The Sydney Morning Herald

Oil & Gas 360 Publishers Note: ESG is one of the most single important business issue around the globe, inclusive for all markets. I wrote an article last week, “Contrary to the news or public opinion, fossil fuels are not going away. Natural Gas is the bridge to climate change nirvana ”  in which the  conclusion covers the climate change and oil companies –  “Natural Gas is the flagship of most energy companies plans to phase out their carbon footprint. Definition, articulation, and implementation of an ESG program is the critical response from the surviving oil and gas companies. Anne Richards, Chief Executive, Fidelity International has it dead on right. 

The past year has been pivotal for sustainable investing – one in which its role in shaping our economic and financial futures became more urgent.

The COVID-19 pandemic and lockdowns of entire economies around the world have sharpened the focus on companies’ societal responsibilities: to their employees, their customers and to suppliers. This is no brief moment in the spotlight but a serious reappraisal of our capitalist system, how companies are run and for what purpose.

Fidelity International cheif executive Anne Richards - oilandgas360

Fidelity International chief executive Anne Richards says running companies solely for the benefit of equity owners is no longer an option.

Capitalism has proved resilient for two reasons. First, a structured system of exchange is a natural, human way for us to value resources and get them to where they are wanted and needed. The marketplace has been central to all civilisations. Second, it is a flexible system that adapts to changes in society and the world. It has been through many different stages of evolution.

It appears that capitalism is about to go through another of those periodic re-inventions.

One aspect of its current incarnation was largely shaped in the 1970s by economist Milton Friedman’s shareholder doctrine, which held that a company should be run in the interests only of its shareholders. However, over the past half century, the world has changed.

Chief executives of many of the largest companies, some of which appear almost to rival governments in their reach and influence, have said that running them solely for the benefit of equity owners is no longer an option.

For a start, it risks alienating non-shareholders – including customers and employees on whom every business depends – if the long-term impact of a business on the community and environment in which it operates is negative. For example, more than half of young people in a recent Harvard University survey said the current system of political economy is failing them.

This doesn’t mean that shareholders’ interests are not important – they matter and will continue to do so. But they are not the only interests that matter.

As capitalism develops, so will the way we invest.

Any system that does not adapt to the times runs the risk of looking to the past for opportunities rather than the future.

Several characteristics of this new approach to investing are relevant to asset managers such as Fidelity, which focuses on engaging with company managements and assessing their ability to create a business model that is built to last.

Companies also need to be integrated into the transforming world around them, rather than be overcome by unpredictable social and environmental changes. In the long term, what is good for stakeholders is good for shareholders, too.

Today, we call it sustainable capitalism. You might even see it referred to as stakeholder capitalism, ethical capitalism or ESG.

However, at some point in the near future, it will simply be called capitalism.

Anne Richards is chief executive of Fidelity International.

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