tag:theconversation.com,2011:/id/topics/socially-responsible-investing-12342/articlessocially responsible investing – The Conversation2023-07-27T12:25:29Ztag:theconversation.com,2011:article/1881022023-07-27T12:25:29Z2023-07-27T12:25:29ZHypocrisy penalty: Investors especially hate companies that say they’re good then behave badly – unless the money is good<figure><img src="https://images.theconversation.com/files/538420/original/file-20230720-17-3at2fi.jpg?ixlib=rb-1.1.0&rect=27%2C1143%2C4473%2C3201&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Investors don't like it when companies do one thing and then say another. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/rear-view-of-a-businessman-with-his-fingers-crossed-royalty-free-image/dv1161053?phrase=business%20suit%20fingers%20crossed">Adam Gault/Photodisc via Getty Images</a></span></figcaption></figure><p><em>The <a href="https://theconversation.com/us/topics/research-brief-83231">Research Brief</a> is a short take about interesting academic work.</em> </p>
<h2>The big idea</h2>
<p>Stock investors punish companies caught doing something unethical a lot more when when these businesses also have a record of portraying themselves as virtuous. This hypocrisy penalty is <a href="https://doi.org/10.1177/01492063211002622">the main finding of a study</a> we recently published in the Journal of Management. </p>
<p>Companies often espouse their supposed virtue – known as “<a href="https://www.merriam-webster.com/dictionary/virtue%20signaling">virtue signaling</a>” – usually with the aim of getting benefits, such as higher sales, positive investor sentiment or better employees. We wanted to know what happens when such companies then do something wrong. </p>
<p>So we examined corporate communications and media coverage for every company in the Standard & Poor’s 500 to develop a comprehensive database of both virtue signaling and misconduct. </p>
<p>To gauge virtue signaling, we conducted linguistic analysis of each company’s letters to shareholders. This is a form of computer-aided text analysis that identifies and categorizes language to draw inferences. For example, we looked for words and patterns to identify conscientiousness, empathy and integrity and considered how language patterns developed over time. Each company received a score that reflected how much of their corporate communication was devoted to virtue rhetoric.</p>
<p>We then examined over half a million news articles to identify unethical behavior, such as egregious events like a CEO’s being fired for sexual misconduct, but also less severe transgressions, like not treating employees fairly. </p>
<p>Finally, our study considered how shareholders respond. Specifically, we looked at price swings the day after the media initially reported the misbehavior. </p>
<p>We found that share prices fell 1.5% overnight in response to unethical behavior when companies had engaged in lots of virtue signaling, compared with 0.4% for those that did less virtue signaling or none at all. For an average company, that difference amounts to <a href="https://www.investopedia.com/terms/s/sp500.asp#:%7E:text=The%20S%26P%20500%20total%20market,the%20stocks%20in%20the%20index.">over half a billion dollars</a> in lost value.</p>
<p>Keep in mind, too, that these ethical violations are not uncommon events. About a quarter of companies in our sample engaged in this kind of behavior in any given year. Stated simply, bad things happen, and when they do the stock market will clobber those who do not seem to be walking their talk.</p>
<p>Well, with one critical exception related to a company’s expected future performance. If investors anticipate that a company will perform well in the future, there is no hypocrisy penalty – the consequences of misconduct are the same for those that use virtue signaling and those that do not. </p>
<p>Apparently, shareholders are very concerned about executives who say one thing and do another – unless the company is expected to make lots of money, in which case there is little or no penalty for unethical behavior.</p>
<h2>Why it matters</h2>
<p>Many companies, and the CEOs who run them, <a href="https://system.businessroundtable.org/app/uploads/sites/5/2023/02/WSJ_BRT_POC_Ad.pdf">publicly say they care</a> a lot about their people, the environment and the communities around them, among other virtuous signals. </p>
<p>For example, ice cream maker <a href="https://www.benjerry.com/values">Ben & Jerry’s proudly declares</a> that it seeks to “advance human rights and dignity, support social and economic justice for historically marginalized communities, and protect and restore the Earth’s natural systems.” At the other end of the political spectrum, restaurant chain <a href="https://www.chick-fil-a.com/about/who-we-are">Chick-fil-A proclaims</a> that it is “about more than just selling chicken”; its corporate purpose: “To glorify God by being a faithful steward of all that is entrusted to us.”</p>
<p>Whether from the right or the left, this virtue signaling establishes, and implicitly promises adherence to, a set of ethical standards. What happens, though, when behavior does not align with virtuous talk?</p>
<p>Academics have two decidedly different views about how to answer this question. Some contend that <a href="https://www.jstor.org/stable/pdf/43700526.pdf">virtue signaling buffers companies</a> from the negative ramifications of misconduct. Another perspective suggests that there’s a more severe adverse reaction <a href="https://doi.org/10.1002/9781118540190.wbeic102">whenever anyone deviates from expectations</a>. Think, for example, of the special vehemence reserved for the priest who pilfers from the church coffers.</p>
<p>Our study confirms that the latter – a hypocrisy penalty – is more likely what is happening. </p>
<h2>What’s next</h2>
<p>We are now exploring different types of shareholders and how they respond to organizational behavior – and misbehavior. For example, social activist funds could be especially put off when companies in which they invest behave badly, whereas the most powerful institutional investors are less likely to be concerned about a mismatch between a company’s words and deeds.</p><img src="https://counter.theconversation.com/content/188102/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A new study finds that investors punish companies for behaving badly over three times as much if they have a record of saying they’re virtuous.Brian L. Connelly, Professor of Management and Entrepreneurship, Auburn UniversityLori Trudell, Assistant Professor of Entrepreneurship, Clemson UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1967682023-01-13T13:31:00Z2023-01-13T13:31:00ZWhat does ESG mean? Two business scholars explain what environmental, social and governance standards and principles are<figure><img src="https://images.theconversation.com/files/503135/original/file-20230104-12-wg7bnv.jpg?ixlib=rb-1.1.0&rect=0%2C11%2C6575%2C4140&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">There are many environmental, social and governance principles worth considering.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/illustration/investing-concept-sustainable-and-socially-royalty-free-illustration/1398247435?phrase=esg&adppopup=true">ArtemisDiana/iStock via Getty Images Plus</a></span></figcaption></figure><p><a href="https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp">Environmental, social and governance</a> business standards and principles, often referred to as ESG, are becoming both more commonplace and controversial. </p>
<p>But what does “ESG” really mean?</p>
<p>It’s shorthand for the way that many corporations operate in accordance with the belief that their long-term survival and their ability to generate profits require accounting for the impact their decisions and actions have on the environment, society as a whole and their own workforce.</p>
<p>These practices grew out of long-standing efforts to <a href="https://www.nerdwallet.com/article/investing/socially-responsible-investing">make businesses more socially</a> and environmentally responsible. </p>
<p>ESG investing, sometimes called <a href="https://www.blackrock.com/ch/individual/en/themes/sustainable-investing">sustainable investment</a>, also takes these considerations into account.</p>
<h2>Zeroing in on the E, S and G</h2>
<p>ESG priorities vary widely, but there are some common themes.</p>
<p>These priorities usually emphasize environmental sustainability – the E in ESG – with a focus on contributing to efforts to <a href="https://www.sec.gov/sec-response-climate-and-esg-risks-and-opportunities">slow the pace of climate change</a>.</p>
<p>There’s also an effort to uphold high ethical standards through corporate operations. These <a href="https://www.onetrust.com/blog/esg-101-what-does-social-in-esg-mean">social concerns</a> – the S – can include, for example, ensuring that a company doesn’t buy goods and services from exploitative suppliers, or treats its employees well. Or it might entail taking care to hire and retain a diverse workforce and taking steps to reduce social injustices in the communities where a corporation operates.</p>
<p>Companies embracing ESG principles should also have <a href="https://www.investopedia.com/terms/c/corporategovernance.asp">high-quality governance</a> – the G. Governance includes oversight, handled by a competent and qualified board of directors, regarding the hiring and firing of top corporate leaders, executive compensation and any dividends paid to shareholders.</p>
<p>Governance also pertains to whether a company’s leadership operates fairly and responsibly, with transparency and accountability.</p>
<h2>Why ESG matters</h2>
<p>By 2026, the total amount invested globally according to these principles will <a href="https://www.pwc.com/gx/en/news-room/press-releases/2022/awm-revolution-2022-report.html">nearly double to US$34 trillion</a> from $18.4 trillion in 2021, the accounting firm PwC estimates. However, <a href="https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/even-as-esg-market-narrows-money-managers-in-the-space-prioritize-climate-73499895">increasing scrutiny</a> of which investments really qualify as ESG could mean it takes longer to reach that volume.</p>
<p>This corporate concept is becoming a political touchstone in the U.S. because some states, like <a href="https://www.pionline.com/esg/political-fight-against-esg-continues-3-states">Florida and Kentucky</a>, arguing that these practices divert from the focus on maximizing profits and can be detrimental to investors by making other considerations a priority, have barred their pension funds from using ESG principles as part of their investment considerations. Some very <a href="https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/a-year-of-acrimonious-esg-battles-comes-to-a-close-with-more-in-store-for-2023-73372554">large asset managers, including BlackRock,</a> aren’t allowed to work with those pension funds anymore.</p>
<p>Many of the <a href="https://realreturns.blog/2021/05/31/the-good-the-bad-and-the-false-addressing-9-arguments-against-esg/">arguments against embracing these principles</a> hold that they reduce profits by taking other factors into account. But how do ESG practices affect financial performance?</p>
<p>A team of New York University scholars looked at the <a href="https://www.stern.nyu.edu/experience-stern/about/departments-centers-initiatives/centers-of-research/center-sustainable-business/research/research-initiatives/esg-and-financial-performance">results of 1,000 different studies</a> that had sought to answer this question. It found mixed results: Some of the studies found that ESG principles increased returns, others found that they weakened performance, and a third group determined that these principles made no difference at all.</p>
<p>It’s possible that the disparities among results could be due largely to the lack of clarity regarding what counts and does not count as ESG, which has been a <a href="https://doi.org/10.5465/amr.2007.25275520">long-standing discussion</a> and makes it hard to assess how ESG investments perform.</p>
