AN ETHIC BY ANY OTHER NAME: Is it Really the End of the ‘Virtue Economy’?

I was taken aback the other week when I stumbled upon a piece in Bloomberg confidently declaring that the ‘Virtue Economy’ was over – and within that piece a link to another feature along the same lines. Oh dear, I thought – I knew that ESG was suffering a sort of retreat or even backlash, especially in the US, and that many were dropping the term entirely in favour of the older and less politicised word 'sustainability' – but I didn’t know it was quite this bad.

In fact, it transpires, both of those articles were written by the same person who was never a fan of ESG or SRI (Socially Responsible Investing) in the first place. Yet in fact in a third piece elsewhere by the same author, the same opinion was handled in a much more low-key fashion, admitting that the movement is too entrenched for a full retreat but suggesting that perhaps shifts will take place whereby the positive is emphasised rather than the negative avoided, e.g. promoting SRI stocks without actively penalising others. (Why do I not cite the author by name? Because I don’t want this piece to be perceived as directly addressing that writer’s view alone and their view and my view are equally valid.)

Of course it will be clear to you that I disagree with this position. I’m no expert but I don’t think things are anywhere near as bad as this, or at least not outside of the States where the issue has become toxically politicised. For a start, this entire ‘backlash’ is scarcely touching the EU, who remain steadfast with strong and bold regulation. Secondly, new Accreditations such as B-Corp are ever growing in popularity and old stalwarts within the real estate / built environment field such as BREEAM remain as desirable as ever. In addition, as I've written on LinkedIn, it gave me great hope to see at The Economist Impact’s recent sustainability conference so many Major Players still on board.

More specifically I believe that what we are witnessing is not the ‘death of a movement’ but a temporary blip due to very specific political and economic scenarios, to name but three: global Cost of Living crises, various ‘culture wars’, and the panicked last splutters of certain beleaguered industries as they look to the future with fear and struggle to grasp new opportunities. But I cannot imagine a wholescale global turning back on sustainability, ethics or indeed virtue. Why?

The Market Power of the 50%

It must be remembered that even in the States, where ESG is most under threat, around 50% of people (ordinary people – aka consumers, who hold market power in their purses) are pro-green, pro-good, pro-ethics and pro-virtue in their buying decisions. How can I say this with such certainty?

Actually, I can’t. But isn’t it obvious? In both the UK and US, votes are roughly split between two major parties – so-called ‘left’ and so-called ‘right’. And ‘the right’ right now are, in extremis at least, anti-ESG, anti-diversity, anti-green (certainly the most vocal and politicised are; there almost certainly exist silent centrist Republicans, whilst it is of course also possible to be ‘left’ and entirely uninterested in sustainability), whilst many on the left will likely take the opposite stance. So that’s around half the population who are for the ‘virtue economy’.

Nonetheless a vocal minority can have seriously outsized sway. For example, if pressure around Antitrust is really laid on thick, decent  and sustainable companies may well begin to ‘greenhush’ against their own will for fear of looking ideological or, even worse, being put out of business (in fact this is already happening). In addition, if institutional investors also feel pressurised in this way, and also become concerned about balancing a sustainable bent with fiduciary responsibility towards investors whose politics they can’t possibly know, these factors could certainly have a serious impact on SRI (again, this is already happening).

Yet even here it’s worth noting the very many Funds who are still actively promoting SRI. It’s also worth taking into account that new demographics into investing – for example younger generations and novice women investors - often have a stronger interest in ethical funds than the traditional investor. The carapace does not seem half as flimsy as such views of wholescale backslide seem to wish to make out.

Too, its naïve to think that the same 50% of the populace who are pro-ethics, pro-diversity and pro-‘green’, who actively seek eco-credentials on their homes, who will only buy organic or ethical food, or who choose not to purchase fossil fuel cars, say, are all going to slink away and purchase nonethical replacement services and products.

Politics doesn’t have all the power: the consumer can exert their own pressure. If anything the market may become even more split – perhaps with a smaller percentage of consumers seeking such goods but seeking them more fervently and the remainder (including those who were always less committed) stepping back.

Luxury Ethics, Ethical Luxury?

Nonetheless, there is a certain truth to the fact that, as I pointed out in my recent Think Tank piece on economists’ views on Net Zero in The STOCKtake, for many of us, ethics are a luxury.

This may sound cynical or shocking.

Yet I don’t mean that we’d throw out our most fundamental moral values if they became inconvenient. I do however mean that many ethical issues do go on the back burner when times are harder. Am I the only one who has ever temporarily downgraded from free range to ‘ordinary’ chicken in a downturn?! In addition many otherwise ethical people continue to have blind spots when status (or lifestyle) trumps ethics. For example and without wanting to personally criticise an entire demographic, hands up how many ethical people are not willing to forgo that gas-guzzling AGA?! You know who you are!

What this means is both that in hard times ‘ethical products’ become luxury goods – but also that the status of some other luxury goods can sometimes trump virtue.

Wasn’t it just a Trend? New Demographics, New Commitment

Another argument of course for the demise of the so-called 'Virtue Economy' is that it was nothing more than a trend, fad or fashion in the first place, and that its time is up. There is also some truth to this – but only for a portion of consumers.

Most who are on board with ESG, sustainability and other ethical credentials do so because they are genuinely alarmed about the situation in which we find ourselves. Nonetheless – and perhaps especially in the early days – there have certainly been times when it seemed ‘being ethical’ was a fashionable lifestyle choice. In fact it has reminded me of the Arts and Crafts movement of the late 19th century and shares some of the same criticisms: the difficulty for the Arts and Crafts movement was that it supposed to be ‘beauty and utility’ (perceived at the time as ethical) ‘for all’ and yet was far too expensive – because handcrafted - for ‘the masses’ to actually afford. It’s the same type of reasoning that underlies criticisms of sustainability-related regulations as ‘taxes on the working people’ – although of course it must be noted that preventing climate disaster is a far more threatening matter than producing ‘truthful’ chairs.

But what may once have seemed at times a pastiche of ‘The Good Life’ has now become imperative and when younger demographics demand change they do so with a vehemence and fear that was entirely lacking in Gen X ‘luxury lifestyle ethics’.

In addition it’s true that generational shifts can radically alter the worldview and that this tends to be cyclical over 4 generations, as well as tied into economic cycles of boom and bust – look at the radical difference between the 1960s ‘peace and love’ and the 1980s ‘greed is good’, a matter of only 2 decades. So are we really seeing a shift that will truly signal the end of the Virtue Economy?

For me, it's unlikely: not only is climate change not going to reverse itself like an economic cycle but I see few signs of a wholesale shift to a ‘badness is good’ mass mantra. For the time being, at least, I’d put my money on the Virtue Economy still being broadly in the ascendant.

There will be a need for ethical goods and services just so long as problems such as climate change and other social issues remain. We can rename 'ESG' (and other acronyms) a million times when politics declares them toxic terms - but an ethic by any other name still smells as sweet. True, in a crisis, people may backtrack on their ethical credentials somewhat out of financial fear. But it will be telling to see what choices consumers - and consumer investors - make in the next economic cycle: whatever they decide, companies will need to follow, not the other way round.