Regulators are ‘failing to address’ the social aspect in ESG, says CEO Franco Azzopardi

In recent years, the corporate and economic landscape has witnessed an unprecedented surge and effort in the adoption of Environmental, Social and Governance (ESG) strategies.

Despite so, JD Capital plc CEO Franco Azzopardi remarked that regulators are “failing to address” the social aspect or as he put it, the “S” in ESG. “And the core of all this to function… The behavioural qualities and convictions of those entrusted with governance,” he stated.

In his insightful post on LinkedIn, he added that in the military, good leaders are the ones looking at their surrounding soldiers and make sure they are fed well. Good leaders would eat last, he said.

In a different context, he added that “good leaders understand that there can be no effectiveness if their employees feel they are paid below fairness. And what is fair? Fair is at least what the market pays for the same work and risk profile of the company and job.”

Mr Azzopardi explained that in business studies, Milton Friedman “had pushed the doctrine” of shareholder value as defining the fundamental purpose of capitalism. He added that the shareholder’s profit and value were all that mattered. “Shareholders are the risk-taking owners and so it’s only right that they squeeze the highest profit possible right? But at whose cost?” he questioned.

He reasoned that the customer has the power of the purse and could therefore squeeze the profit out of the owner. Subsequently, according to Mr Azzopardi, if the owner takes into account Friedman’s concept, then “he would typically cut costs.”

“So, who got to eat last? Probably cost cutting came at the expense of the employee who is a vulnerable stakeholder and hence the most submissive to cost-cutting initiatives,” added Mr Azzopardi.

He recalls how in recent years companies differentiated themselves by making the 3Ps (people, planet and profit) as part of their mission and values. He acknowledged that although this has made a small impact, it was not done on a global scale.

“Policy makers scramble in a drive to save planet Earth or rather humanity […] Enter ESG, but is it in the right order? A new economy is being created mostly driven by the big and first letter in the acronym, the letter E,” he said.

Mr Azzopardi commented that now advisory firms are booming in the field of assisting corporations in complying “the now mandatory reorganised 3Ps”.

He ended his thoughts by reiterating and questioning “who eats last?”, before highlighting issues such as “exploited vulnerable employees, workers in China, child labour in Congo cobalt mines producing 70 per cent of global cobalt mineral in EV batteries”.

“So are policy makers, advisors, bankers’ scorecards and institutional investors asking the right questions?” he concluded.