<p>The NYU scholars also found two consistent results regarding ESG strategies. First, they help protect investors against risks such as losses resulting from the failure of a supply chain due to environmental or geopolitical issues, and they can protect companies from volatility during periods of economic instability and downturns. Second, investors and companies benefit more from ESG strategies in the long term than in the short term.</p><img src="https://counter.theconversation.com/content/196768/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Many investors and corporations believe that accounting for the impact that businesses have on the environment, society as a whole and their own workforces benefits their bottom line.Luciana Echazú, Associate Dean of Undergraduate Education; Associate Professor of Economics, University of New HampshireDiego C. Nocetti, Dean, School of Business; Professor of Economics and Financial Studies, Clarkson UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1509962021-02-02T21:42:55Z2021-02-02T21:42:55ZWhat is sustainability accounting? What does ESG mean? We have answers<figure><img src="https://images.theconversation.com/files/381832/original/file-20210201-13-1mexsmc.jpg?ixlib=rb-1.1.0&rect=382%2C845%2C5874%2C2977&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">As consumers, we can change our lifestyle, our investments and demand change from our governments. Together — along with accountants — we can get there.</span> <span class="attribution"><span class="source">(Charl Folscher/Unsplash)</span></span></figcaption></figure><p>Sustainability is a hot topic today due to increasing awareness of climate change and inequality, among other pressing issues. </p>
<p>The Earth just recorded a <a href="https://www.sciencedaily.com/releases/2021/01/210115103020.htm">seven-year hot streak</a> and we’re approaching the COVID-19 pandemic’s first anniversary. The crisis has had enormous implications on our mental health, the economy and income inequality. Post-pandemic, we need to build back better, and sustainability will be the key to success. </p>
<h2>What is sustainability?</h2>
<p>There is no universal definition of sustainability, but many point to <a href="https://sustainabledevelopment.un.org/content/documents/5987our-common-future.pdf">the United Nations’ 1987 Brundtland Report</a> that calls for sustainable development that meets our needs today without compromising the needs of those in the future.</p>
<p>This idea of meeting our needs without sacrificing the needs of our children, or our children’s children, tends to form the basis of most sustainability definitions.</p>
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Read more:
<a href="https://theconversation.com/huge-government-debts-mean-canada-is-robbing-its-kids-147977">Huge government debts mean Canada is robbing its kids</a>
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<p>The definition focuses on the planet’s capacity to meet our needs. Without a healthy planet, we will be unable to meet our needs for food, clean air, shelter and other basics. Those of us who live in the developed world — high income earners in particular — are far more likely to be contributing <a href="https://www.bbc.com/news/business-51906530">disproportionately to climate change, while those who live in less affluent parts of the world are more likely to suffer the consequences</a>. </p>
<figure class="align-center ">
<img alt="A yacht" src="https://images.theconversation.com/files/381836/original/file-20210201-13-norcah.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/381836/original/file-20210201-13-norcah.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/381836/original/file-20210201-13-norcah.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/381836/original/file-20210201-13-norcah.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/381836/original/file-20210201-13-norcah.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=425&fit=crop&dpr=1 754w, https://images.theconversation.com/files/381836/original/file-20210201-13-norcah.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=425&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/381836/original/file-20210201-13-norcah.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=425&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Rich people are particular polluters and contribute to climate change much more than everyday citizens.</span>
<span class="attribution"><span class="source">(Pixabay)</span></span>
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<h2>Who’s responsible for sustainability?</h2>
<p>We all have a role to play in achieving sustainability, and these roles are interconnected. As consumers, we can make <a href="https://www.leannekeddie.ca/single-post/2019/03/20/can-our-family-of-six-generate-no-carbon-emissions-im-about-to-find-out">changes to our lifestyles</a> to reduce our waste and use cleaner energy sources, but that’s not enough. </p>
<p>We buy products and services produced by companies, so they need to be responsible too. It’s estimated that <a href="https://www.cdp.net/en/articles/media/new-report-shows-just-100-companies-are-source-of-over-70-of-emissions">71 per cent of all greenhouse gas emissions come from just 100 companies</a>, including ExxonMobil and Shell. If these companies produced sustainable goods and services while consumers also took individual responsibility, it could have a powerful impact. </p>
<p>Governments play an important role too, creating and enforcing regulations such as putting a price on carbon to disincentivize its use.</p>
<p>Regulators <a href="https://www.sec.gov/">like the Securities and Exchange Commission</a> in the United States and the <a href="https://www.securities-administrators.ca/">Canadian Securities Administrators</a> in Canada also set rules around what information publicly traded companies are required to disclose. These regulators require audited, financial information from public firms, but the same cannot be said for sustainability information that’s mostly voluntary and typically not audited. </p>
<p>As a result, we are left with missing information, or <a href="https://doi.org/10.1016/j.aos.2011.12.001">subject to volumes of information about what firms <em>want</em> to talk about, likely in an effort to enhance their reputation</a>.</p>
<h2>What is sustainability accounting?</h2>
<p><a href="https://hbr.org/2020/12/the-future-of-esg-is-accounting">Sustainability accounting</a> is the practice of measuring, analyzing and reporting a company’s social and environmental impacts. </p>
<p>Various stakeholders have different interests. Employees may be interested in wage inequality — for example, how much more the CEO makes than the average worker. In the 1970s, <a href="https://www.epi.org/publication/reining-in-ceo-compensation-and-curbing-the-rise-of-inequality/">CEOs made 20 to 30 times more money than the average employee — today, they make 300 times more</a>. </p>
<p>Communities may be interested in how much pollution or greenhouse gases a firm is producing so that their neighbourhoods remain clean and safe. Investors are usually interested in a firm’s financial performance, including ESG.</p>
<h2>What is ESG?</h2>
<p>ESG refers to the environmental, social and governance information about a firm. <a href="https://doi.org/10.1007/s10551-011-1052-1">There is growing evidence that companies that take their environmental and social responsibilities seriously perform better financially</a>. This has naturally made investors sit up and take notice. </p>
<p><a href="https://www.theglobeandmail.com/investing/article-a-guide-to-socially-responsible-investing-and-how-to-get-started/">Sustainable responsible investing</a> (SRI), or ESG investing, uses this information about a company to inform investment decisions. </p>
<p>ESG investors are attracted to companies that meet certain ESG criteria while they avoid investing in companies they believe are unethical, like tobacco or gun manufacturers (<a href="https://www.businessinsider.com/what-are-sin-stocks">known as sin stocks</a>). They also pressure firms to improve their ESG performance, or they divest from some companies completely.</p>
<h2>How do we measure sustainability?</h2>
<p>Measuring sustainability is where it gets tricky. Much of the information used to gauge a firm’s sustainability is provided by the company itself, and it’s not always audited. This makes it very different than financial information, which is subject to detailed audits.</p>
<p>Third-party organizations use this company-provided information as the basis to create different ratings and assessments, meaning there are serious issues with their analyses. While many firms provide this information voluntarily, <a href="https://www.sciencedirect.com/science/article/abs/pii/S0361368211001140?via%3Dihub">many say one thing but do another</a>, burnishing their reputation, for example, while continuing to pollute.</p>
<p>This means that a company’s true sustainability performance is difficult to accurately gauge. Because their ESG disclosures are voluntary, businesses don’t have to divulge anything they don’t want to, and there are few consequences for grand, baseless claims or non-disclosure. </p>
<h2>The need for sustainability accounting</h2>
<p>There is huge potential here, however, for sustainability accounting to play a key role. </p>
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Read more:
<a href="https://theconversation.com/its-time-to-train-accountants-in-sustainability-102626">It's time to train accountants in sustainability</a>
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<p>There are currently a number of different ways to report ESG information. Among the most popular is the <a href="https://www.globalreporting.org/">Global Reporting Initiative</a>, which takes a multi-stakeholder perspective. That means that information on how a company’s actions affect many different parties — not just shareholders — is reported. </p>
<p>This can include local communities and employees. This approach captures many different elements of a company’s business operations. That’s more in line with a long-term view of sustainability itself and is one of the features that differentiates the Global Reporting Initiative from other measures.</p>
<p>There are other frameworks and proposals, including <a href="https://www.ifrs.org/projects/work-plan/sustainability-reporting/">a current proposal by the International Financial Reporting Standards (IFRS)</a> — followed by companies in many countries — to create their own sustainability accounting standards. The issue? While the proposal would focus on providing pertinent information to investors, <a href="https://arc.eaa-online.org/blog/open-letter-chair-ifrs-foundation-trustees">those same investors tend to be short-term thinkers and sustainability is inherently a long-term concept</a>. </p>
<p>So while ESG has piqued their interest in making more money, that won’t necessarily lead to the broader, enduring societal sustainability that’s urgently needed in the midst of the climate crisis. </p>
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<img alt="Flames rise from mountain ridges." src="https://images.theconversation.com/files/382071/original/file-20210202-21-ieygzf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/382071/original/file-20210202-21-ieygzf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=343&fit=crop&dpr=1 600w, https://images.theconversation.com/files/382071/original/file-20210202-21-ieygzf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=343&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/382071/original/file-20210202-21-ieygzf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=343&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/382071/original/file-20210202-21-ieygzf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=431&fit=crop&dpr=1 754w, https://images.theconversation.com/files/382071/original/file-20210202-21-ieygzf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=431&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/382071/original/file-20210202-21-ieygzf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=431&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Flames rise from mountain ridges as a wildfire burns in Granby, Colo., in October 2020.</span>
<span class="attribution"><span class="source">(AP Photo/David Zalubowski)</span></span>
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<p>Right now, the current measurement systems <a href="https://doi.org/10.1177/0007650315576134">are inconsistent and incomparable</a>. Unlike the financial information for public companies that we can compare and rely upon, we do not have the same reliability for sustainability accounting information.</p>
<h2>Why does it matter?</h2>
<p>Sustainability accounting, ESG investing and SRI are not going away any time soon as pressure grows on companies to measure and report their sustainability information.</p>
<p>In terms of environmental sustainability, long-term efforts are critical for the sake of humanity and the planet. <a href="https://www.accountingforsustainability.org/en/index.html">Sustainability accounting can help companies do business differently because what gets measured, after all, gets managed</a>. </p>
