The latest report by the International Panel on Climate Change (IPCC) estimates that hundreds of billions of dollars will be required for climate mitigation and adaptation investments per year to avoid catastrophic global warming. Yet, some of our financial practices are not only slow to adapt to this requirement, but actually represent an obstacle in achieving the goal.
Category: Duties (Page 1 of 8)
In this post, Areti Theofilopoulou (Institute of Philosophy of the Czech Academy of Sciences) discusses her recent article in Journal of Applied Philosophy on the range of wrongs that can occur in problematic parent-child relationships.
We know that our upbringing massively affects the way that our lives go. This is partly because, in our unequal societies, the socioeconomic status of our family determines the education and connections we have access to. But our upbringing would still affect the rest of our lives even in fairer societies, because the ways our parents treat us determine our future mental health and the kinds of people we become. Often, the upbringing people receive leads to the development of mental illness or personality traits that disadvantage them in all spheres of life (such as their career and relationships), and that is undeniably unfair. In my recent paper, I argue that states should intervene heavily in the family via mandatory parenting lessons and therapy to prevent these harms and disadvantages.
Each year when fall comes, I teach finance ethics to bright new postgraduate students in finance. After introducing ethical investing – i.e. the practice of integrating ethical criteria such as environmental, social, and governance performance (ESG) in investment decisions – I ask them a question: “Who believes that ESG investing generates higher financial returns?”
This year, about half of them raised their hand. This is unsurprising, given how widespread this belief is in business. The Davos Manifesto (2020) now claims that business “performance must be measured not only on the returns to shareholders, but also on how it achieves its environmental, social and good governance objectives”. To convince investors and businesses, advocates often claim that integrating ESG criteria in investment or business decisions can reduce (long-term) risks and generate higher returns. Slightly caricaturing, a vegan restaurant chain in Canada faces lower regulatory, reputational, and environmental risks than a corrupt and polluting mining company in a politically unstable country (see examples here).
Case in point, Laurence Fink, CEO of BlackRock (a $6 trillion investment firm), sends an annual letter to the C.E.O.s of companies it invests in asking them to serve a social purpose because for him, “profits and purpose are inextricably linked” (2019). McKinsey Quarterly also published an article outlining “five ways that ESG creates value” (2019). Market actors seem to have noticed, because S&P500 companies increasingly mention ESG in quarterly earning calls and the worldwide ESG assets under management have grown to $2.72 trillion in 2021.
No empirical evidence
The first problem is that there is no solid empirical evidence demonstrating a systematic link between ethical behavior and higher profits, as long-time critics underline (Vogel 2006). Most recently, The Economist offered a damning account: “ESG has become a gravy train for the investment industry… In marketing, they claim that ESG funds outperform mainstream ones, even if this does not stand up… empirically.” Indeed, if ethical businesses were more profitable, ESG-focused investment funds would be expected to consistently outperform standard funds ignoring ESG, but this has not been the case empirically (Vogel 2006, The Economist 2022).
Take a recent study by McKinsey (2018) claiming to demonstrate that “gender and ethnic diversity are clearly correlated with profitability”. In fact, the study merely shows that companies in the top quartile for gender or ethnic diversity on their executive teams are 15-35% more likely to outperform the national industry median in profitability than companies in the fourth quartile. But there are a few problems with this result.
Assuming agreement on the method to measure diversity (vague, inconsistent, or self-serving measurement of ESG performance plagues the industry), the results do not demonstrate that diversity causes financial performance. Instead, businesses that are already financially healthy may simply have more spare money to monitor and invest in ESG objectives such as improving diversity. As the study itself admits: “correlation does not demonstrate causality”.
Moreover, McKinsey’s study does not show that diverse firms are more performant than non-diverse ones, it shows that they are more likely to outperform the national industry median. This result is compatible with a world in which some businesses in the bottom diversity quartile outperform the industry median while some diverse businesses underperform. More generally, despite anecdotal, company-specific examples where ethical strategies have delivered financial returns, ESG objectives can fail to pay off and bad practices can still deliver high profits (Vogel 2006).
Missing the ethical point
Even if one concedes that ethical behavior is not systematically linked to higher profitability, but merely claims that they do not always conflict, this is missing the ethical point. Business leaders and investors should care about environmental protection, diversity, or fraud prevention because it’s the right thing to do, not because it is good for business.
One issue if businesses only valued ESG objectives strategically is that market incentives are structured to encourage these objectives only up to the point necessary to reach strategic goals, not further. They would stop investing in environmental protection, social responsibility, and good governance as soon as it stops being profitable, which would lead to watered-down ambitions (The Economist 2022).
This means that there is always a point where ESG objectives and profitability are in conflict. Sweeping such conflicts under the rug by focusing on cases where they align omits the hard but important question that business leaders and investors must ask themselves: are there cases where they must sacrifice profitability to respect their ethical obligations?
