At the end of the last decade, Jamie Dimon presented a commitment from leading American companies to focus upon stakeholder capitalism. What is that and is it real?
It was October 2019 and, as Chair of the Business Roundtable, the leader of theworld’s most valuable bank, Jamie Dimon of JP Morgan Chase, gathered almost 200 signatures of the CEOs of America’s largest corporations stating that return to stakeholder is now as, if not more important, than return to shareholder. It was a ground-breaking moment, but difficult to deliver in reality. Too often, the pressure of return-on-equity, quarterly results, bonuses and dividends, are higher on our agendas than looking after our staff, customers and community. But that should not and does not need to be the case.
We live in aworldwhere technology is solving so many issues which begs the question: how can we use technology to solve stakeholder’s issues? Equally, we live in aworldwhere finance directs the future through its investments which then raises a second question: how can we use finance to direct a better future? In fact, most importantly, how can we use finance and technology together to build a better future for society and the planet?
This is a question that comes to the fore as we see so much activism against business and commerce from our stakeholders. Greta Thunberg, Extinction Rebellion, Occupy Wall Street and more are the consumer activists who attack our organisations ethics and morality. More importantly, activist investors and shareholders, such as Follow This, are saying that they are as mad as hell and not going to take this anymore. And it’s not just about a green agenda, but an agenda to drive companies to focus upon doing good for society and good for the planet.
At the heart of this mission is finance, as that represents the investment community, but financial firms have focused upon shareholder returns for the past decades. How can financial firms use technology to direct corporations to be more ethical and meet the demands of activist consumers and investors?
The answer is that most financial institutions have been overhauling their technology infrastructure for the last decade. They have reduced costs by using cloud computing, the self-serve mobile network and data analytics to automate service. The result is reduced branch footprint and moving towards truly digital operations. In other words, like most companies, transforming to be truly digital. That was the last decade. This decade the banks, working with technology firms, will focus upon how to use digital transformation to create a betterworld.
They know they need to do this for the reasons given – activist movements from customers and shareholders – but, more than this, finance is at the heart of the problems we face. Banks fund fossil-fuel firms and those firms are the ones damaging the planet the most. 71% of all greenhouse gas emissions are generated by just 100 firms[1], and banks have given those firms $4.6 trillion of funding since the Paris Accord[2].
People are saying this has to change, but it is not just people. It is also governments, corporations and investors. Interestingly, this movement is not new. It began in the last century, particularly with insurers and pensions fund managers, but now it is gaining traction and it raises an interesting question for the boardrooms of banks: how can we use technology to create a betterworldand deliver on our stakeholder’s values?
It is no longer about shareholder return; it is about stakeholder return. It is also not just about finance and banking, although this industry sits in the heart of such change. It is about all industries. How can all industries use technology to support a sustainable future?
The answer appears to be that we can link technologies. We can connect industries through the network. We can use that data to analyse how sustainable activities are, and create a better future for all. By way of example, there are banks and insurance groups using technology to make people healthier, to create sustainable farming and to provide financial inclusion for all.
Discovery Group, a South African based financial firm, are using digitalisation to create health through wealth. They offer insurances for health that discount premiums if you go to the gym. How do they do this? By offering you a Fitbit wrist strap linked to their operations and, if it sees you doing the workouts, lowers your health premiums accordingly.
We have companies like Rabobank in the Netherlands that started as an agricultural bank and now focused upon connecting farming to finance. Their insurance and banking services link to farmers’ fields through technology to monitor the acidity of the ground, the weather patterns, the growth forecast and crop yield in real-time. This impacts premiums and loans in real-time. Connecting technology to the ground for financial support is an interesting movement.
Monzo, one of the UK’s biggest challenger banks, started out with a mission to offer finance for everyone. Millions of people are excluded from financial services, particularly those with mental health issues or who are homeless. How do you bank a homeless person? By having their character guaranteed by someone who has a home. The result of these changes is that people who have historically been off-the-grid are now back on again.
There are so many ways in which start-up firms and financial institutions are focused upon how to use technology and finance to improve theworld. This is why I produced the bookdigital for good,to highlight what is happening.
The book was inspired by stakeholder capitalism as an agenda, and specifically the goals of Alibaba in China – a company I spent a lot of time with in the 2010s. Their goal?Alibaba’s ultimate goal is to create value for society and help find solutions for society’s challenges.[3]
What better goal could you have?
You may think that this is just a marketing statement, but it cuts to the core of the company’s thinking. It is illustrated well by Ant Forest. Ant Forest is the largest multiplayer online games (MMOs) in theworld, with 600 million people. It began as an idea from one member of the company in 2015, who thoughtwhat if we could use finance to change people’s behaviours and to be greener?
From there it developed into a way in which over 600 million people have planted more than 326 million trees via Alipay Ant Forest in just the last five years. How it works is that it monitors what you are spending. The more you spend on sustainable activities – like walking or cycling to work, buying non-plastic products, recycling your waste and so on – the more points you get. And what do points make? Trees!
It’s a great program with great results and, if you haven’t checked it out, you should.
There are many other examples out there of financial firms leveraging technology to influence corporate and consumer behaviours to align with ESG (Environmental, Social and Governance) principles but, more importantly, to meet their activist consumer and corporate needs to see banks behaving responsibly.
The good news in all of this is that banks, who some accused of losing their moral compass in the 2000’s, can get their mojo back and become socially useful. The fact that technology can assist in that process and that the two working together – finance and technology – to make theworlda better place is a realistic goal is fantastic. It makes me think we can have a better future. We just need to just do it.
[1] https://www.cdp.net/en/articles/media/new-report-shows-just-100-companies-are-source-of-over-70-of-emissions
[2] https://reclaimfinance.org/site/en/2022/03/30/new-report-worlds-biggest-banks-continued-to-pour-billions-into-fossil-fuel-expansion-in-2021/
[3] https://www.alibabagroup.com/en/about/overview
Written by Chris Skinner.
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