<p>To achieve environmental sustainability, we need strong corporate standards that are quantifiably enforced, <a href="https://theconversation.com/its-time-to-train-accountants-in-sustainability-102626">accountants trained to accurately and comprehensively measure sustainability</a> — and we all need to play a role in changing how we live. </p>
<p>Our words and actions matter. As consumers, we can change our lifestyle, our investments and demand change from our governments. Together — along with accountants — we can get there.</p><img src="https://counter.theconversation.com/content/150996/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Leanne Keddie does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>To achieve environmental sustainability, we need strong corporate standards that are quantifiably enforced, accountants trained to accurately measure sustainability — and we must all play a role.Leanne Keddie, Assistant Professor, Sprott School of Business, Carleton UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1322342020-02-26T14:01:41Z2020-02-26T14:01:41ZA company’s good deeds can make consumers think its products are safer<figure><img src="https://images.theconversation.com/files/317191/original/file-20200225-24655-fmc2mq.jpg?ixlib=rb-1.1.0&rect=36%2C41%2C3458%2C2305&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Consumers may think Boeing's planes are safer because the company donated 250,000 masks to China.</span> <span class="attribution"><span class="source">AP Photo/Vincent Yu</span></span></figcaption></figure><p><em>The Research Brief is a short take on interesting academic work.</em></p>
<h2>The big idea</h2>
<p>Companies like to highlight when they do good things for society, such as making <a href="https://money.cnn.com/2018/01/26/news/companies/budweiser-super-bowl-water/index.html">charitable donations</a>, becoming more <a href="https://www.reuters.com/article/us-climate-change-microsoft/microsoft-to-erase-its-carbon-footprint-past-and-future-in-climate-push-idUSKBN1ZF2CG">environmentally friendly</a> or <a href="https://www.usnews.com/news/stem-solutions/articles/2020-01-08/commentary-a-portfolio-managers-approach-to-diversity-and-inclusion">improving the diversity of their workforce</a>. Broadly, these behaviors come under the umbrella of corporate social responsibility. Companies do them to <a href="https://business-ethics.com/2015/05/05/does-corporate-social-responsibility-increase-profits/">increase customer loyalty</a> and, ultimately, earn more revenue. </p>
<p><a href="https://doi.org/10.1086/680089">Past research</a> has suggested that customers like to purchase more from companies that do good deeds because of the “warm glow” that comes with it. In a <a href="https://link.springer.com/article/10.1007/s10551-020-04445-0">new study</a>, however, three colleagues and I discovered that there’s another effect motivating consumer behavior: These activities can make people think the firms’ products or services are safer and of higher quality.</p>
<p>When people see companies spending resources on socially responsible activities, they infer that these firms are invested in building long-term relationships with its customers. That is, they assume companies are not trying to cheat them into buying inferior quality products or services. For example, when <a href="https://www.yahoo.com/news/boeing-donates-250-000-medical-184800269.html">Boeing donated</a> 250,000 medical-grade respiratory masks to address supply shortages in China, it likely not only created goodwill among consumers but also reduced the perception that flying aboard one of its planes is risky.</p>
<h2>Why it matters</h2>
<p>Society needs companies to invest in corporate social responsibility. Businesses can do far more good than any one individual. But managers are always under pressure to demonstrate how such investments – even ones intended to benefit society at large – will affect their bottom line. </p>
<p>Importantly, our analysis suggests that the types of activities that have the biggest impact for companies involve actual changes to their operations, such as by making products safer or more environmentally friendly, rather than unrelated things like charitable giving. An example is <a href="https://www.theverge.com/2018/8/16/17693866/ford-self-driving-car-safety-report-dot">Ford investing in making its self-driving cars safer</a>.</p>
<p>While consumers want to see companies giving back to society, what is more important is that they create safer and higher quality products that benefit customers, the environment and society in the long term. </p>
<h2>How I do my work</h2>
<p>My colleagues and I analyze publicly available archival data on companies and their activities and perform experiments in the lab. For example, we brought participants into the lab and had some of them read a scenario involving a company’s corporate social responsibility efforts, while others did not. We then measured each group’s perceptions of the risk of buying the company’s products. This allowed us to better understand cause and effect.</p>
<h2>What’s next</h2>
<p>While this research offers suggestions to managers about when and how to use corporate social responsibility, future researchers may want to explore whether it may be of value in controversial industries such as tobacco and gambling, where such efforts may be employed as a means to offset past irresponsibility. It would also be interesting to investigate how long it may take companies to recuperate investments in corporate social responsibility.</p>
<p>[<em>Get the best of The Conversation, every weekend.</em> <a href="https://theconversation.com/us/newsletters/weekly-highlights-61?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=weeklybest">Sign up for our weekly newsletter</a>.]</p><img src="https://counter.theconversation.com/content/132234/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Valerie Good does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>New research shows that when companies do things like give to charity or reduce their carbon footprint, consumers perceive their products as less risky.Valerie Good, Published Researcher and Marketing Faculty, Michigan State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1179482019-08-29T12:18:43Z2019-08-29T12:18:43ZShould investors buy marijuana stocks?<figure><img src="https://images.theconversation.com/files/289266/original/file-20190823-170906-1cvvid8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Taking a whiff of the marijuana flower.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/California-Marijuana/5db29db39d2748b0a4326dc98e8894ed/162/0">AP Photo/Richard Vogel</a></span></figcaption></figure><p>Illinois recently became the <a href="https://www.bloomberg.com/news/articles/2019-05-31/illinois-becomes-11th-state-to-legalize-recreational-marijuana">11th state</a> to legalize marijuana for recreational use. As <a href="https://www.usatoday.com/story/money/2019/06/14/next-states-likely-legalize-marijuana/1426972001/">more states follow suit</a>, legal cannabis spending is expected to <a href="https://www.investopedia.com/investing/top-marijuana-stocks/">grow over 200%</a> from about US$9 billion in 2017 to $31 billion in 2022. </p>
<p>With these unparalleled increases in spending, marijuana stocks, <a href="https://www.fool.com/investing/2017/04/07/the-very-first-marijuana-stock-etf-just-debuted-sh.aspx">including marijuana exchange-traded funds</a>, with catchy tickers such as YOLO, an acronym for “you only live once,” are becoming more common.</p>
<p>So should people add these stocks to their portfolios?</p>
<h2>The rise of socially responsible investing</h2>
<p>As a <a href="https://shprs.asu.edu/content/sandra-woien">business ethicist</a>, I know that socially responsible investing has become more popular, <a href="https://www.npr.org/sections/13.7/2016/08/24/490811156/corporate-ethics-in-the-era-of-millennials">especially with millennials</a>. Socially responsible investments experienced a <a href="https://www.ussif.org/files/Trends/Trends%202018%20executive%20summary%20FINAL.pdf">38% increase</a> between 2016 and 2018. At the beginning of 2018 alone, <a href="https://www.ussif.org/files/Trends/Trends%202018%20executive%20summary%20FINAL.pdf">$11.6 trillion was invested in socially responsible</a> funds. This translates into $1 out of $4 of all U.S. invested funds.</p>
<p>Investors committed to being socially conscious have more choices than ever and can <a href="https://www.forbes.com/sites/moneyshow/2017/08/16/socially-responsible-investing-earn-better-returns-from-good-companies/#6952f2ab623d">expect similar returns to traditional investors</a>.</p>
<h2>Moral basis for investing</h2>
<p>While there is no set definition on what socially responsible investing entails, it goes beyond the fundamental view of Milton Friedman, an iconic economist, who claimed “<a href="http://www.umich.edu/%7Ethecore/doc/Friedman.pdf">the business of business is business</a>” – in other words, making money or “profit.”</p>
<p>In addition to profit, socially responsible investing focuses on what is known as the <a href="https://www.investopedia.com/terms/t/triple-bottom-line.asp">“triple bottom line</a>.” This means that companies also consider “people” and “planet,” as part of responsible business practices. </p>
<p>Scholar <a href="https://polisci.berkeley.edu/people/person/david-vogel">David Vogel</a> <a href="https://books.google.com/books/about/The_Market_for_Virtue.html?id=e7uk29lkoHgC">defines</a> socially responsible investing as “practices that improve the workplace and benefit society in ways that go above and beyond what companies are legally required to do.” </p>
<p>Socially responsible investors typically buy stocks in companies that have policies to mitigate climate change or support <a href="https://wfto.com/fair-trade/10-principles-fair-trade">fair trade</a>, but may avoid companies engaged in fossil fuels, tobacco, alcohol and arms production. </p>
<p>Most people would agree that such companies ultimately cause more social and environmental harm than good. </p>
<p>For instance, <a href="https://gofossilfree.org/divestment/what-is-fossil-fuel-divestment/">fossil fuels,</a> while meeting the demands for a relatively cheap and consistent energy source, unequivocally contribute to air pollution and negatively impact human and environmental health. </p>
<p>The case of <a href="https://tobaccofreeportfolios.org/who-we-are/">tobacco is similar</a>. It is highly addictive and may seriously compromise a healthy and long life. </p>
<h2>The case of marijuana</h2>
<p>Taking a view on marijuana is more complex. The substance is used both medically and recreationally. </p>
<p>Marijuana use can cause harm, especially when used at a young age. The National Institutes of Health acknowledges <a href="https://www.drugabuse.gov/publications/research-reports/marijuana/marijuana-addictive">that 30% of users develop dependence and withdrawal symptoms</a> with the long-term use of marijuana. It can also lead to long-term and <a href="https://www.drugabuse.gov/publications/research-reports/marijuana/what-are-marijuanas-long-term-effects-brain">adverse changes to the brain</a>. </p>
<p><a href="https://www.lung.org/stop-smoking/smoking-facts/marijuana-and-lung-health.html">The American Lung Association advises against smoking marijuana</a> due to the risks it poses for lung health. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/289268/original/file-20190823-170922-folifl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/289268/original/file-20190823-170922-folifl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=445&fit=crop&dpr=1 600w, https://images.theconversation.com/files/289268/original/file-20190823-170922-folifl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=445&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/289268/original/file-20190823-170922-folifl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=445&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/289268/original/file-20190823-170922-folifl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=560&fit=crop&dpr=1 754w, https://images.theconversation.com/files/289268/original/file-20190823-170922-folifl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=560&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/289268/original/file-20190823-170922-folifl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=560&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Medical marijuana plants being grown with special grow lights at a facility in Ravena, New York.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Medical-Marijuana-New-York/e325bb4a0adc4efa8bff9085036f030e/6/0">AP Photo/Hans Pennink</a></span>