A convenient belief
Conflicts between our own values are uncomfortable. They impose difficult trade-offs that we, or the people around us, may find controversial. When our personal gain conflicts with our social values, it can also reveal selfish tendencies in ourselves that we prefer to ignore. Observing discrepancies between the values we affirm and the actual choices we make can lead to cognitive dissonance. This is perhaps one reason why it is so tempting to believe that ethical behavior is also good for business: it would be so much easier if it was! We engage in motivated reasoning: we believe that ethics is good for business because we want to believe it.
Business ethicists may also be partly responsible for this belief’s popularity (Vogel 2006). In the urge to encourage best practices, it is tempting to take the path of least resistance: the easiest way to convince business leaders to pursue ESG objectives is to tell them it is profitable.
But the time has come to be honest. There are specific cases in which ESG objectives can be strategically useful but this is not always true and it provides a poor reason to adpot better business practices. While market competition can be beneficial (it lowers prices and drives innovation), it often limits businesses’ capacity to pursue ESG objectives. This is why business incentives are insufficient to motivate best practices and why David Vogel concludes that “governments remain essential to improving corporate behavior” (Vogel 2006).
The nineteenth century British philosopher, W. K. Clifford, is one of a small handful of individuals who titled an essay so effectively that it became the name of an entire philosophical literature: the ethics of belief.
It has been (correctly) observed that “Clifford’s essay is chiefly remembered for two things: a story and a principle.”
The story is that of the negligent shipowner who, by wishful thinking, convinces himself that an unsafe ship is seaworthy, and who thereby sends his passengers to their death when the ship sinks.
The principle is that “It is wrong always, everywhere, and for anyone to believe anything on insufficient evidence.”
As a result, Clifford is often viewed one-dimensionally as an (unreasonable) evidentialist, most interested in defending a stringent epistemic position. I think this is unfortunate.
It is unfortunate because such a view of Clifford overlooks what are probably the most relevant aspects of his essay for a “misinformation age” like ours.
This is another post about childrearing and, like my previous ones, it is complaining about the status quo. This time I’m thinking about what we actively do to expose children to various ways of living and views about what makes for a good life (too little) and about how much we let parents screen such sources of influence out of children’s lives (too much.)
In the December of 2020, the UK seemed to breathe an, albeit small, sigh of relief as the first COVID-19 vaccinations were administered. After almost nine months of lockdowns, the vaccine roll-out was the first concrete sign that life might return to – at least something like – normality. Indeed, throughout 2020, the promise of a vaccine seemed to be the end to which lockdown pointed. Lockdown was tough but necessary to protect the lives of those most vulnerable to COVID-19, until they could be helped by a vaccine. Unsurprisingly, then, the vaccine roll-out started with the most vulnerable, with a primary focus on age. In this post, however, we explore a seemingly small alteration to the Government’s vaccine strategy which concerned and confused many. Using this policy, we explore the reasons we have to protect the vulnerable, the complexity of ethical discourse around the distribution of vaccines, and the need for transparent, open debate.
Humans like watching nonhuman animals. We watch them in parks, in zoos, on farms, in sanctuaries, in pet shops, in our gardens, on the streets, in our homes, on tv, and so on. Lately, we have developed increasingly innovative and ingenious ways of watching animals: ways of accessing their intimate lives without them knowing. Take, as an example, the BBC documentary “Spy in the Wild” in which “animatronic spy creatures infiltrate the animal world to explore their complex emotions”. (If you haven’t seen it, here’s a clip.) Or consider the proliferation of wildlife cams, zoo cams, and pet cams that are placed discretely in animals’ homes and give us unlimited access to their daily lives. Last year, a wildlife fan installed a camera within a birdbox to watch a family of blue tits and the footage was viewed 41 million times within a month of being uploaded. In 2017, 1.2 million people tuned in to watch April the giraffe give birth at Animal Adventure Park.
In the TV detective series Bron/Broen, one of the main characters, Saga Norén, delivers the bad news to family members after a murder has been discovered. She does so by abruptly announcing the victim’s death, and starting a thorough interrogation without giving the family member any time to gather themselves. She gets impatient when they do not immediately answer, and does not hide her impatience.
Maybe you feel shocked or even angered by this lack of responsiveness. We tend to expect more concern in these types of situations. However, her behavior may (at least partly) be explained by a difficulty to pick up on, and respond to the emotions of others.
These difficulties are commonly described as empathy deficits which should excuse a person from the general expectation to attend to the feelings of others. But, in a recent article I argue we should reconsider our assumptions about why and how these persons are excused.
John Kenneth Galbraith, in his classic The Affluent Society (1952) formulated a powerful argument he called the “dependence effect.” In a nutshell, the idea is that capitalist societies create wants in individuals in order to then satisfy them. Perhaps the central tool in this process is advertising. Galbraith suggested that the additional wants generated through advertising might not even lead to additional welfare. People’s level of preference satisfaction before being exposed to advertising can be just as high as after the exposure. Viewed from his angle, advertising is wasteful from a societal perspective, because the costs involved do not generate any tangible benefits. The reason firms engage in it is solely to secure more market share than their competitors.