altruistleague's blog

The voices of CEOs are becoming more and more loud, expressing their views on pressing problems our society is facing. We are getting used to seeing Tweets and interviews of big-name businesspeople and corporate statements about racial and gender inequality, gun control, gay rights, etc. The most recent example was the joint statement of hundreds of private companies and executives opposing a new election law in the U.S. state of Georgia that restricts voting rights. As acute as the problem is, should business be the leading force in shaping public opinion and political reform?

As statistics show, the vast majority of people would answer positively to this question. According to the 2021 Edelman Trust Barometer data, 86 per cent of respondents agree to that CEOs must lead on societal issues. This unanimity is explained by historically low levels of trust in the state. On top of that, the positive economic results, achieved despite the blow of the pandemic, suggest that business leaders might be able to propose better approaches to pending problems and manage well their achievement. The European study echoes: 77.5 per cent of the surveyed believe that managing directors should be present in the political arena. Asia is also slowly picking up the trend with close to half of respondents’ view on CEOs’ responsibility to speak up politically.

The pressure to be vocal comes also from stakeholders. Companies are increasingly expected to adapt corporate political activism by expressing their positions on issues that resonate strongly and potentially divide society into advocates and opponents. That is what exactly happened on the wave of Black Lives Matter and #MeToo movements. CEOs rushed reports on what had been changed in a corporate policy to prevent racial discrimination, sexual abuse, and sexual harassment.

We should not underestimate peer pressure that CEOs are facing. Those who refuse to join the expression of a common position, for whatever reason, may be publicly condemned. For example, Delta and Coca-Cola had to explain why they hadn’t signed a letter opposing strict voting limits in Georgia.

Of course, some CEOs take a public stance out of deep personal convictions. I liked reading the letter by the JPMorgan Chase chairman and CEO on the U.S. governmental decay and the needed increase of corporate taxes, among many other weighty concerns. Or, take Walmart CEO Doug McMillan, for example. Following deadly shootings in America, he revoked sales of ammunition in the retail giant shops and insisted on stricter gun control measures. It is encouraging to observe that the critical mass of people who disagree with the distortions in the social, political, and environmental spheres is steadily increasing.

However, we must ask ourselves whether corporate social activism is appropriate. Doesn’t this phenomenon undermine the fundamental principles of democracy?

To begin, the active participation of the business in political life contradicts the very principle of the separation of powers. The more influence the private capital has on setting and implementing the public agenda, the greater the risk of slipping into oligarchy and authoritarianism. If private companies gain political influence, the likelihood is high that this privileged position will later be used for its own purposes. This is the natural law of exploiting commercial opportunity. Can we expect the corporate world to bite the hand that feeds it? It is difficult to imagine that it will voluntarily submit to public interests, for example, by initiating the increase of corporate taxes or by self-imposing greater fines for violations of transparency and honesty of their value chains.

Everyone will be better off if the business sticks to its core principle, which is well summarized by the renowned economist Milton Friedman: “The social responsibility of business is to increase its profits.” He adds that “a company has no social responsibility to the public or society; its only responsibility is to its shareholders.” It doesn’t suggest that “responsibility” has only a monetary meaning. Friedman admits that the “owners of the business” might have other objectives apart from gaining profit. Yet, stakeholders’ aspirations of added social value should be channelled in a different manner, away from mingling with the power. If corporations focus on maximizing their profits, it can greatly contribute to the realisation of important state programs through the means of an increased tax base. Of course, this will only work if there is an absolute transparency in company finances and existing corporate tax holes are closed.

If it doesn’t sound like enough of a reason, don’t forget that corporations have a very powerful tool to be socially involved – corporate social responsibility (CSR). If the private business takes CSR seriously, rather than as a useful promotional technique, the society can advance on many systemic issues. Truly working corporate politics of equal rights, regardless of employees’ gender, race, religious, or sexual affiliation, will ease the problem of discrimination. This way there would be no dissonance between the business elite’s ardent assurances of support for racial equality movements and its corporations’ workforce containing only 1-2% black employees.