</figcaption>
</figure>
<p>However, marijuana also has some health benefits. </p>
<p>Even though marijuana is not recognized by the Federal Drug Administration as a medicine, <a href="https://www.drugabuse.gov/publications/drugfacts/marijuana-medicine">the National Institutes of Health recognizes</a> chemicals derived from the plant can help increase appetite, decrease pain, inflammation and nausea. The NIH also acknowledges that such derivatives may be useful in treating certain mental illnesses and addictions and some studies have shown it may be a weapon against <a href="https://theconversation.com/hope-for-cannabis-as-treatment-for-opioid-addiction-104467">opioid dependence</a>. </p>
<p><a href="https://clinicaltrials.gov/ct2/results?cond=&term=marijuana&cntry=&state=&city=&dist=">Clinical trials</a> hold the promise of finding more therapeutic benefits and possible treatments. </p>
<h2>Medical marijuana stocks</h2>
<p>So does owning marijuana stocks raise the same ethical issues as owning stocks in an alcohol or tobacco firm – or are they more like pharmaceutical stocks?</p>
<p>There are gray areas in socially responsible investing. Not all socially conscious investors have the same values, and not all companies create equal amounts of good. </p>
<p>I do think any socially responsible investor should stay away from recreational marijuana stocks due to the potential for addiction coupled with other health risks. </p>
<p>Medical marijuana stocks, on the other hand, appear to have more benefits than harms. When used for medical reasons, the therapeutic benefits seem to outweigh the health risks. In my view, socially responsible investors should feel free to include a <a href="https://investorplace.com/2019/04/10-medical-marijuana-stocks-to-cure-your-portfolio/">medical marijuana stock</a> in their portfolios if it aligns with their values. </p>
<p><em>Editor’s note: This piece is part of our series on ethical questions arising from everyday life. We would welcome your suggestions. Please email us at <a href="mailto:ethical.questions@theconversation.com">ethical.questions@theconversation.com</a>.</em></p>
<p>[ <em><a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=thanksforreading">Thanks for reading! We can send you The Conversation’s stories every day in an informative email. Sign up today.</a></em> ]</p><img src="https://counter.theconversation.com/content/117948/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sandra Woien does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A business ethicist explores whether cannabis stocks fit in with a socially responsible approach to investing.Sandra Woien, Lecturer of Philosophy, Arizona State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1192812019-07-24T11:38:57Z2019-07-24T11:38:57ZInvestors, consumers and workers are changing capitalism for the better by demanding companies behave more responsibly<p>Capitalism’s days may be numbered – at least judging by recent polls. </p>
<p>A <a href="https://www.washingtonpost.com/news/wonk/wp/2016/04/26/a-majority-of-millennials-now-reject-capitalism-poll-shows/">majority of millennials reject</a> the economic system, while 55% of women aged 18 to 54 <a href="https://www.axios.com/axios-hbo-poll-55-percent-women-prefer-socialism-f70bf87e-34fd-4b63-b1f6-2f2b6900f634.html">say they prefer socialism</a>. More Democrats now <a href="https://www.pewresearch.org/fact-tank/2019/06/25/stark-partisan-divisions-in-americans-views-of-socialism-capitalism/">have a positive view of socialism</a> than capitalism.</p>
<p>One problem interpreting numbers like these is that there are many definitions of capitalism and socialism. More to the point, people seem to be thinking of a specific form of capitalism that deems the sole purpose of companies is to increase stock prices and enrich investors. Known as shareholder capitalism, it’s been the <a href="https://prospect.org/article/when-shareholder-capitalism-came-town">guiding light of American business</a> for more than four decades. </p>
<p>As a <a href="https://www.umass.edu/spp/people/faculty/elizabeth-schmidt">scholar of socially responsible companies</a>, however, I cannot help but notice a <a href="https://ssrn.com/abstract=3406867">shift in corporate behavior in recent years</a>. A new kind of capitalism seems to be emerging, one in which companies value communities, the environment and workers just as much as profits.</p>
<p>The latest evidence: The leaders at some of the world’s largest companies said <a href="https://www.bloomberg.com/news/articles/2019-08-19/jpmorgan-s-dimon-among-ceos-rejecting-shareholder-centric-model?srnd=premium">they are ditching</a> shareholder-first capitalism and instead embracing a corporate purpose that seeks to serve all constituents. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/285412/original/file-20190723-110166-1u9gidg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/285412/original/file-20190723-110166-1u9gidg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/285412/original/file-20190723-110166-1u9gidg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/285412/original/file-20190723-110166-1u9gidg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/285412/original/file-20190723-110166-1u9gidg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/285412/original/file-20190723-110166-1u9gidg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/285412/original/file-20190723-110166-1u9gidg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Democrats increasingly view socialism in a more positive light.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Election-2020-Student-Debt/d9aebde776694f1b993a364e5383dc0e/2/0">AP Photo/J. Scott Applewhite</a></span>
</figcaption>
</figure>
<h2>The purpose of business</h2>
<p>Nearly 50 years ago, the economist <a href="https://graphics8.nytimes.com/packages/pdf/business/miltonfriedman1970.pdf">Milton Friedman</a> proclaimed that the sole purpose of a business is “to use its resources and engage in activities designed to increase its profits.”</p>
<p>Within a decade, Friedman’s claim <a href="http://rooseveltinstitute.org/wp-content/uploads/2018/06/The-Shareholder-Myth.pdf">became accepted wisdom</a> in corporate boardrooms. The era of “shareholder primacy capitalism” had begun.</p>
<p>One result has been <a href="https://forecast-chart.com/historical-sp-500.html">remarkable growth in the stock market</a>. But critics argue companies and the “shareholder value theory” <a href="https://hbr.org/2017/05/managing-for-the-long-term#the-error-at-the-heart-of-corporate-leadership">are also complicit</a> in exacerbating many <a href="https://www.washingtonpost.com/us-policy/2019/02/25/race-shareholder-profits-has-left-workers-dust-according-new-research/">economic</a>, <a href="https://www.theatlantic.com/business/archive/2012/04/how-investing-turns-nice-people-into-psychopaths/255426/">social</a> and <a href="https://www.theguardian.com/sustainable-business/2017/jul/10/100-fossil-fuel-companies-investors-responsible-71-global-emissions-cdp-study-climate-change">environmental</a> problems, such as <a href="https://www.washingtonpost.com/posteverything/wp/2017/03/02/perspective-on-the-stock-market-rally-80-of-stock-value-held-by-top-10/">income inequality</a> and <a href="https://www.theguardian.com/sustainable-business/2017/jul/10/100-fossil-fuel-companies-investors-responsible-71-global-emissions-cdp-study-climate-change">climate change</a>.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/285409/original/file-20190723-110187-1ag0vc1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/285409/original/file-20190723-110187-1ag0vc1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/285409/original/file-20190723-110187-1ag0vc1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=804&fit=crop&dpr=1 600w, https://images.theconversation.com/files/285409/original/file-20190723-110187-1ag0vc1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=804&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/285409/original/file-20190723-110187-1ag0vc1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=804&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/285409/original/file-20190723-110187-1ag0vc1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1010&fit=crop&dpr=1 754w, https://images.theconversation.com/files/285409/original/file-20190723-110187-1ag0vc1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1010&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/285409/original/file-20190723-110187-1ag0vc1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1010&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Milton Friedman won prizes for his research on consumption analysis and monetary history.</span>
<span class="attribution"><a class="source" href="https://en.wikipedia.org/wiki/Milton_Friedman#/media/File:Milton_Friedman_1976.jpg">Wikimedia Commons</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>They also note that putting profits first actually <a href="https://scholarship.law.upenn.edu/cgi/viewcontent.cgi?referer=http%253A%252F%252Fwww.bing.com%252Fsearch%253Fq%253Dlynn%2520stout%2520toxic&amp=&go=Search&amp=&qs=n&amp=&form=QBRE&amp=&sp=-1&amp=&pq=lynn+stout+toxic&amp=&sc=1-16&amp=&sk=&amp=&cvid=79A92B3E536049C493D0683540E953E5&amp=&httpsredir=1&amp=&article=1031&amp=&context=penn_law_review&amp=&sei-redir=1#search=%22lynn%20stout%20toxic%22">harms shareholders</a> in the long run by encouraging managers to take actions that may eventually reduce earnings.</p>
<h2>The rebellion</h2>
<p>Many consumers, workers and socially conscious investors have also noticed these shortcomings and increased pressure on corporations to change.</p>
<p>For starters, more Americans no longer find it acceptable for companies to exclusively seek profits. A <a href="http://www.conecomm.com/research-blog/2017-csr-study">2017 poll</a> found that 78% of U.S. consumers want businesses to pursue social justice issues, while 76% said they would refuse to buy a product if the business supported an issue contrary to their beliefs. Almost half the respondents said they had already boycotted a product for that reason.</p>
<p>Workers increasingly expect their employers to share their values. A <a href="https://sustainablebrands.com/read/organizational-change/3-4-of-millennials-would-take-a-pay-cut-to-work-for-a-socially-responsible-company">2016 study</a> found that most Americans – particularly millennials – consider a company’s social and environmental commitments when deciding where to work. Most would also be willing to take a pay cut in order to work for a “responsible” company – and are demanding their current employers behave that way.</p>
<p>For example, workers at online furniture company Wayfair <a href="https://www.forbes.com/sites/rakeenmabud/2019/07/12/two-lessons-from-the-wayfair-walkout/#71c1ddc33a88">recently walked out</a> when they learned it had sent beds to detention centers at the U.S.-Mexico border. More than 8,100 Amazon employees signed an open letter supporting a <a href="https://medium.com/@amazonemployeesclimatejustice/public-letter-to-jeff-bezos-and-the-amazon-board-of-directors-82a8405f5e38">shareholder resolution</a> urging the retailer to do more to address climate change. </p>
<p>Finally, investors are <a href="https://hbr.org/2019/05/the-investor-revolution">becoming more socially aware</a> and putting more of their money behind businesses that behave in sustainable and responsive ways. At the beginning of 2018, portfolio managers <a href="https://www.ussif.org/files/Trends/Trends%202018%20executive%20summary%20FINAL.pdf">held US$11.6 trillion</a> in U.S. assets using environmental, social and governance criteria to guide their investments, up from <a href="https://www.ussif.org/files/Publications/10_Trends_Exec_Summary.pdf">$2.5 trillion in 2010</a>. </p>
<p>Laurence Fink, founder and CEO of BlackRock, the <a href="https://www.bloomberg.com/news/articles/2019-06-13/blackrock-looks-to-five-megatrends-to-expand-etf-business">world’s largest asset manager</a>, <a href="https://www.blackrock.com/corporate/investor-relations/2018-larry-fink-ceo-letter">summed up the growing sentiment</a> when he said, “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”</p>
<h2>The corporate response</h2>
<p>Presumably realizing how important these constituencies are to their bottom lines, businesses are paying attention. </p>
<p>The Business Roundtable’s <a href="https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans">decision</a> to “redefine the purpose of a corporation” to serve all Americans may be the most recent sign of this, but it’s hardly isolated. </p>
