Shareholders who want portfolio companies to improve their impact on society or the environment are hampered by their reliance on arguments that such changes will improve company value. Such arguments lack credibility when the requested changes are the very same changes needed to sustain the social and environmental systems that are at risk. The credibility gap increases when management, who are as motivated as anyone to increase enterprise value, disagree with the stockholders.

The reality is that investors are likely to own positions in hundreds or even thousands of companies, either directly or through pooled investment vehicles. The performance of such diversified portfolios directly correlates with the performance of the economy over the long term. This means that financial success for these investors is dependent upon sustaining at-risk systems; thus, the damage a company does to the economy in pursuit of profit may far outweigh any gain the investor receives from a relatively small holding in the company.

In other words, the business case for considering “ESG” factors in investment strategies is best made at the portfolio level, not the company level. This is a perfectly legitimate message because companies should not be allocating capital to uses that harm most of their own shareholders by extracting value from the social and environmental systems upon which those shareholders’ portfolios rely.

As our CEO Rick Alexander explains in a recently published article in the Stanford Social Innovation Review, such a re-articulation of the purpose of shareholder stewardship answers critics on both the left and right, and may reinvigorate a movement that many fear is losing steam. This piece will disappear behind a pay wall in just a few days, so check it out while you can.