Great Companies Deliver Both Purpose and Profit

Season 2, Episode 5 – with Alex Edmans, Professor of Finance, London Business School

Episode summary:

Join us on the ESG and Property Podcast as we engage with the brilliant Professor Alex Edmans to unravel the synergy between purpose and profit in the corporate world. With a remarkable educational background blending the arts and sciences, Alex brings a fresh perspective to the finance and ESG conversation. He shares his transition from investment banking to academia, spotlighting the undervalued power of intangible assets like human capital and customer trust. His insights reveal how companies can thrive by prioritising long-term value over short-term gains, and how this approach aligns seamlessly with ESG principles.

Listen in as we dissect the nuances of incorporating ESG into business strategy. Our discussion challenges the misconception that ESG is a mere niche in the business landscape. Professor Edmans prompts us to rethink ESG as an integral part of sound business operations, cautioning against the pitfalls of placing ESG on a pedestal at the expense of fundamental business health. He brings to light how successful businesses have always engaged in ESG practices, perhaps without the explicit label, advocating for a future where ESG is woven into the fabric of everyday business decisions.

This episode also addresses the complex interplay of external pressures on ESG issues, questioning whether such influences invariably serve the greater good. Professor Edmans illustrates how intrinsic motivations can sometimes surpass the efficacy of external pressures, as seen in the organic inclusion of diverse players in football.

The conversation pivots to the essence of cognitive diversity and its critical role in enhancing decision-making within organisations. Professor Edmans shares actionable strategies to foster inclusive environments that capitalise on a wide array of perspectives. As we explore the real estate sector's approach to ESG, we are reminded of the delicate balance between fulfilling criteria for capital acquisition and genuinely embracing sustainable practices. Professor Edmans' vision is for ESG to evolve from a checkbox exercise to an indispensable standard of operation, responding to the changing needs of society and our environment.

Alex Edmans:

Alex Edmans is Professor of Finance at London Business School. Alex has a PhD from MIT as a Fulbright Scholar and was previously a tenured professor at Wharton and an investment banker at Morgan Stanley.

Alex has spoken at the World Economic Forum in Davos, testified in the UK Parliament and given the TED talk “What to Trust in a Post-Truth World” and the TEDx talks “The Pie-Growing Mindset” and “The Social Responsibility of Business” with a combined 2.8 million views.

He serves as non-executive director of the Investor Forum, on the World Economic Forum’s Global Future Council on Responsible Investing, and on Royal London Asset Management’s Responsible Investment Advisory Committee.

Alex’s book, “Grow the Pie: How Great Companies Deliver Both Purpose and Profit”, was a Financial Times Book of the Year and has been translated into nine languages, and he is a co-author of “Principles of Corporate Finance” (with Brealey, Myers, and Allen).

He has won 25 teaching awards at Wharton and LBS and was named Professor of the Year by Poets & Quants in 2021.

He is a Fellow of the Academy of Social Sciences.
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Podcast Highlights:

Highlight 1:

Alex Edmans:

The main way in which I think companies are getting ESG wrong is if they put it on a pedestal compared to these standard factors which drive business success.

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Highlight 2:

Adam Hinds:‍

Do you think businesses should have an ESG strategy or do you think they should just have a business strategy, which ESG forms a fundamental part of?

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Alex Edmans:

‍The latter definitely so. When you have an ESG strategy even that word to begin with, that will sort of put some people off. They will think, ok, that's just the ESG strategy, I'm the chief financial officer, I don't care about that, that's just for the ESG people. Whenever you have something which is seen as divorce from the business, then it automatically gets relegated and seen to be something secondary Instead. I think a business strategy cannot be a viable business strategy unless it takes into account ESG issues. So my strategy is to expand in a particular country. I want to take into account, well, what is going to be the human capital implications of this, or the environmental implications of this and so on, not just the financial analysis of this expansion. So I would say for any business decision, we would like to consider the effect from stakeholders, not again for just the moral level case, but because this is going to be having an impact on the long term success of the business financially.

Highlight 3:

Alex Edmans:

Isn't everybody about DE & I these days? No, what they're about is demographic diversity, percentage of women, percentage of minorities. What we look at in this paper is diversity, equity and inclusion, how you actually treat people, including, having an inclusive culture, and what we find is this is actually uncorrelated with demographic diversity. So many companies can hit the target but miss the point. It could be there's external pressure to add to a diversity target, but this actually doesn't really change real diversity, and as an external pressure person, you can't really understand how inclusive a corporate culture is. You can only go on rather superficial measures, and so this is a bit like a teacher teaching to the test and only focusing on what's tested rather than what's actually really important. So I think when you have pressure for things where there's a ready compelling business motive, that pressure can actually be distracting.