‘Woke capitalism’ is simply capitalism — and it’s good for business

The backlash against so-called “woke capitalism” is fundamentally anti-capitalist. Companies that prioritize positive environmental and social impacts in addition to profit are responding rationally to the market and to a business case that’s been proven over decades. It’s hypocritical and short-sighted for political leaders to coerce the market to align with their interests, rather than what’s good for people, our economy and our planet.

In his annual “Letter to CEOs”, even BlackRock chairman and CEO Larry Fink wrote that stakeholder capitalism “is not about politics. It is not a social or ideological agenda. It is not ‘woke.’ It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper.”

Stakeholder, sustainable, conscious, “woke” — whatever you choose to call it, this is the free market in action — aligning and adapting to efficiently create value in changing market conditions. Businesses constantly analyze market data and trends to inform decisions about what products to offer, which customer segments to serve, and how to stay competitive. Profit is important, but it’s not the only data point for smart business leaders. Maximizing revenue (by adapting to the values-based preferences of customers) and minimizing costs, waste, and risks are key for investors. Insulating companies from risks — whether systemic, reputational or financial— and competing for labor and finite resources are also part of this complex calculation. Market participants are increasingly recognizing the value of acting in alignment with a broader set of stakeholders. Market transparency and access to information has increased as has the consequences of misalignment.

Politicians may disagree with the results of these analyses. But they should not deploy the power of the government to stifle competition that benefits employees, customers, suppliers and communities, as some are attempting. In fact, they too have a duty to align their agencies to protect people, our collective natural resources, and the market.

Instead, critics should ask themselves: Why have more and more businesses integrated environmental, social, and governance (ESG) criteria into their models over the last decades? The answer is that they are simply aligning their resources with their stakeholders’ interests — which is efficient, profitable, and both economically and environmentally beneficial.

The fact is that triple bottom line models have been proven successful in a meta-analysis of more than 2,000 studies. Nearly two-thirds of these studies showed a positive correlation between ESG and financial performance, while less than 10 percent showed a negative correlation. The hypothesis: these firms are innovating, adapting to the market, and competing for resources and talent. 

What’s more, many consumers prefer businesses that demonstrate impact or align with their values. A recent PricewaterhouseCoopers customer loyalty survey found that younger consumers (Gen X, millennials, and Gen Z) are more likely to intentionally support like-minded brands. These generations collectively account for 62% of the U.S. population — a huge consumer market that will only increase spending as they age and build wealth. Businesses must be able to compete freely for this market share, including by demonstrating social and environmental impact that attracts customers. 

The banking industry offers a good case study on why the anti-ESG backlash is actually anti-capitalism. Like any other business, banks are free to make operational decisions based on expertise, risk, and reputation, as long as those decisions don’t contradict existing anti-discrimination and consumer protection laws. But lawmakers in Texas are now requiring banks to certify that they don’t restrict lending to firearms and weapons manufacturers before they can do lucrative business with the state. West Virginia has done the same with banks that restrict lending to coal and other fossil fuels.

Requiring all banks to lend to all industries — no matter their model, expertise, or customer base — doesn’t make business sense. Corporate lending is complex and nuanced. A bank that specializes in residential lending can’t apply that same expertise to financing tar sands refinement. These are unique industries with varying revenue, asset volatility, and risk models. If a bank doesn’t build the necessary expertise in its specific lending verticals, it exposes depositors to risk. 

While this current backlash is playing out state-by-state in an inefficient patchwork, federal action is not out of the question. Under the Trump administration, the Office of the Comptroller of the Currency proposed a supposed “Fair Access” rule that would have prevented big banks ($100+ billion in assets) from refusing to lend to controversial sectors. The rule was rescinded when the Biden administration took over, but some Republican lawmakers are still trying to codify it via legislation. This sweeping interference in financial markets would be disastrous for the sector and our economy.

Of course, this is not to say that ESG or stakeholder capitalism are perfect concepts. Critics are right to say that definitions and disclosures are inconsistent, and that a lack of transparency enables greenwashing. But the solution to that is to improve standards, regulations and reporting, not toss it all out. We’re pleased to see a group of lawmakers form a caucus advocating for sustainable investing. This is the kind of movement we need. 

Burying your head in the sand is not a viable approach in a market with finite natural and human resources, changing consumer demands, and increasing climate risk. Companies that prioritize social and environmental impacts while still generating returns for their shareholders are a model that we should applaud and replicate, not villainize. They represent capitalism as it’s meant to be: productive, responsive, innovative, forward-looking, and free.

Randell Leach is the CEO of Beneficial State Bank, a state-chartered, federally insured and for-profit bank whose economic rights are majority-owned by the U.S. Treasury and nonprofit Beneficial State Foundation, both of which are permanently governed in the public interest. Beneficial State Bank is one of the world’s top Certified B Corporations.