Whether preemptively embraced by enlightened business leaders — or pushed by customers, employees, regulators and investors — companies today have no choice but to balance maximizing near-term profits with broader, longer-term social and community goals.
In PGIM's recent proprietary survey of more than 300 C-suite executives across the U.S., Germany and China, 40% said they now focus on broader stakeholder objectives beyond short-term profit maximization. This is a far cry from the Milton Friedman orthodoxy of the 1990s and 2000s, which prioritized shareholder value above all else.
Perhaps nowhere is the purposeful mindset more visible than when it relates to environmental, social and governance issues. In the U.S., shareholder proposals related to ESG have more than doubled in the past two decades, and currently account for nearly 40% of all shareholder proposals submitted to Russell 3000 companies. Thirty years ago, only about 20 companies provided any ESG disclosures to their investors. Today, that number has ballooned to 9,000 globally.
Yet, incorporating "purposefulness" into the investment process is fraught with challenges and potential missteps and requires a dynamic approach that moves well beyond the formulaic, "check-the-box" ESG rating methodologies and indexes that are still quite prevalent. Investors interested in invested purpose need an active, nuanced approach to ESG that allows them to look through the obfuscation, window dressing and data shortcomings that remain rampant.