<p>Dick’s Sporting Goods, Kroger, Walmart and L.L. Bean, for example, responded to growing concerns over mass shootings by <a href="https://www.triplepundit.com/story/2019/parkland-year-2-gun-safety-and-business-response-gun-violence/82451/">restricting the sale of guns</a>. Proctor and Gamble, a major sponsor for U.S. Soccer, expressed support for the quest of the <a href="https://www.tmz.com/2019/07/14/procter-and-gamble-donate-us-womens-national-soccer-team-equal-pay/">women’s team</a> for equal pay and donated $500,000 to help narrow the pay gap with men. </p>
<p>Airlines including American, United and Frontier <a href="https://www.nytimes.com/2018/06/20/us/airlines-transport-immigrant-children.html">refused to knowingly fly children</a> separated from their parents at the border following outrage over the Trump administration’s policy. And even though Amazon shareholders rejected the worker-supported shareholder resolution described above, <a href="https://www.ecowatch.com/amazon-climate-change-resolution-2637862790.html?rebelltitem=3#rebelltitem3">Amazon set stronger goals</a> for reducing its carbon footprint after the resolution was introduced.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/285407/original/file-20190723-110170-ddfuyq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/285407/original/file-20190723-110170-ddfuyq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=362&fit=crop&dpr=1 600w, https://images.theconversation.com/files/285407/original/file-20190723-110170-ddfuyq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=362&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/285407/original/file-20190723-110170-ddfuyq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=362&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/285407/original/file-20190723-110170-ddfuyq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=455&fit=crop&dpr=1 754w, https://images.theconversation.com/files/285407/original/file-20190723-110170-ddfuyq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=455&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/285407/original/file-20190723-110170-ddfuyq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=455&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Unilever found that its ‘sustainable living’ brands such as Ben & Jerry’s are growing faster than its other products.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Milk-With-Dignity/4b5b78c94d6a4ab79cc3ab3068e82742/47/0">AP Photo/Wilson Ring</a></span>
</figcaption>
</figure>
<p>These actions have sometimes hurt the bottom line. The decision to restrict gun sales cost Dick’s Sporting Goods <a href="https://www.bloomberg.com/news/articles/2019-03-29/dick-s-dks-ceo-ed-stack-says-gun-shift-cut-sales-by-150m">$150 million</a>. Delta <a href="https://www.marketwatch.com/story/georgia-lawmakers-kill-jet-fuel-tax-break-after-delta-drops-nra-discount-2018-03-01">lost a $50 million tax break</a> in Georgia after severing ties with the NRA. </p>
<p>But these and <a href="https://www.dailysignal.com/2018/08/30/how-louisiana-stood-up-to-the-anti-gun-corporate-elite/">other companies</a> didn’t back down. The CEO of Dick’s Sporting Goods <a href="https://tennesseestar.com/2019/03/30/dicks-sporting-goods-lost-millions-over-anti-gun-policies/">explained</a> that when something is “to the detriment of the public, you have to stand up.”</p>
<p>Companies are also setting tougher social and environmental goals for themselves and then reporting their successes and failures. Tesla, Unilever, Nike and Whole Foods are among nine companies with annual revenues of at least $1 billion that “<a href="https://www.theguardian.com/sustainable-business/2016/jan/02/billion-dollar-companies-sustainability-green-giants-tesla-chipotle-ikea-nike-toyota-whole-foods">have sustainability or social good at their core</a>.” </p>
<p>In 2018, <a href="https://www.ga-institute.com/press-releases/article/flash-report-86-of-sp-500-indexR-companies-publish-sustainability-responsibility-reports-in-20.html">86% of Standard & Poor’s 500 companies</a> reported on their environmental, social and governance performance and achievements, up from less than 20% in 2011.</p>
<p>And companies have found that putting more emphasis on social justice can pay off. Unilever, for example, said in 2017 that its “<a href="https://www.marketingweek.com/unilever-sustainable-brands-growth/">sustainable living” brands</a>, such as Ben & Jerry’s, Dove and Hellmann’s, are growing much faster than its other brands. Companies with the best scores on their sustainability reports <a href="https://www.forbes.com/sites/terrywaghorn/2017/12/04/sustainable-reporting-lessons-from-the-fortune-500/#7a4d9f756564">generally perform better financially</a> than those with lower scores. </p>
<h2>The end of shareholder capitalism?</h2>
<p>Skeptics can be forgiven for believing these corporate “changes” are not real or are simply public relations stunts designed to appeal to a new generation.</p>
<p>Businesses can, of course, say they will be responsible citizens while doing the opposite. Few sustainability reports in the United States are <a href="https://www.cpajournal.com/2017/07/26/current-state-assurance-sustainability-reports/">externally audited</a>, and the companies are asking us to take them at their word.</p>
<p>Even if they are well-meaning, intentions are not enough to create systemic change. A 2017 study showed that many companies with climate change goals actually <a href="https://hbr.org/2017/11/how-bold-corporate-climate-change-goals-deteriorate-over-time">scaled back their ambitions over time</a> as the reality clashed with their lofty goals.</p>
<p>But businesses can’t afford to ignore their customers’ wishes. Nor can they ignore their workers in a tight labor market. And if they disregard socially responsible investors, they risk both <a href="https://hbr.org/2019/05/the-investor-revolution">losing out on important investments</a> and facing <a href="https://www.porticobenefits.org/Overview/ReponsibleInvesting/InvestingForSocialImpact/ClimateChangeResolutions">shareholder resolutions</a> that force change.</p>
<p>The shareholder value doctrine is not dead, but we are beginning to see major cracks in its armor. And as long as investors, customers and employees continue to push for more responsible behavior, you should expect to see those cracks grow. </p>
<p><em>This is an updated version of an article originally published on July 24, 2019.</em></p>
<p>[ <em>Like what you’ve read? Want more?</em> <a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=likethis">Sign up for The Conversation’s daily newsletter</a>. ]</p><img src="https://counter.theconversation.com/content/119281/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Elizabeth Schmidt does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A new kind of capitalism is emerging in which companies value communities, the environment and workers just as much as profits. Even the Business Roundtable agrees.Elizabeth Schmidt, Professor of Practice, Nonprofit Organizations; Social & Environmental Enterprises, UMass AmherstLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1026892018-09-07T10:44:14Z2018-09-07T10:44:14ZFossil fuel divestment debates on campus spotlight the societal role of colleges and universities<figure><img src="https://images.theconversation.com/files/235103/original/file-20180905-45166-g6qtn4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Divestment rally at Harvard University, April 17, 2015.</span> <span class="attribution"><a class="source" href="https://flic.kr/p/resmQ1">350.org</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span></figcaption></figure><p>As a new academic year begins after a summer of <a href="http://www.wbur.org/hereandnow/2018/08/02/summer-weather-climate-change">deadly heat waves, wildfires, droughts and floods</a>, many college students and faculty are debating <a href="https://www.chronicle.com/article/Why-We-Need-a-More-Activist/243924">whether and how to get involved in climate politics</a>. </p>
<p>Climate advocacy has become well established on U.S. campuses over the past decade, in diverse forms. More than 600 colleges and universities have signed the <a href="https://secondnature.org">American College and University President’s Climate Commitment</a>. Schools are expanding interdisciplinary teaching and research in environmental studies, sustainability science and climate resilience, and investing in “greening” their campuses. And many activists on campuses around the country are participating in global campaigns like “<a href="https://riseforclimate.org/">Rise for Climate, Jobs and Justice</a>” and “<a href="http://keepitintheground.org/">Keep it in the Ground</a>.” </p>
<p>One of the most controversial strategies is campaigning for schools to <a href="https://theconversation.com/how-bill-mckibbens-radical-idea-of-fossil-fuel-divestment-transformed-the-climate-debate-87895">divest their holdings in fossil fuel companies</a>. Campus divestment is widely viewed as mainly a student cause. But when I analyzed the movement with <a href="https://www.ucsusa.org/about/staff/staff/peter-frumhoff.html#.W46ikpNKi9Y">Peter Frumhoff</a> of the <a href="https://www.ucsusa.org/">Union of Concerned Scientists</a> and Yale (now Stanford) graduate student <a href="https://www.linkedin.com/in/leehi/">Leehi Yona</a>, we found <a href="https://www.elementascience.org/articles/10.1525/elementa.297/">widespread faculty support for divestment</a>. For example, in a <a href="https://www.thecrimson.com/article/2018/5/1/faculty-survey-part-1/">survey at Harvard</a> in spring 2018, 67 percent of faculty respondents supported divestment, while only 9 percent were opposed and 24 percent were neutral. </p>
<p>So far, however, only about <a href="https://gofossilfree.org/divestment/commitments/">150 campuses worldwide</a> have committed to fossil fuel divestment – and less than a third of those are in the United States. Why so few? I see two reasons. First, divestment is controversial because it acknowledges the need for radical change. Second, there is a disconnect in institutional priorities between administrators on one side and faculty and students on the other side. </p>
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<iframe width="440" height="260" src="https://www.youtube.com/embed/tdJ8FCSFTnQ?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Instead of divesting its fossil fuel holdings, Harvard University has committed to become fossil fuel-free by 2050 and fossil fuel-neutral by 2026.</span></figcaption>
</figure>
<h2>A growing global movement</h2>
<p>Fossil fuel divestment is intended to <a href="https://www.newyorker.com/business/currency/does-divestment-work">stigmatize the industry</a> and hold companies accountable for <a href="https://theconversation.com/30-years-ago-global-warming-became-front-page-news-and-both-republicans-and-democrats-took-it-seriously-97658">opposing action to slow climate change</a> and for their strategic misinformation campaign designed to <a href="https://doi.org/10.1088/1748-9326/aa815f">confuse the public about climate science and the risks of climate change</a>. </p>
<p>To date, <a href="https://gofossilfree.org/divestment/commitments/">over 800 institutions</a> with assets valued at over US$6 trillion have committed to some form of fossil fuel divestment. They include the Rockefeller Brothers Fund, the Guardian Media Group and the World Council of Churches. </p>
<p><a href="https://www1.nyc.gov/office-of-the-mayor/news/022-18/climate-action-mayor-comptroller-trustees-first-in-the-nation-goal-divest-from#/0">New York City</a> has set a goal of divesting its pension funds from fossil fuel companies by 2023. And in July 2018, the Irish parliament passed a bill making Ireland the <a href="https://www.theguardian.com/environment/2018/jul/12/ireland-becomes-worlds-first-country-to-divest-from-fossil-fuels">first country in the world to divest</a> from fossil fuels. </p>
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<h2>Student and faculty support</h2>
<p><a href="https://www.elementascience.org/articles/10.1525/elementa.297/">Our analysis</a> of campus support for divestment focused on 30 colleges and universities in the United States and Canada. We reviewed the number and type of faculty at these schools who had signed publicly available letters endorsing fossil fuel divestment. Over 4,550 faculty had taken such positions, representing all major disciplines and fields. They included 30 members of the <a href="http://nas.edu/">National Academies of Sciences, Engineering and Medicine</a> and two Nobel laureates. These findings suggest that faculty engagement in the divestment movement is broader than generally realized. </p>
