1.

Defining woke capitalism & history of the word

- Woke capitalism in short is ‘Corporations capitalising on social movements’.
- Woke is an adjective meaning "alert to racial prejudice and discrimination". The
phrase stay woke has been present since the 1930s. In some contexts, it referred to
an awareness of social and political issues affecting African Americans. The phrase
was uttered in recordings from the mid-20th century by Lead Belly and,
post-millennium, by Erykah Badu. (Source: https://en.wikipedia.org/wiki/Woke )
- One of the most successful move of woke capitalism was ‘Nike-Kaepernick’
campaign. The sportswear giant launched its "Just Do It" anniversary campaign
starring Colin Kaepernick (former San Francisco 49ers quarterback)
- Nike’s stock price reached an all-time high since the Kaepernick campaign started.
Sales rose, however, with the company reporting a 10 percent jump in income to
$847 million, driven primarily by strong revenue growth.
Nike stock ended the day 7.2 percent higher. (Source: Nike sales boom,
NYtimes-Nike-Kaepernick )

2. Top line growth & reduced costs

Woke capitalism or stakeholder capitalism benefits corporations in multiple aspects. We

have seen the introduction of business concepts like the triple bottom line that states firms
should commit to measuring their social and environmental impact—in addition to their
financial performance—rather than solely focusing on generating profit, or the standard
“bottom line.” “three P's”: profit, people, and the planet. Companies that prioritize positive
environmental and social impacts in addition to profit are responding rationally to the market
and to a business case that’s been proven over decades with corporate ESG being the tool
used towards this end

THE TRIPLE BOTTOM LINE: WHAT IT IS & WHY IT’S IMPORTANT

‘Woke capitalism’ is simply capitalism — and it’s good for business

So how does it actually help? In 4 major ways which include

- Top line growth and reduced costs
- Better sustainable investment and reduced cost of capital
 - Reduced regulatory and legal problems
- Retention of better talent and boost to employee productivity
Let us look at how a stronger esg proposition differentiates in terms of topline growth and
reduced costs. For a corporate with a strong ESG proposition, they are able to attract b2b
and b2c customers with more sustainable products while laggards lose customers by poor
sustainability practises in human rights and supply chain. Companies with ESG at their core
are focused on reducing waste including energy as well as material waste, leading to
reduced costs. This is not the case for companies with low ESG scores. They generate
unnecessary waste and pay higher waste disposal cost

Five ways that ESG creates value Getting your environmental, social, and governance
(ESG) proposition right links to higher value creation. Here’s why

We do have some data to back it up. As per a BCG Study, there is a stark difference in total
shareholder return between leaders and laggards in all metrics - environmental, social and
governance with the greatest gap being in the social aspect. All metrics see a gap of 3-4%
with corporations who lead in social aspects performing better and providing an additional
4% return to shareholders as compared to corporations who lag. Similar scenarios exist in
environmental and governance aspects as well.

BCG - Banks Can Bet Big on Social Impact

3. Attract and retain better talent, boost employee productivity

- Journal of Financial Economics: positive correlation between employee satisfaction
and shareholder returns – the companies in Fortune’s “100 Best Companies to Work
For” list generated 2.3-3.8 percent higher stock returns per year than their peers over
a greater than 25-year horizon.
 (Source: Alex Edmans, Does the stock market fully value intangibles? Employee
satisfaction and equity prices. Journal of Financial Economics, Volume 101, Issue 3,
2011, Pages 621-640, ISSN 0304-405X,
https://doi.org/10.1016/j.jfineco.2011.03.021.)
- Reasons: increased motivation and productivity – employees gain a sense of
purpose through identifying with the company’s objectives, leading them to
want to put in more effort.

(Source: Great Place to Work – Financial Performance)

- Maslow and Hertzberg: money can motivate only up to a certain point, after which
non-monetary factors like satisfaction provide motivation. Job satisfaction can be
provided only by the firm via taking a stand in alignment with their employees’ values.
(Source: Maslow, A. H. (1943). A theory of human motivation. Psychological Review,
50(4), 370–396. https://doi.org/10.1037/h0054346)

