by Tom C.W. Lin

Tom C.W. Lin

Businesses and their executives are at the vanguard of some of the most important and contentious socio-political issues of our time such as the Russian invasion of Ukraine, voting rights, abortion, gun violence, racial justice, climate change, and gender equity. Through their policies, pronouncements, investments, and divestments, businesses and business leaders are directly engaging with many of these issues.  This emergence of corporate social activism has coincided with a growing interest in environmental, social, and governance (ESG) focused investments.  My new book, The Capitalist and the Activist, explores this complicated, emerging reality of contemporary corporate social activism and the opportunities and challenges it presents for executives, social activists, policymakers, investors, and compliance officers. 

Contemporary Corporate Social Activism

Throughout U.S. history, corporations have played a critical role in social activism. For instance, during the 1960s, many corporations openly supported the civil rights movement even in the face of serious and dangerous resistance. More recently, a new contemporary form of corporate social activism has emerged. This emergence can be traced to three large, interconnected developments in business, law, and society.

First, evolving expectations of corporations to focus beyond near-term shareholder wealth maximization has driven businesses to think more about stakeholders other than shareholders. 

Second, the convergence of the public and private spheres through the growing privatization of traditional public functions like prisons and policing, along with unprecedented public interventions in private businesses like government bailouts and mask mandates, have catalyzed private business engagement on public social issues. 

Third, the expansion of corporate political rights with Supreme Court decisions like Citizens United and Hobby Lobby that permitted less restrictive allocations of corporate funds for political campaigns have prompted the greater use of business resources to address social issues.

Furthermore, these developments have been amplified by social media and new financial technology.  Today, activists and citizens can readily organize, communicate, and fundraise to bring their concerns to powerful figures in business and government as never before.  Tens of millions of people can be reached, millions of dollars raised, and thousands gathered to heighten awareness or protest an issue in a matter of hours.

The Rise of ESG Investments

In connection with the emergence of contemporary corporate social activism is the rise of ESG investments.  Increasingly, more and more investors are seeking to make a social impact with their capital, seeking to invest in businesses that do well and do good.  J.P. Morgan reported that in 2021 alone, over $500 billion was invested in ESG-related funds, representing a 55% year-to-year increase. 

To be sure, this rise of ESG investment has not happened without controversy or resistance. For instance, in response to corporate social activism and a growing ESG focus by asset managers like BlackRock, Florida and Texas have barred their state pension funds from investing in certain ESG funds. 

Nevertheless, regardless of one’s position on the debate over the rise of ESG investments, less debatable is its sustained growth for the foreseeable future.  In earlier 2022, Deloitte estimated that by 2024, ESG-related assets would rise to nearly $80 trillion, or half of all professionally managed assets around the world. 

Opportunities and Challenges

The coupled ascent of contemporary corporate social activism and ESG investments present incredible opportunities and challenges for capitalist and social activists, for business, law, and society.  By working thoughtfully with businesses and investors, activists can gain wider reach, deeper impact, and improved operations for their causes. At the same time, by working with activists, businesses and investors can enhance their value, create new and better markets, and attract more investors and talent to their companies.

On the flip side, there are real risks and potential drawbacks to the rise of contemporary corporate social activism and ESG investments if engaged in thoughtlessly.  If leveraged callously, they could further politicize an already fragmented marketplace, marginalize important social issues, and corrode core democratic values. 

Compliance Considerations

Compliance officers can play a critical role in managing the opportunities and risks associated with the rising tides of corporate social activism and ESG investments.  In particular, compliance officers can help businesses and executives facilitate faithful adherence to the internal policies, state regulations, as well as federal and international rules related to ESG investments.

The risk of reputational harm and legal liability is real and substantial when businesses speak one way about their ESG efforts in attracting capital and consumers, and behave in contrary ways in practice and operation.  Consumers, investors, and the media are now particularly attuned to any perceived or actual hypocrisy from businesses and their executives.  

Additionally, state and federal regulators like the Securities and Exchange Commission have also grown more attentive in their scrutiny of promotions and practices in this space by businesses as interests grow in corporate social activism and ESG.

Looking Forward

In the end, the growth of contemporary corporate social activism and ESG investments is, in one sense, a story of how we can meet and master old, yet urgent, social challenges with new private market approaches.  It is one of the most consequential stories of business and society in recent history, and legal and compliance officers will play an important role in shaping this unfolding story.

Tom C.W. Lin is the Jack E. Feinberg Chair Professor of Law at Temple University’s Beasley School of Law and an Academic Fellow at George Washington University’s Center for Law, Economics & Finance. This article is adapted from his new book, The Capitalist and the Activist, available here. 

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