When I was 16, I bought a pair of Converse trainers.
For most people, today, this might not seem like a big thing but, back then, it was. It meant that I was the first person in our school year to branch away from the, then, accepted norm of wearing white Reebok Classics.
No one could understand why I would do such a thing, and I was put under no small amount of pressure to revert to the accepted plain white plasticky shoes worn by every other guy my age. Being the fashion pioneer that I am, I didn’t buckle under the pressure but, I definitely felt a bit self-conscious about my style choice.
As a society we tend to see peer pressure as being a bad thing. It either encourages us to behave in a way that we wouldn’t choose, or it can limit our individualism. But it can also move things forward.
This is not a new phenomenon. In his famous book The Theory of the Leisure Class, Thorstein Veblen coined the phrase ‘pecuniary emulation’. His argument was the main driver of the development of culture and society was people seeking to emulate their – supposed – betters by purchasing and consuming the products that they used. We believe that the same ambition to emulate, or even go beyond, peers can drive companies to improve their sustainability. In essence, peer pressure used wisely can be an effective tool for change.
But making this ‘theory of change’ work is not easy as it requires companies to be able to recognise and then want to copy those that are supposedly better than them. One way that this can be done is through the creation of single-issue benchmarks. These are different to conventional ESG Ratings in that they take a specific sustainability topic and rank companies from best to worst based upon the sophistication of their approach to the issue. In our experience, making these benchmarks work requires three things:
First, and most important, every benchmark needs a credible assessment methodology. This underpins everything, as it is the criteria against which companies are scored and then ranked. To be respected, the assessment methodology needs to clearly reflect best practice. This means that it needs to be based upon evidence and the experiences of credible leaders – from academia to practitioners – in the specific field.
Second, the issue in question needs to be relevant to the businesses that it is applied to. Benchmarks will only work in driving change if businesses think that addressing it is of use to them. This means that they either must relate to an issue that is clearly material to them or something that is of high importance to their stakeholders.
Finally, it needs external pressure. There are always a variety of competing topics and priorities and businesses can only push effectively on a small number at a time. Therefore, to maximise the positive power of peer pressure businesses need to be pushed by external stakeholders to take the issue seriously. This is where investors can play a positive role. Through engagement, proxy voting, and other forms of advocacy, investors can be a key force in pushing companies into the ‘race to the top’.
This is a key opportunity for wealth managers who are looking to embrace the power of engagement as a means of either attracting clients by conducting activities that align with their values and/or mitigating some of the long-term sustainability risks we face in the investment industry. Given that benchmarks set out clear methodologies and presentation of results, it is relatively simple for wealth managers to write to poorly performing companies (or – more likely – ask their investment managers to do it for them) and then monitor progress over time. With a variety of great benchmarks available across a broad range of topics (from Farm Animal Welfare to Nutrition) there should always be a benchmark that is of interest to clients.
But the proof of the pudding is whether benchmarking, and the peer pressure it creates, does actually drive change. Three years since the launch of our first CCLA Corporate Mental Health Benchmark we think so. In this period 62 of just over 200 companies that have been assessed have significantly improved their score. Similarly, whilst we’re only on our second publication 35 of the 100 companies assessed by our Modern Slavery Benchmark have already improved.
So, maybe it is time to stop thinking of peer pressure as being a wholly bad thing and embrace its power to drive change. That said, some peer pressure is better than others; 24 years later I still believe that Converse trainers are better than Reebok Classics.