- Journal of Applied Psychology: More an employee internalises the company’s values,

the stronger their perception of impact on the beneficiaries of their work and hence,
the greater the employee’s motivation to act in a “prosocial” way, leading to increased
productivity.
(Source: Grant, A. M. (2008). Does intrinsic motivation fuel the prosocial fire?
Motivational synergy in predicting persistence, performance, and productivity. Journal
of Applied Psychology, 93(1), 48–58. https://doi.org/10.1037/0021-9010.93.1.48)
- However, a clash between the employee and the company values can lower
productivity, in conjunction with external factors. This is why if a company
chooses to align with certain values, it must first make sure that those values
are in consensus with those of its stakeholders.
 (Source: Employee engagement: how to keep workers engaged in a meaningful way)
4. Reduced regulatory and legal problems
One of the common backlashes against woke capitalism is fundamentally
anti-capitalist.Companies that prioritize positive environmental and social impacts in addition
to profit are responding rationally to the market and to a business case that’s been proven
over decades. In the words of Blackrock chairman Larry Fink,” It is capitalism, driven by
mutually beneficial relationships between you and the employees, customers, suppliers, and
communities your company relies on to prosper.”
(https://thehill.com/opinion/congress-blog/3843428-woke-capitalism-is-simply-capitalism-and
-its-good-for-business/)
Maximizing revenue (by adapting to the values-based preferences of customers) and
minimizing costs, waste, and risks are key for investors.
Market participants are increasingly recognizing the value of acting in alignment with a
broader set of stakeholders. Market transparency and access to information has increased
as has the consequences of misalignment. And by adapting such ways, organizations do
benefit in related situations.
Corporate loans whose costs are linked to environmental, social and governance (ESG)
goals are being redesigned by banks in response to rising regulatory pressure and to inject
more credibility into a market they hope to grow.

Sustainability-linked loans (SLL), which were first used in 2017, offer slightly cheaper
borrowing, typically around 2.5-10 basis points less, if companies meet goals such as cutting
their carbon emissions or improving board diversity.
Amid increasing regulatory scrutiny and suggestions that SLLs enable companies to inflate
their green credentials, LSEG data shows issuance has slumped by 36% to $310 billion so
far in 2023, from $480 billion in 2022. Total loan volumes also fell in the period, but by a less
sharp 21%.
This is because banks are stringent in penalising (like raising borrowing cost , for instance)
in case companies miss their intended targets. They are also insisting on the right to remove
the SLL label for a "severe controversy", and are using untested language such as the
company or its products having an "adverse impact" on the environment, the borrower's
social principles, or governance. The presence of such regulatory checks with increased
efficacy would act as a force of good for companies to resort to sustainable practices.
Source:
https://www.reuters.com/sustainability/sustainable-finance-reporting/loans-linked-esg-face-ov
erhaul-by-under-pressure-banks-2023-11-10/
Accenture Report
5.Better sustainable investment and reduced cost of capital
- Woke capitalism being a very subjective term, some kind of proxy variable was
needed to measure the degree of woke capitalism of an organisation. In this case, it
was discovered that ESG framework fulfilled that requirement mainly because:
- Environmental, social and governance covers all the domains where “woke
capitalism” plays an active role.
- There is ample ESG data for organisations which allows us to analyse the
effects of this strategy as well as compare it with organisations who are
laggards in this field.
- Reduced cost of capital – Woke capitalism is basically free market in action, since
this is what is being demanded by the investors and other financial institutions.
- According to the MSCI report, 2020 the companies with higher ESG scores are
getting funds at lower cost of capital which has been observed across the globe (see
graph below). The difference is even more prominent in emerging markets.

-
- Further according to the BCG report, “Role of social impact banking in society” the
most important parameter in the upcoming times would be social on the ESG scale.
Based on the data for banks, weighted average cost of capital would be 77 basis
point lower for leaders in social vs laggards