There are other honourable corporate social responsibility activities in which companies can engage to improve their public images and, more importantly, to do their part in resolving pressing problems. Joining the fight against the climate change, the business can and should develop sound environmental policies, notably reducing its carbon footprints. The list of those who have committed to do so keeps growing. GE and Johnson and Johnson are among those investing in cleaner power technologies. The Walt Disney Company and Lego are strong advocates for zero-waste and water preservation. By engaging in fair trade, companies address the inexcusable existence of slavery and extreme poverty. On top of that, we cannot overestimate corporate charitable giving that aims to improve education, health, and infrastructure.

Yet, the most powerful weapon that the business world can pick up is to support activist movements. They are there to raise the voice on behalf of all concerned people. They don’t have any hidden commercial agenda and use transparent democratic influence mechanisms. By these means, activist groups enjoy a strong public support and the greater attention on the part of politicians. Thereby transferring the responsibility of civic expression to social movements, everyone is doing what he/she does best: CEOs are increasing economic prosperity, while activist groups are fighting for the fair sharing of economic results and protecting civil rights and freedoms.

Systemic change is a buzzword by now. That might not be a bad thing, but we must keep in mind what the concept means in practice and how philanthropists can influence it. Let's look at how to create systemic change on one extremely important example: the battle to avert climate disaster.

All change is now “systemic”?

I went to a meeting of the local philanthropic community a few months ago. It was one of those lulls between two ferocious waves of COVID-19 and I was really eager to meet real people face to face, even if in my experience those community gatherings sometimes end up being slow-going discussions around platitudes.

I must have heard the words “systemic change” uttered several hundred times over the course of the one-day event. It was the panacea, the new magical chant that would solve everything, just like CSR or impact investing or ESG would solve problems in their respective fields. And, I thought, all the better! I am also a believed in the concept!

But I still left with an uneasy feeling. Many of the foundation heads whom I had met and who had spoken were planning no actual changes to their portfolios. Many, with honorable exceptions, seemed happy to take the “systemic change” label and simply tape it over their existing, colonial-style pet projects with questionable measurement metrics and no change theory to speak of.

But one real shift was undeniable: organizations were now firmly focused on climate action. It is, after all, a massive political trend in Switzerland (and not only here, of course). So, naturally, everyone across the board was planning “systemic change” to fix climate change.

Alright then, let’s look at what investing philanthropic money for real, systemic change in the climate area would actually look like.

The value chain of systemic change

The value chain of systemic change is notoriously complex. Changing the world is a matter of many butterfly effect-style micro-changes in the society. The actors that influence the process are many, heterogeneous, and often with conflicting interests.

To begin with, having fundamental research and science inform our action is obviously essential. Government policy, at both national and international level, has the power to make societies change their habits, cut emissions and spur the energy transition; it is also very difficult to agree and enact. The awareness-raising role of independent media is crucial, as is, conversely, the destructive potential of misinformation and conspiracy theories. Social movements and civil society organizations have a dual purpose – changing minds on the ground and exerting political pressure from below to speed up political action. 

All these components are extremely important. It doesn’t mean that the average charitable foundation should be targeting all of them. Doing so is often very complex and requires the kinds of resources that only the most well-endowed foundations have. But awareness of how the value-chain works is important for understanding how one’s investment works alongside those of other donors towards the same goal – averting climate disaster.

Action: decide which components of systemic change you want to focus on, and in which geographic region.

Fundamental science, research, mitigation

 

Over the course of the 1980s and 1990s, philanthropic foundations helped turn global warming into a legitimate political and social problem in the USA and beyond, as well as forge an international climate governance regime centred on new international institutions and processes (e.g. the IPCC and the UNFCCC) and “global civil society” on climate change.

These efforts built on earlier philanthropic work begun in the 1970s and centered on supporting scientific research on climate in the USA and overseas. The Rockefeller Foundation, in particular, funded work on climate science. Noteworthy grantees included the University of East Anglia’s Climatic Research Unit and the National Center for Atmospheric Research in Boulder, Colorado. 

Today, climate research and mitigation are ever more firmly on the average foundation’s agenda, but the overall spending is still surprisingly limited. Philanthropic funding that goes into climate change mitigation is, according to some estimates, around 1 percent of total global giving. Granted, the margin of error on such measurements is significant, but it still stands that philanthropy’s investment in actively solving the defining issue of our age remains minuscule.

Action: commit to dedicating a part of your portfolio to fundamental climate research. Make sure your funding adheres to scientifically defined priorities. For example, initiatives that promote natural gas as an alternative are short-sighted, as we have written before, since they can’t lead to net zero emissions.