<p>Faculty support reflects concern about fossil fuel companies’ negative influence in our political system, in our increasingly unequal economy and in public understanding of science. Faculty are also concerned about the industry’s direct influence over research and teaching within higher education.</p>
<p><a href="https://www.theguardian.com/environment/climate-consensus-97-per-cent/2017/mar/13/the-fossil-fuel-industrys-invisible-colonization-of-academia">A wide array of U.S. schools</a>, ranging from large state universities to prestigious elite institutions such as Harvard and MIT, have received financial support from individuals or foundations whose wealth comes from fossil fuels. Many professors and students are concerned about how these relationships constrain campus research, inquiry and conversation about responses to climate change and the need for radical change in energy systems. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/235107/original/file-20180905-45169-1031miz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/235107/original/file-20180905-45169-1031miz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/235107/original/file-20180905-45169-1031miz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/235107/original/file-20180905-45169-1031miz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/235107/original/file-20180905-45169-1031miz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/235107/original/file-20180905-45169-1031miz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/235107/original/file-20180905-45169-1031miz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/235107/original/file-20180905-45169-1031miz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">New York City Mayor Bill de Blasio announces on January 10, 2018, that the city will seek to divest its pension funds from fossil fuel holdings by 2023.</span>
<span class="attribution"><a class="source" href="https://www1.nyc.gov/office-of-the-mayor/news/022-18/climate-action-mayor-comptroller-trustees-first-in-the-nation-goal-divest-from#/0">City of New York</a></span>
</figcaption>
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<h2>Resisting calls to divest</h2>
<p>So why have leaders at institutions like <a href="https://www.bostonglobe.com/metro/2014/04/07/after-refusing-divest-from-fossil-fuels-harvard-takes-new-steps-promote-environment/k0Y8ig27Uq1cdRtF85qnzO/story.html">Harvard</a>, <a href="https://www.ai-cio.com/news/swarthmore-endowment-will-not-divest-fossil-fuels/">Swarthmore</a> and <a href="http://www.middlebury.edu/newsroom/node/459563">Middlebury</a> resisted faculty and student calls to divest? Many administrators cite their <a href="https://www.harvard.edu/president/news/2013/fossil-fuel-divestment-statement">fiduciary responsibility</a> to maximize returns on endowment investments. However, a recent study that compared financial performance of investment portfolios with and without fossil fuel companies from 1927-2016 found that fossil fuel divestment <a href="https://doi.org/10.1016/j.ecolecon.2017.11.036">did not reduce investment portfolio performance</a>. </p>
<p>Administrators also often contend that their school’s investments should not be politicized. They say the endowment <a href="https://www.wellesley.edu/about/president/mytake/divestment">is not an appropriate lever for social change</a>. But there is no such thing as an apolitical investment. Every investment does, in fact, influence change in one way or another. Many schools are now implicitly acknowledging this by <a href="https://www.universitybusiness.com/article/more-colleges-investing-impact">developing guidelines</a> for socially or environmentally responsible investing.</p>
<p>Senior administrators may also fear alienating important university constituents who are connected to the fossil fuel industry. They may feel a need to protect direct or indirect funding from fossil fuel companies for academic programs, or to maintain a non-threatening environment for board members with fossil fuel interests. </p>
<p>Higher education administrators also resist calls to divest because they recognize the potential for campus activists to call for <a href="https://dealbook.nytimes.com/2015/02/10/using-anti-apartheid-divestment-strategies-to-battle-fossil-fuels/">divesting from other ethically challenged businesses</a>, including tobacco and firearms. As social impact investing grows, it is not clear whether or how fossil fuel energy companies will be integrated. </p>
<p><div data-react-class="InstagramEmbed" data-react-props="{"url":"https://www.instagram.com/p/0QjRwZGxVZ/?utm_source=ig_web_copy_link","accessToken":"127105130696839|b4b75090c9688d81dfd245afe6052f20"}"></div></p>
<h2>Colleges and universities as citizens</h2>
<p>The core missions of our institutions of higher education are to generate knowledge and educate citizens and leaders. Many schools also embrace a <a href="https://ideas.repec.org/a/oec/edukaa/5kzdcsdmjcvb.html">third role</a>: addressing pressing social issues, whether through research and teaching or other strategies – for example, <a href="https://www.citylab.com/solutions/2017/09/how-universities-are-protecting-their-dreamers/539337/">protecting undocumented students</a> from the Trump administration’s aggressive enforcement of immigration law.</p>
<p>Education scholars have argued that all universities transmit powerful educational messages <a href="https://doi.org/10.1007/s10805-007-9045-5">far beyond their specific teaching and research activities</a>. Concepts of “universities as citizens” or “<a href="http://dx.doi.org/10.1108/14676370810885916">universities as change agents</a>” capture the potential for universities to be active, contributing, influential and responsive members of society. Higher education thought leader <a href="https://global.oup.com/academic/product/academias-golden-age-9780195054644?cc=us&lang=en&">Richard Freeland</a> and many others have argued that colleges and universities have a responsibility to cultivate civic responsibility and citizenship via a scholarship of public engagement. </p>
<p>As disruptions linked to climate change <a href="https://www.technologyreview.com/s/609642/the-year-climate-change-began-to-spin-out-of-control/">become more intense</a>, many faculty and students are asking why their schools are not explicitly incorporating their strategic societal priorities into financial decisions and investment portfolios. Under the Trump administration, standing up against <a href="https://www.theguardian.com/environment/climate-consensus-97-per-cent/2018/jul/25/facebook-video-spreads-climate-denial-misinformation-to-5-million-users">misinformation about climate change</a> takes on greater urgency. </p>
<p>That’s why I believe fossil fuel divestment raises important questions about the changing role and responsibilities of higher education in society. At this moment in human history, education must engage with how to bridge the gap between knowledge and action. Divestment debates are forcing colleges and universities to reconsider how to contribute to a more resilient and sustainable future.</p><img src="https://counter.theconversation.com/content/102689/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jennie C. Stephens receives funding from the National Science Foundation. She is affiliated with New England Women in Energy and the Environment, the Union of Concerned Scientists and Mothers out Front. </span></em></p>Many students and professors at US colleges and universities want their schools to divest holdings in fossil fuel companies, but it’s a hard sell for school administrators.Jennie C. Stephens, Dean’s Professor of Sustainability Science & Policy and Director, School of Public Policy & Urban Affairs, Northeastern UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/910272018-02-01T13:30:46Z2018-02-01T13:30:46ZPutting a price on long term business value is hard – but never more vital than now<figure><img src="https://images.theconversation.com/files/204436/original/file-20180201-123829-1d1g7bk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Firms run with the long term in mind can aim to provide social, environmental, and financial returns.</span> <span class="attribution"><a class="source" href="https://pixabay.com/en/money-home-coin-investment-2724241/">nattanan23</a></span></figcaption></figure><p>In the wake of the financial crash ten years ago, there has been renewed interest in how to value a company. The complex financial derivatives that appeared to be powerful tools for financial growth before the crisis turned out to be worthless. No one wants to make the same mistake again.</p>
<p>When in 2009 Paul Polman, during his first results presentation as chief executive of Unilever, announced he would not be providing the customary quarterly forecast of the firm’s future performance, the company’s share price plummeted. Here was a CEO, some analysts thought, who having taken the reins of one of the world’s consumer goods behemoths appeared clueless as to the future direction of the firm. Others took the opposite view: why would they lambast somebody for refusing to pretend to know what the future holds? Being in it for the long term does not, as many financial analysts think, simply equate to discounting today’s cash against tomorrow’s future value.</p>
<p>It was an early warning shot, and now nearly a decade later the markets are beginning to catch up with Polman. Among the recommendations of his 2012 review of the <a href="https://www.theguardian.com/business/2012/jul/23/stock-market-review-end-cash-bonuses">excesses of Britain’s stockmarket culture</a>, John Kay, professor of economics at LSE, suggested an end to the cycle of reporting quarterly results to shareholders in a bid to discourage short termism. Many firms have since scrapped the process. Crystal ball-gazing - or “forward guidance” in formal parlance – is being left to the eight out of ten financial analysts who express a preference for such market dowsing. </p>
<p>Others have echoed Polman’s sentiment. In a <a href="http://uk.businessinsider.com/blackrock-ceo-larry-fink-letter-to-ceos-2017-1">recent letter to blue chip company bosses</a>, Larry Fink, CEO of Blackrock, the world’s largest investment management firm, urged firms to look to long term value. Fink is seeking to ensure companies understand that long term growth stems from sustainability of the business model and operations, attention to environmental factors that could affect the company, and recognition of the company’s role in the communities in which it operates, including matters such as employees’ personal development and financial security. As Blackrock manages trillions of dollars of investments in public listed companies, it is among the largest single investor in these firms – and so has clout to make its feelings known.</p>
<h2>People and profit</h2>
<p>What matters to people – be they employees, shareholders, customers or collaborators – are the social footprints companies make when going about their business. People may not wish to work for a company they see operating in ways they disagree with. Nor may they want to buy its products or invest in it. Firms are judged by the company they keep, and billions of dollars are being pulled and reinvested elsewhere on the basis of the long term strategy – or lack of it – the business model and financial horizons a firm might adopt.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/204433/original/file-20180201-123852-1ndmzfy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/204433/original/file-20180201-123852-1ndmzfy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/204433/original/file-20180201-123852-1ndmzfy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/204433/original/file-20180201-123852-1ndmzfy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/204433/original/file-20180201-123852-1ndmzfy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/204433/original/file-20180201-123852-1ndmzfy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/204433/original/file-20180201-123852-1ndmzfy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/204433/original/file-20180201-123852-1ndmzfy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Unilever has pushed ahead with long term value goals, aiming for social and environmental as well as financial targets.</span>
<span class="attribution"><span class="source">Unilever</span></span>
</figcaption>
</figure>
