Doing the right thing is good for business

Back in the 1970s, Kodak tried to give $25m to a black civil rights organisation in Rochester, New York. The company's shareholders rose up in arms: making this politically charged offering wasn't the reason they had entrusted Kodak with their money. The donation was withdrawn.

Fast-forward to the past 12 months. The Norwegian Petroleum Fund, the world's largest institutional investor, has hired an ethical phil osopher to determine what it should and should not invest in: it sells its shares in Wal-Mart allegedly because of its serious and systematic vio- lation of human and labour rights. A group of 17 leading US pension funds and investors controlling $658bn in assets have pushed for face- to-face meetings with the Exxon Mobil board of directors to discuss the company's persistent lack of acknowledgement of climate change. In Britain alone, socially responsible investments have increased by 31 per cent.

Today, an increasing number of shareholders are not only not objecting to radical behaviour on the part of the companies they invest in, but they are actually demanding it of them. And this trend is going to accelerate.

I make this claim for the following reasons. First, radical businesses are valuable: witness Cadbury's glee in acquiring the organic chocolate company Green & Black; ditto 'Oréal's acquisition of the Body Shop and Ford's recent decision to invest one billion dollars in envir onmentally sound cars. Second, it is no longer simply fringe groups that care about these issues, but, increasingly, mainstream pension funds and charities looking to invest in companies whose values are aligned to those they represent. Many young internet and high-tech magnates (the new coterie of high-net-worth individuals) are also keen to put their investment dollars in environmentally and ethically sound companies. Third, because of a legal opinion issued a few months ago by Freshfields.

The renowned international law firm was asked by the United Nations Environment Program to check whether pension funds, public and private insurance companies and mutual funds could incorporate environmental, social and governance issues into their investment decisions. The opinion Freshfields came back with in October 2005 was startling. Not only could they do so, but they have an active duty to have regard to these issues in every single decision they make.

It's not, to quote Milton Friedman, that the business of business is no longer business. Of course, it is. Nor is it the case that investors are no longer mandated to realise maximum profits for those who entrust their money to them. Of course, they are. It's just that, as society evolves, the nature of what will ensure the greatest profitability evolves too.

A hundred years ago, a company that used child labour might have had a competitive advantage; today, that company would risk being put out of business by such a policy. Until recently, multinationals operating in developing countries were pretty much able to pollute with impunity; in contrast, a few months ago Shell was ordered by a Nigerian court to pay $1.5bn in damages for polluting the Niger delta. Meanwhile, the United Nations is in the process of developing a treaty which, if it comes into effect, will regulate the activities of transnational corporations with regard to human rights.

Goodwill and reputation are intangibles, but they are the keys to business success. Since they are also inexorably linked to social values, it follows that a change in social norms will have a significant impact on profits. We are living in a time in which movies such as Super Size Me and An Inconvenient Truth have made box-office history, and books such as No Logo and my own, The Silent Takeover, are bestsellers.

Seventy-eight per cent of Marks & Spencer's customers would like to know more about the way their clothes are made, including the conditions for the workers in the factories, and the use of chemicals in their manufacture. Last year in the UK, Fairtrade food and drink sales increased by 53 per cent.

Thirty years ago, Kodak's shareholders roared with outrage when they heard what the company they had invested in was preparing to do. Today, Kodak sponsors the World Environment Centre, the National Gay and Lesbian Chamber of Commerce and the Corporate Alliance to End Partner Violence - and we haven't heard so much as a whisper.