Social capital is a topic I have spent a lot of time with, both in my writing on this blog and website and in my own thinking. One pivotal moment for me was the SOCAP Conference in San Francisco, which is coming back in person this year (though I unfortunately will miss it). Since I first attended SOCAP in 2017, the world has changed: ESG (environmental, social, and corporate governance) investing has become a more prominent concept in the lexicon and a robust debate about the value of ESG investing is taking place at the highest levels.

For instance, Larry Fink, the CEO of BlackRock, has supported and promoted ESG funds. After the performance of ESG funds seemed to lag in the first quarter of 2022, Fink and BlackRock remained firmly in support of them. In BlackRock’s Q1 earnings call, Fink stated that “an energy transition isn’t a straight line,” affirming his outlook that ESG funds will pay off in the long term. Several Republican state Attorneys General vocally opposed BlackRock’s stance, especially when it came to energy investments and their pension funds. In an August 2022 letter to Fink, nineteen Attorneys General wrote that “BlackRock appears to use the hard-earned money of our states’ citizens to circumvent the best possible return on investment, as well as their vote.” BlackRock responded in a letter defending their “participation in these initiatives” as “entirely consistent with [their] fiduciary obligations.” 

Supposedly “depoliticized” anti-ESG Hedge Funds have also recently appeared. Anti-ESG investor Vivek Ramaswamy pulled Disney into the fray with a September letter asking the company to refrain from embracing “controversial political positions in deference to social activists.” The SEC has even waded into this discussion. In 2021, the SEC released a Risk Alert based on “observations of deficiencies and internal control weaknesses from examinations of investment advisers and funds regarding ESG investing.” The SEC also proposed additional disclosure requirements for ESG funds in September of 2022.

For me, the core issue is whether or not ESG investing can actually be done, and if so, how to so invest. Few would argue with the premise that making money and doing good in the world is a lofty and noble ambition. However, this simple platitude raises more questions than answers: Can you actually make money while doing good in our current capitalistic society? Do you have to sacrifice returns in order to meet your non-financial goals? Are your non-financial goals actually obtainable, and does the pursuit cause more harm than good?  

I think that Patagonia perfectly embodies the complexity inherent in this discussion. Patagonia is the poster child for Certified B Corporations (B Corps), a recognition of a company’s dedication and action towards social and environmental issues administered by the nonprofit organization B Lab. Yvon Chouinard expanded on his ideas about and support for B Corps in his memoir, Let My People Go Surfing:The Education of a Reluctant Businessman

According to B Lab, to be certified as a B Corp, a company must:

  1. Perform to high standards in social and environmental areas, receiving a minimum score of 80 on the B Corps risk review
  2. Demonstrate accountability by (re)structuring corporate governance so that they’re accountable not just to their shareholders but to all stakeholders
  3. Permit public disclosure of how well their company meets B Corp standards through publication on B Lab’s website, thereby maintaining a high degree of transparency

According to B Lab, Patagonia well exceeds their standards. Patagonia’s total B Impact score is 151.4; in order to qualify for certification, a company only has to achieve a score of 80. In 2022, B Lab awarded Patagonia their “Best for the World” distinction for Community and for Environment. “Best of the World” distinctions are awarded to companies receiving the highest scores in B Lab’s impact areas. In the past, B Lab has recognized Patagonia as “Best for the World” in the Changemaker and Overall categories as well.

But is Patagonia’s path actually a road to hell paved with good intentions? Patagonia built enormous wealth and influence in the 80s and 90s with apparel made by overseas labor. As part of the offshoring trend, Patagonia played a part in decimation of the apparel industry in the 80’s and 90’s in the Southeast United States, where millions of jobs were lost. Ironically, the collapse of this industry and the trend of job losses caused the South to flip from Democrat to Republican, laying the groundwork for Trump — the arch nemesis of Patagonia’s founder. Did Patagonia therefore inadvertently cause Trump’s rise to political power and Trumpism? That may be a stretch, but similar market forces propelled both the Trump presidency and Patagonia’s wealth. In the end, no matter our intentions, we are all powerless to the financial markets. 

Now, apparently dismayed at being included in the Fortune 500, Yvon Chouinard and his family have divested themselves of Patagonia and put the company’s holdings in a trust with the earth as a shareholder. I think this is indeed a noble gesture that will hopefully make a significant step in the war against global warming, but it also raises several issues. Ironically, it was done by transferring to a 501(c)(4), a tactic which has also been used by more conservative individuals. It also raises the question: if you divide your giving and your business, is it really helping anything or anyone? Yes, using the profits for charity is great, but if those profits are gained from exploitative labor, structurally racist systems, and other ill pursuits of capitalism, what have you really gained? I am not suggesting that Patagonia is in any way doing this, but questions are raised. This article lays out and explains the dilemma.

It is a fascinating discussion. I am supportive of what Mr. Chouinard and his family are doing, but the move does raise questions. How they work through those questions will provide a unique insight into whether one can actually do good and make a profit. It is a real-time example of a fundamental challenge to the way capitalism functions in our society, and we shall see how it plays out.