<p>Consequently, investors and society more widely are beginning to wake up to the need for long term and sustainable business practices that pay attention to these so-called <a href="https://www.unpri.org/about/what-is-responsible-investment">environmental, social and governance factors</a>. And here, too, Unilever got in early: its <a href="https://www.unilever.co.uk/sustainable-living/">Sustainable Living Plan</a>, launched in 2010, aims to double revenue while halving the firm’s environmental footprint. </p>
<p>Unilever sells two billion products around the globe every day, everything from deodorant, soap and washing powder to margarine and ice cream. That involves a lot of plastic bottles, aluminium tubes, plastic tubs, and paper cartons – a formidable amount of material that would keep Sir David Attenborough awake at night. But it’s also what makes Unilever’s employees get up and go to work in the morning: not just to make Unilever’s shareholders money, but to save the planet. They now have a purpose that fosters their longer-term commitment to the company. </p>
<h2>New ways of measuring value</h2>
<p>The challenge is to articulate, and then calculate the net value of that purpose. Fink encourages companies to “articulate a path to financial performance”, while understanding “the societal impact of your business as well as the ways that broad, structural trends – from slow wage growth to rising automation to climate change – affect your potential for growth”. Companies, he laments, have not been specific enough about their long term strategies. Nor have they been specific enough about the long term value. </p>
<p>This represents an equally daunting ask for the accounting profession. At best, only half the value of a typical firm can be recorded. The other half – the difference between the book value and market value – is intangible. We need to quickly evolve accounting and audit practices if they are to capture the wider sentiment that drives a commitment to long term value created by purpose. </p>
<p>The good news is that work is already underway and initial results are in. They make interesting reading: according to a <a href="https://hbr.org/2017/02/finally-proof-that-managing-for-the-long-term-pays-off?">recent study by the NGO FCLT and consultants McKinsey</a>, around 167 of the 615 non-financial US companies (comprising 65% of the market value of US companies) adopt a long term value approach. Judged against their peers, these companies invest more, have higher quality earnings, and generate higher margins.</p>
<p>Had the rest of the publicly-quoted firms in the US adopted a similar approach this would have added another US$1 trillion in asset value, increased total US market capitalisation by 4%, and added 5m more jobs to the US economy, in turn generating an additional US$1 trillion in GDP. Maybe a focus on long term value also creates short term, and sustainable, rewards.</p><img src="https://counter.theconversation.com/content/91027/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anthony Hesketh does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>More CEOs and investors are looking to long term value over short term profits – an approach that may net them both.Anthony Hesketh, Senior Lecturer in Management, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/813062017-08-21T19:03:04Z2017-08-21T19:03:04ZSouth African universities need to rethink how they invest their millions<figure><img src="https://images.theconversation.com/files/182109/original/file-20170815-26751-103xl1v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Rhodes Must Fall movement accused the University of Cape Town of having blood on its hands for investing in the mining company Lonmin. </span> <span class="attribution"><span class="source">Ian Barbour/flickr</span></span></figcaption></figure><p>Universities are no longer simply institutions of learning. Over the past 50 years, they have also become important players in global financial markets. They have become institutional investors. </p>
<p>Universities have to decide what to do with the pension fund contributions of their staff. They also receive large monetary donations from alumni and other private donors. This money – millions, sometimes billions of dollars – goes into university investment funds. These can be managed internally or delegated to investment managers. </p>
<p>Harvard University in the US has the biggest endowment fund in the world with <a href="https://thebestschools.org/features/richest-universities-endowments-generosity-research/">USD$32.7 billion</a>, while university endowment funds in the UK hold between <a href="https://www.timeshighereducation.com/news/analysis-which-university-has-the-deepest-pockets/163860.article">£2.5 million and £1 billion</a>. Pension funds in the US and UK are even more substantial. For example, the California University pension fund boasts more than <a href="https://www.towerswatson.com/en-GB/Insights/IC-Types/Survey-Research-Results/2015/09/The-worlds-300-largest-pension-funds-year-end-2014">USD$70 billion</a>.</p>
<p>University funds in southern Africa are much smaller, but some are still significant. According to our calculations, the universities with the largest endowments are all in South Africa, with the top five representing a little less than USD$1 billion collectively. The pension funds of the top 10 universities in the region come to around USD$3,6 billion. </p>
<p>The question of how universities choose to invest all this money is increasingly coming under scrutiny. In the <a href="https://gofossilfree.org/commitments/">US, Europe, Australia and New Zealand</a> universities’ pension funds and endowment funds are starting to align their investment portfolios with the social concerns of their students and staff.</p>
<h2>Putting assets to work for a better world</h2>
<p>In the 1970s student and staff activists at US universities put serious pressure on their managements to stop investing in companies involved in the Vietnam war or, later on, in apartheid South Africa.</p>
<p>Today climate change is the issue that’s increasingly dominating the activist agenda on university campuses. Since 2012, <a href="https://350.org/">350.org</a>, a climate change activist movement, has been pushing for total <a href="https://fossilfreesa.org.za/">disinvestment from fossil fuels</a> – with <a href="https://www.theguardian.com/environment/2015/sep/22/leonardo-dicaprio-joins-26tn-fossil-fuel-divestment-movement">some significant victories </a>. Student activists in the US have also called successfully for disinvestment from <a href="http://www.latimes.com/local/education/la-me-uc-divestment-prisons-20151226-story.html">prisons</a>.</p>
<p>In 2005 the UN established a responsible investment coalition called the <a href="https://www.unpri.org/">Principles for Responsible Investment</a>. Signatories pledge to invest according to <a href="https://www.unpri.org/about">six principles</a>, aiming to achieve long-term sustainable investment returns and benefits for society as a whole. So far over 1000 investment managers <a href="https://www.unpri.org/directory/">have signed up</a>, making it the biggest coalition of this kind in the world.</p>
<p>A few academic institutions have signed up too. Harvard’s USD$35 billion <a href="http://news.harvard.edu/gazette/story/2014/04/harvard-to-sign-on-to-united-nations-supported-principles-for-responsible-investment/">University Endowment Scheme</a> joined in 2014. And at least four retirement funds, endowment funds or foundations linked to tertiary education institutions in the US and Europe <a href="https://www.unpri.org/signatory-directory/?co=&sta=3%2C5&sti=&sts=&sa=join&si=join&ss=join&q=">signed up</a> this year. As was the case with Harvard, this has often happened under pressure from student activists. </p>
<h2>Progress at South African universities</h2>
<p>So far no universities in South Africa or Africa have signed the principles. But there are signs that the idea of responsible investment is starting to gain some traction – especially within the heightened activism at South African universities.</p>
<p>For example, the <a href="https://fossilfreesa.org.za/">South Africa fossil free disinvestment campaign</a> has made significant progress at the University of Cape Town. After a four-year campaign, the university’s convocation of alumni and students this year voted to <a href="https://fossilfreesa.org.za/2017/03/02/coal-oil-and-gas-investments-to-be-phased-out-uct-convocation-votes/">support a motion</a> to disinvest from fossil fuels.</p>
<p>The <a href="http://www.npr.org/sections/goatsandsoda/2015/03/28/395608605/why-south-african-students-say-the-statue-of-rhodes-must-fall">Rhodes Must Fall</a> movement also brought the issue of workers’ exploitation into focus. It accused leadership at the University of Cape Town of having <a href="http://www.groundup.org.za/article/rhodes-must-fall-uct-lonmin-and-pension-funds_3263/">blood on its hands</a> for being invested in Lonmin at the time of the <a href="http://www.sahistory.org.za/article/marikana-massacre-16-august-2012">Marikana Massacre</a>.</p>
<p>This was closely followed by nationwide <a href="https://www.dailymaverick.co.za/opinionista/2016-10-10-feesmustfall-the-eye-of-the-hurricane/#.WZLXtoSGOM8">Fees Must Fall</a> protests. Protesters called on government to provide free education for all. In doing so, they challenged the idea that universities should operate as businesses according to free market principles. They also challenged the role of the university in society by calling for decolonisation of the institution.</p>
<p>Since then the University of Cape Town’s council <a href="https://fossilfreesa.org.za/about/uct-campaign-timeline/">has agreed</a> to design a responsible investment policy. This makes it the first known Southern African university to do so.</p>
<h2>Paradigm shift</h2>
<p>For this movement to truly take off in Southern Africa’s universities, there needs to be a paradigm shift at the level of university management.</p>
<p>As stressed by the <a href="http://www.ucop.edu/investment-office/_files/sustainable-investment-framework.pdf">University of California</a>, becoming a responsible investor is not about giving up on financial returns. Rather it’s about finding ways to achieve these while addressing societal challenges and opportunities. A responsible investor can decide to disinvest from environmentally and socially harmful sectors, but also to support new investment opportunities such as renewable energy. </p>
<p>An institutional investor that takes its responsibility towards future generations seriously should reflect on its values to take informed decisions on how financial returns can be better achieved. Fortunately it’s becoming easier to do this thanks to a surge in innovative investment strategies and funds that seek to achieve both good financial returns and positive social impacts. The <a href="http://www.gsb.uct.ac.za/impact-barometer">African Investing for Impact Barometer</a> – a research project that we run for the Bertha Centre for Social Innovation and Entrepreneurship at the UCT Graduate School of Business – charts the rise of opportunities like this and shows that impact investing on the continent is booming. </p>
<p>This trend, combined with activism, can persuade universities to become more proactive, creative and responsible investors. </p>
<p>Student and staff activists have clearly begun to interrogate the links between social and environmental issues and their universities’ investment choices. For university management, these questions present an opportunity to think about how their investment portfolios can be used address the social concerns of their students and staff. Universities – being both institutional investors and places of education – can ultimately find improved investment solutions that create a more sustainable future for the generations of learners to come.</p><img src="https://counter.theconversation.com/content/81306/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephanie Giamporcaro receives funding from Government of Flanders</span></em></p><p class="fine-print"><em><span>Xolisa Dhlamini is on a Bertha Scholarship for his PhD Studies funded by the Bertha Centre, a specialized unit within the UCT Graduate School of Business. Xolisa volunteers as a member of the investment subcommittee at the Institute for Retirement Funds Africa (IRFA). </span></em></p>Universities have the power to transform society not just through how they operate their campuses, but also through how they invest their endowments and pensions funds.Stephanie Giamporcaro, Associate professor UCT GSB / Readership Responsible and Sustainable Finance NTU NBS, University of Cape TownXolisa Dhlamini, PhD Candidate and Bertha Scholar and Researcher, UCT Graduate School of Business, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/625062016-07-29T05:56:15Z2016-07-29T05:56:15ZListed companies with more female directors are better corporate citizens<figure><img src="https://images.theconversation.com/files/132222/original/image-20160727-21558-11qgwcc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Businesses with women leaders are better corporate citizens</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>There is a growing body of international research that suggests that companies with gender-diverse boards are better corporate citizens. These companies comply with legislation and they also have initiatives in place to meet their shareholders’ and stakeholders’ <a href="http://www.iodsa.co.za/?kingIII">social and environmental demands</a>.</p>