Market-based approaches

Of all the systemic problems – threats to democracy, economic opportunity, racial and gender injustice – climate is the one that arguably lends itself the best to market-based solutions, most notably impact investing. Yet philanthropists are still slow to understand the trend and respond to it.

The most direct problem posed by trying to marry market-based approaches and philanthropy is the incongruity of the two business models. Working on a for-profit activity all of a sudden requires a completely new understanding of risk, impact and measurement. Yet the likes of Ford Foundation have embraced the trend, and others major foundations are following apace.

Market-based approaches can work on a local level – for example enabling small entrepreneurs to set up solar farms and helping them sell electricity to the grid – or they can be system-level. The latter include mainly carbon tax and cap-and-trade policies. Both have their fair share of complexity. At the local level, impact investing is open to criticism for perpetuating the exploitative relationship between the wealthy and the poor, preserving the power dynamic. Policy-level solutions are more difficult to put in place for political reasons, and can misfire; the role for philanthropy in setting them up is often less clear.

Action: determine whether you can commit to exploring market-based solutions. This will require a separate portfolio (e.g. venture capital fund) and people with different skills. It is a major change for the organization.

 

Government process and policy

Speaking of policy: philanthropy as a sector, with a few exceptions, still has a very rudimentary understanding of how to influence government and legislation strategically. The relationship with the government is often fraught, for different reason. On the one hand, the community often laments that the government doesn’t understand or support it as much as it should. On the other, billionaire philanthropy sometimes ignores and overrides government initiatives as it throws its weight around.

Philanthropists often exert more political influence through their personal connections than they do through actual investing. Corporate philanthropy can be an exception, but rarely a positive one – it is more often a conservative than a progressive force. Examples of corporations fighting climate legislation or stalling it is abundant, and disheartening. 

Philanthropy needs to understand that influencing government positively can be done.  Organizations like the Good Lobby have shown that lobbying, i.e. access to the highest level of policy makers in the European Union, can be available to ordinary civil society organizations with a bit of training and knowledge of the laws. Organizations which educate and train activists on progressive lobbying, as well as organizing, recruiting and scaling, need more direct support from funders.

Action: decide to invest in positive climate action lobbying groups. Have a plan for how foundation leadership will influence climate policy informally, through their contacts and networks.

Grassroots action: a twofold benefit

The broadest political pressure can only be achieved by investing in a wide range of social movements which aim at educating the population on the ground and pushing for political action from below. The Rockefeller Foundation is a good example again, with its early investment into the Sunrise movement, but other similar cases abound. This type of investing is the backbone of the Altruist League’s methodology, and all our members engage in it directly.

Studies prove over and over again that the mind is the most readily changed through access to overwhelming data coupled with positive conversations with real human beings who hold the opposite view. This is why social movements, operating with and within the community, are exceptionally good at changing minds. We catalog more than 10,000 movements specifically focused on climate change action around the world.

Action: Create a portfolio of climate action grassroots organizations in the area you cover. Educate yourself and your staff on how they operate and the benefits they bring, in terms of changing minds and influencing the political process.

Independent media

Raising awareness can’t be done well without using the most powerful tool for influencing minds – the media. Here, the likes of Open Society Foundation have been investing for decades, and have consequently become the bane of totalitarian regimes the world over. The Ford Foundation has been a stalwart of such support, and so have other foundations around the world. Of all the areas of social change, investment in independent media is perhaps the most mainstream and the best understood.

However, more recently, with the market-based solution trend, we have seen efforts to support media through impact investing principles. This might have success from time to time but should not be mistaken for a full-scale solution. Truly independent media action, especially in non-democratic places, can rarely be a for-profit activity.

Action: Invest in local independent media. Be wary of market-based approaches in this regard.

A systemic portfolio for climate action: not so hard?

 

In the end, the procedure is simpler than it looks. Make sure you know your fundamental science first. Focus on one region. Use a service like the League to find the most promising social movements and independent media on the ground, as well as to measure the results of your work. Fund network nodes that train NGOs and help them lobby. Educate your leadership to push for policy through their informal networks. Use market-based approaches if you have the know-how. If there’s any money left over then go ahead and support basic climate research. There’s systemic change for you.