-
 - The next question is why this is observed and for that we would analyse the investor
and financial institutions market. According to the pwc report “Asset and Wealth
management Revolution 2022, Exponential expectation for ESG”, 81% of investors in
the USA plan to increase their ESG allocation in the next 2 years. Currently ESG
funds make up 21% of total AuM around the globe and this number is growing at
12.9 % CAGR. Total AuM in ESG will reach 33.9T$ by 2026. All these numbers
clearly indicate that ESG funds are going to be a huge market for investors in the
upcoming years.
- Investor Sentiment – when investors were asked if they would stop investing in
corporations due to low ESG efforts? 44% of them said yes while 42% said no but
would consider doing so. 60% of investors believed they received higher returns on
ESG products. Demand for ESG financial products is outstripping supply. Since
investors are wanting this, the funds and corporations are increasing ESG in their
portfolios and introducing new ESG products in the market. This implies that only
corporates who invest in woke capitalism “measured here by ESG” would be
prioritised in receiving capital and will get it at lower cost than laggards.
- There is also the fact that ESG companies have low systematic risk associated with
them. One example could be a manufacturing unit if they follow all environmental
laws and in fact make efforts to reduce pollution in their area by becoming carbon
neutral that will expose them to lesser lawsuits and government cases in the future.
- Investment and asset optimization – Corporate that practice woke capitalism will
incest in more sustainable and better returns investment. In this new world, not doing
anything will erode the bottom line so some actions need to be taken by corporations
else they will be left behind. This strategy can help companies avoid investments that
won’t pay off in the long term because of environmental issues as stricter laws come
into picture. One way to get ahead of competition is to repurpose the existing asset
and although it may require initial capital it will benefit them in the long run. Example
going carbon neutral and can reduce energy expense to a very large extent. Another
example is how the oil companies are rebranding themselves as energy companies
and making forays into the renewable sector. ExxonMobil is investing 17B$ in low
emission initiatives from 2022-27

6. Conclusion
- The entire debate would have looked very different, if there was just one word
missing from the statement. If we had been debating whether "Woke Capitalism is
Good" or bad, then we could have gotten away with making comments on the
ethicality and morality of the practice. However, the term business makes all the
difference.
- Any organisation has one major "raison d'etre" - increasing stakeholder value. In its
most basic form, this implies making profits. But there are other parameters too. For
example, in the case of employees, it could involve giving them a sense of fulfilment.
Something to achieve that cannot be motivated purely through monetary incentives.
- We are not here to argue with the fact that organisations have historically been less
than honest in their dealings when it comes to ESG goals. One can even concede
that there have been attempts to use social justice movements as a veil for unethical
business activities. But all these facts do not put a dent in the argument that Woke
Capitalism has the potential to boost business if harnessed well.
 - If you were to put yourself in the shoes of the former CEO of Nike, Mark Parker, (who
headed the business when the Kaepernik issue came about) what would be the
future course of action?
- You saw what happened when the issue first exploded. You have the benefit of
hindsight. Given all the highs and lows, would you be more likely to ask your
business and brand managers to officially stay away from all sorts of social justice
movements? Or are you more likely to instruct them to keep their eyes and ears
open, so that the next time such a situation arises, the company would be better
prepared to face it?
- While the accusations about woke washing and unethical practices is fair, that does
not take away from the fact that these are areas where organisations will have to
work more diligently to ensure maximum transparency and consistency in stand.
- To this end, we on the proposition side believe that while the pressure on businesses
to ensure consistency and authenticity in their stand on issues is humongous, Woke
Capitalism is indeed good for business overall.

Some Rebuttals
● Ad campaigns gone wrong for companies like Fem bleach-
In this case we need to emphasise that there is a correct way to do woke capitalism
and that is what we emphasised during our entire argumentation. According to a
BCG report, the ideal way to do woke capitalism where you reap max benefits is that
○ It should align with the values of your core customer base
○ It should be done in a consistent effort in all domains of the companies else it
appears to be woke washing
These are the 3 questions that you need to ask as a company before implementing
woke capitalism
1. “Does the effort integrate well with our business strategy?
2. Does it fit our corporate purpose?
3. Can it be profitable—and thus scalable—in the long run?”
Fem bleach campaign was more of woke washing because they didn't understand
the core values of their customer base. In this case, the bleach itself is seen as a
symbol of racism and Indians want for a fairer skin which is in deep misalignment
with what the gen z believes in. Also for fem, millennials and gen z were never their
main customers, hence they mis identified their core customer and risked alienating
the main users of the product
● Degree of wokeness needs to be controlled (argued by the opposition)
Opposing team talked about how that degree of wokeness needs to be controlled
and extreme cases are what is harming the companies. Rebuttal for it is that degree
of wokeness is a very subjective measure, what is more or less woke?
We are talking about measuring woke capitalism through ESG framework which
serves as a good proxy because
- Environmental, social and governance covers all the domains where “woke
capitalism” plays an active role.
- There is ample ESG data for organisations which allows us to analyse the
effects of this strategy as well as compare it with organisations who are
laggards in this field.
And according to that ESG companies are overall performing better than others in
terms of profits, cost of capital etc.