It’s easy to see that woke-washing vs actual impact and where that line is drawn (especially if a company is bettering society in some ways and negatively impacting it in others) is a tricky-at-best subject, and ESG metrics are similar to the SAT in that they provide some important information but not the whole story.
As has become more and more evident in 2020, Wall Street and Main Street are not two separate entities, and investors want to put their money where their mouth (and heart) is. However, while it’s easy to find organizations that will donate a widely publicized lump sum to charity and call it a day, it’s harder to find businesses willing to do the hard work of implementing real, meaningful, institutional change in society at large and internally within their organization. Woke-washing, like its cousins greenwashing or pinkwashing, is a way that companies make their organization seem more “woke” or inclusive (especially in the context of racial diversity and racism) than they really are; a type of elaborate falsehood meant to take advantage of investors’ and consumers’ desire to “vote with their dollar” and practice harm reduction through their investments and purchases respectively.
We’ve explored ESG (environmental, social and corporate governance) and impact investing before and noted that ESG fund data is largely sourced from third parties and is notoriously unreliable. [1][2] Woke-washing is part of a larger movement of intentionally misleading advertising at a time where market trust is already low, and these factors make it harder to discern truth from falsehood. “It’s polluting purpose. It’s putting in peril the very thing which offers us the opportunity to help tackle many of the world’s issues. What’s more, it threatens to further destroy trust in our industry, when it’s already in short supply. There are too many examples of brands undermining purposeful marketing by launching campaigns which aren’t backing up what their brand says with what their brand does,” said Unilever CEO Alan Jope on woke-washing last year.[3] However, despite indicators that the company is moving towards more environmentally-friendly and humane business practices, it’s also important to note that Unilever, too, has historically come under fire for their negative environmental impact as one of the world’s largest plastic polluters as recently as last year (and this year too), and Amnesty International in 2016 spoke out against their palm oil harvesting practices and associated labor rights abuses.[4] [5]
As this exemplifies, it’s easy to see that woke-washing vs actual impact and where that line is drawn (especially if a company is improving in some ways and having negative effects in others) is a tricky-at-best subject, and ESG metrics are similar to the SAT in that they provide some important information but not the whole story. Just like how basing college entry on SAT scores alone without looking at grades, extracurriculars, or other factors would mischaracterize a student’s abilities by missing wider context, so too does ESG criteria only show certain (but not all) aspects of a company’s impact. For example, a company’s environmental impact could be low, but at the same time have a pattern of failing to promote or compensate employees of color at the same rate as their white peers.
Helping employees find the information they need when they’re considering or reconsidering their investment mix or rebalancing can be similarly difficult because there’s no clear line in the sand between what counts as equitable, fair, and ethical business practices, and what doesn’t. While each employee will have their own criteria against which they judge the companies in their portfolio, there are still common indicators to which employees should pay attention in order to better understand a company’s intent. So how can plan sponsors help employees get the information they need to make these important decisions, and what do they need?
As always, turning to experts is a wise decision. In their playbook for change, Erin Dowel, JD and Marlette Jackson, PhD, suggest that companies can plan for real change by doing the following: “1) prioritizing and assessing corporate accountability, 2) committing to corporate structural evolution, and 3) realigning the power dynamic between the organization and its employees, providing employees more agency to drive company culture.”[6] Their full plan provides a detailed blueprint for those who may be struggling to define what concrete steps they want the companies they’re invested in to take. Providing resources such as this, written by professional diversity and inclusion specialists who are also people of color and who therefore have both academic and experiential knowledge on performative “wokeness” vs. behaviors and organizational measures that enact true change, can help employees understand what type of information they need, and what corporate behaviors get a green vs. a red light. Some of this information can be found with a quick Google search or in shareholder reports, and now that SEC Rule 30e-3 allows reports to be electronically delivered to shareholders, this veritable wealth of information provides a large data sample from which employees may glean insight into a company’s practices. However, such a surfeit of data can also be frankly overwhelming, so plan sponsors helping employees understand what to look for can assist their effort to sift through this data more meaningfully.[7]
[1] https://www.bcgbenefits.com/blog/esg-and-blm
[2] https://www.bcgbenefits.com/blog/impact-investing
[4] https://www.unilever.com/sustainable-living/our-strategy/awards-and-recognition/
[6] https://hbr.org/2020/07/woke-washing-your-company-wont-cut-it
[7] https://www.bcgbenefits.com/blog/sec-rule-30e-3
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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