<p>Good corporate citizens can distinguish themselves from competitors in a number of ways. They can be equitable employers, engage in ethical business dealings and protect the environment. They can also uplift communities and practice good corporate governance. </p>
<p>These practices can provide companies with a competitive advantage and help them attract the growing number of responsible investors.</p>
<p>Given the paucity of research in emerging markets, we set out to investigate the relationship between board gender diversity and corporate citizenship for a sample of South African companies listed on the <a href="https://www.jse.co.za/">Johannesburg Stock Exchange</a> between 2009 and 2015.</p>
<p>Our findings, to be published shortly, suggest that listed companies with gender-diverse boards are better corporate citizens than companies with male-dominated boards. This observation was particularly applicable to environmental management. It also seems as if these companies’ efforts are being recognised and rewarded by stakeholders.</p>
<h2>Measures of good corporate citizenship</h2>
<p>Many scholars and practitioners equate a company’s inclusion in a <a href="https://www.jse.co.za/services/market-data/indices/socially-responsible-investment-index">responsible investment index</a> as a proxy for good corporate citizenship. Some well-known indices include:</p>
<ul>
<li><p>the <a href="http://www.djindexes.com/sustainability/">Dow Jones Sustainability Indices</a>;</p></li>
<li><p>the <a href="http://www.ftse.com/products/indices/FTSE4Good">FTSE4Good Index</a> series; and</p></li>
<li><p>the <a href="https://www.jse.co.za/services/market-data/indices/ftse-jse-africa-index-series/responsible-investment-index">FTSE/JSE Responsible Investment Index</a> series.</p></li>
</ul>
<p>In line with other local researchers, we used a company’s inclusion in the FTSE/JSE Responsible Investment Index as a narrow measure of good corporate citizenship. </p>
<p>A broad corporate citizenship composite measure was also designed. This measure comprised corporate citizenship actions, reporting and reputation elements. </p>
<p>For the first element of the broad composite measure, we looked at whether a company had an environmental quality management policy and emission reduction targets. Companies were also evaluated on the extent to which they recognised risks associated with climate change. </p>
<p>Another area of evaluation was companies’ level of compliance with the <a href="https://www.thedti.gov.za/economic_empowerment/bee.jsp">Broad-Based Black Economic Empowerment Act</a>. Attention was also given to internal corporate social responsibility training. </p>
<p>Furthermore, a company’s involvement in unlawful activities was measured in terms of fines, litigation and investigations conducted by the <a href="http://www.compcom.co.za/">Competition Commission</a> and <a href="http://www.comptrib.co.za/">Tribunal</a>.</p>
<p>The second element centred on <a href="http://framework-llc.com/bloomberg-esg-disclosure-scores-behind-the-terminal/">Bloomberg’s</a> environmental, social and governance disclosure scores. These were used as proxies for corporate citizenship reporting. </p>
<p>The reputation element was based on whether or not a firm received any of the following awards:</p>
<ul>
<li><p>the <a href="http://themediaonline.co.za/2015/08/top-brands-named-at-sunday-times-awards-2/">Sunday Times Top Brands Green Award</a>;</p></li>
<li><p>the <a href="http://www.bizcommunity.com/Article/196/82/133730.html">Sunday Times Top Brands Corporate Social Investment Award</a>;</p></li>
<li><p>the <a href="http://www.nkonki.com/integrated-reporting">Nkonki Integrated Reporting Award</a>;</p></li>
<li><p>the <a href="http://universumglobal.com/worlds-most-attractive-employers-2015/">Universum Best Employer Award</a>; and </p></li>
<li><p>the company was included in the FTSE/JSE Responsible Investment Index.</p></li>
</ul>
<p>We collected data from Bloomberg, the Johannesburg Stock Exchange and other relevant websites. A total of 745 observations were analysed across all economic sectors.</p>
<h2>The findings</h2>
<p>Our research shows that the average percentage of female directors appointed to boards increased from 14.58% to 18.66% over the research period. This development is encouraging. Female board representation is, however, still very low, given that women make up almost half of South Africa’s working population.</p>
<p>The number of companies with environmental quality management policies increased by 72% over the research period. A considerable improvement was also noted in terms of emission reduction targets. This variable increased by 148% between 2009 and 2015. The number of managers who acknowledged regulatory and physical risks associated with climate change also increased considerably. There was virtually no improvement in the average Level 4 black empowerment compliance score.</p>
<p>We found it disheartening that less than 1% of the sampled companies provided internal corporate social responsibility training. Studies show that employees who receive such training are more motivated, as they form part of a company that aims to “make a difference”.</p>
<p>The average Bloomberg scores for environmental, social and governance disclosure over the research period were 24.69, 42.60 and 55.12. A score of zero implied that a company did not report on any of the criteria evaluated. A score of 100 showed full disclosure. The low levels of disclosure are surprising given that South Africa’s listed companies have been obliged to produce integrated reports since 2011.</p>
<h2>Positive relationships</h2>
<p>There was a statistically significant positive relationship between the percentage of female board directors and a company being included in the FTSE/JSE Responsible Investment Index. We also found a positive, but not statistically significant association between board gender diversity and the broad composite measure of corporate citizenship.</p>
<p>Significant positive relationships were also identified between female board representation and certain corporate citizenship actions. Most notably:</p>
<ul>
<li><p>having an environmental quality management policy;</p></li>
<li><p>having emissions reduction targets; and</p></li>
<li><p>receiving green awards.</p></li>
</ul>
<p>It was encouraging to see that under the auspices of female directors, two industries notorious for polluting the environment – resources and industrials – have taken decisive steps to reduce emissions.</p>
<p>Although some companies have initiatives in place to address gender imbalance in their boardrooms, much remains to be done to remove real and perceived gender-related barriers.</p><img src="https://counter.theconversation.com/content/62506/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nothing to disclose.</span></em></p><p class="fine-print"><em><span>Nadia Mans-Kemp does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A recent study of firms listed on the Johannesburg Stock Exchange suggests that companies with gender-diverse boards are more responsible corporate citizens.Suzette Viviers, Academic in the Department of Business Management, Stellenbosch UniversityNadia Mans-Kemp, Academic in the Department of Business Management, Stellenbosch UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/502932015-11-18T05:29:20Z2015-11-18T05:29:20ZFinancial markets are almost off cigarettes – will they now kick the oil habit?<figure><img src="https://images.theconversation.com/files/102162/original/image-20151117-22201-o1d6o8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Loosening their grip. Will markets exit oil like they edged away from tobacco?</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/s/dirty+old+man/search.html?page=1&inline=152716115">From www.shutterstock.com</a></span></figcaption></figure><p>Are oil and gas companies going the way of big tobacco? Not soon, it would seem. The UK stock market counts Royal Dutch Shell and BP <a href="http://www.stockchallenge.co.uk/ftse.php">in its top five stocks</a> by market value. In the US, <a href="http://www.huffingtonpost.com/news/apple-vs-exxon/">Exxon vies with Apple</a> for the top slot. But as campaigns persuading investors to sell fossil fuel holdings, land glancing – if not, killer – blows, it is worth considering their managed decline.</p>
<p>Oil divestment programmes form part of the socially responsible investment (SRI) sector which foregoes potentially profitable investment opportunities for the social good. Even if there are convincing arguments about the long-term sustainability of business models and profits, it’s a tough sell.</p>
<p>Simply put, reducing the capital base for fossil fuel and CO₂ emissions by changing investment behaviour is a goal which bumps up against the financial imperative that drives investment decisions.</p>
<p>So how has socially responsible investment impacted investment markets? To answer that, look back over the past half century to another industry that was shunned by funds before the CO₂ debate.</p>
<p>In the 1960s it became clear that tobacco consumption was harmful to health and a steady barrage of medical evidence, coupled with <a href="http://www.stateoftobaccocontrol.org/tobacco-timeline.html?referrer=https://www.google.co.uk/">restrictions</a> and increasingly punitive <a href="https://en.wikipedia.org/wiki/Tobacco_politics">law suits</a>, forced many investors to reconsider their holdings. Tobacco, together with alcohol and gambling, were named “sin stocks” – a <a href="http://www.usatoday.com/story/money/markets/2015/05/25/motley-fool-sin-stocks/22472569/">malign alternative to their do-gooding peers</a>.</p>
<p>We can track the consequences of SRI developments on the tobacco sector. Firstly, the impact of declining output and lawsuits caused good performance from the 1970s to reverse. The chart below shows that for $100 in tobacco (red) with all income re-invested since 1973, a peak of almost $10,000 was achieved by the late 1990s, before a late reaction to the deluge of negativity forced a correction. Outperformance relative to the overall market (blue) was eroded by 2000.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/102159/original/image-20151117-4983-1adlm0b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/102159/original/image-20151117-4983-1adlm0b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/102159/original/image-20151117-4983-1adlm0b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=372&fit=crop&dpr=1 600w, https://images.theconversation.com/files/102159/original/image-20151117-4983-1adlm0b.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=372&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/102159/original/image-20151117-4983-1adlm0b.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=372&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/102159/original/image-20151117-4983-1adlm0b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=467&fit=crop&dpr=1 754w, https://images.theconversation.com/files/102159/original/image-20151117-4983-1adlm0b.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=467&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/102159/original/image-20151117-4983-1adlm0b.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=467&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Recovering tobacco.</span>
<span class="attribution"><a class="source" href="https://forms.thomsonreuters.com/datastream/">Datastream Total Return Indices</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<h2>Responsibility</h2>
<p>Why was an industry subject to punitive legislation and massive legal bills so resilient? The answer might be a clue for the fate of contemporary oil companies.</p>
<p>Concerns were raised over fund managers’ responsibility to deliver returns for their clients. