government claims to achieve “Net Zero by 2050“, CO2 neutrality turns out to often be based on unachievable or fraudulent “offsets” — promising while continuing emitting CO2, to save a forest or wetland somewhere else. Whistle-blowers, including Blackrock’s former head of Sustainable Investing, Tariq Fancy, see this leading to a “dangerous mirage”. Like many others, he is dropping out of high finance and now criticizing the 40 years of efforts to steer investors through screening and ESG. The TFCD movement is still demanding full disclosure of climate risks in all accounting, as well as with government mandates, as by the SEC in the USA. BloombergBusiness week’s cover story title in its forementioned Oct 4th issue states “Most Americans today believe the stock market is rigged and they are right“! In China, the approach has been focused on the new criteria demanded in the new planetary realities.  Efforts focus on greening financial models, as well as in its international Belt and Road lending to countries, as documented in “Decarbonizing Belt & Road“, by faculty of Tsinghua University, Simon Zadek, director on the UN Inquiry for Sustainable Finance (www.unepfinance.org) and Ma Jun, former chief economist of the Peoples Bank of China.

So what comes after over-reliance on ESG and the price system for all macroeconomic metrics and what former head of the Bank of England Mark Carney calls “market fundamentalism” in“ Value(s)”, (2018)? Carney has followed the evolution of ESG, impact, and ethical investing and acknowledges its role, while also urging faster shifting of finance beyond obsolete models which are still piling up stranded assets in portfolios, pension funds, and investors’ retirement accounts. He has warned of the “tragedy of the horizon” where asset managers following their price metrics and algorithms still focus on short-term returns. Thus Carney, in his two new roles: as UN Climate Czar, as well as Vice-Chair of Canadian asset manager Brookfield, addresses the need to go beyond markets, finance, and making money out of money and acknowledge that markets exist within societies.

Going beyond price metrics does complicate the math, but is achievable, as we move beyond ESG to Science-Based metrics (see our “Transitioning to Science-Based Investing“ (2020) and the recognition of values in societies of trust, cohesion, transparency , as in the Biden “Build Back Better“ investments in childhood education, public health, green energy infrastructure and buttressing the shredding US safety-net. The Calvert-Henderson Quality of Life Indicators, launched at the US National Press Club in 2000, as an alternative to GDP, had 12 Indicators, only a few of which were measured in money. These Indicators were ignored by most media editors. I presented this model at the European Parliament’s conference in 2007 on Beyond GDP, where hundreds of other social indicators were presented, including Bhutan’s Gross National Happiness. (www.beyond-gdp.eu ) GlobeScan surveys in 12 countries in 2007, 2009, 2013 and 2020 still confirm huge majorities in all these countries favoring expanding GDP to include metrics on health, education and the environment. (www.ethicalmarkets.com/Beyondgdp ). We are still enthralled with what economist Joseph Stiglitz calls “GDP fetishism”.

Societies’ traditional values are governed by trust, mutual aid, unpaid volunteering, and principles that go back to the thousand-year old principles of the Golden Rule followed in every religion: “Do As you Would Be Done By”. Carney refers often to the first democratic principles of the Magna Carta, enacted in England in 1215, and points out how many constitutions in countries, as well as in the USA are based on the Magna Carta and its Writ of Habeas Corpus, which affirms that people own their own bodies. In our Information Age, I have added that we also own our brains and all the information we produce, as a basis for reforming internet platforms on social media in my “Steering Social Media Toward Sanity” and the five necessary reforms beyond profiting from advertising and selling users’ information. Facebook CEO Mark Zuckerberg resists while their own ads call for government regulation. The flurry of recent criticisms of market excesses range from the Pandora Papers exposes of corruption of elites to the revelations of how Facebook and other social platform’s algorithms are programmed to maximize engagement and profits at the expense of polarizing politics, threatening democracies, and fostering hate crimes and insurrection. Both the USA and China target social media in different ways: the USA with anti-trust laws and China’s restricting use of videogames, commercialism, and time spent on screens.

Diving deeper, we encounter the politics of money-creation and credit allocation, which are explored in our TV Special “The Money Fix” free on-demand at www.ethicalmarkets.tv. Mark Carney, as former head of Canada’s central bank and the Bank of England, is truthful and explicit: governments create money out of thin air, through their legislatures, treasury departments, and central banks. The issue today is what they do with it and to whom they give it! Under current financial rules, markets’ underlying plumbing, and most tax policies, money flows back to the fabled 1%, to Wall Street, and inflates more asset bubbles in global financial markets. Carney shows how this leads to continual financial crises. “The Money Fix“ still airs on many US public broadcasting stations and globally to business schools, as it has over the past decade, and also looks at the responses by communities, which decide to clear their own markets by creating local currencies, such as the 25 year success of “Berkshares” in Massachusetts. Today’s tidal wave of cryptocurrencies show that trust does not scale, even on blockchains, as discussed in my “Money is Not Wealth: Cryptos v. Fiats “ and “Fixing The Money Meme”. China now blocks bitcoin and its mining. Thus, we are already far beyond ESG and its efforts today to squeeze social valuations into the price-system.

Both money and markets are humanity’s brilliant innovations, tools used for thousands of years, whether the money tokens were shells, wampum, or tally sticks. Likewise, humans’ markets have always existed, whether locally in barter or exchange, as well as across oceans and continents, as indigenous peoples traded with each other those things each relatively valued, as described by Karl Polanyi in “Ancient and Modern Economies“ (1968). We need to recognize when and where markets work well and when and where they create market failures, such as in climate change, healthcare, and globalized commodity-based food systems. Going beyond ESG, we can look for common ground between China’s vast social indicators research, which I discovered on my visits, along with the new “common prosperity“ policies. How do they compare with US and Western efforts to integrate broader accounting standards in metrics which recognize the 6 forms of capital: financial, intellectual, built, social, human, and natural, and measure the extent to which companies’ performance enhance or degrade all six capital forms?. Surely, this search for common ground on these self-inflicted human crises in this Age of the Anthropocene, should begin in earnest! © Hazel Henderson 2021

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*Hazel Henderson, D.Sc.Hon. FRSA, is author of The Politics of the Solar Age (1981,1988) and other books; CEO of Ethical Markets Media Certified B. Corporation (which takes no advertising or outside funds), publishers of the annual Green Transition Scoreboard® annual reports since 2009, and the globally-distributed TV series “Transforming Finance and the forthcoming e-textbook “Mapping the Global Green Transition”.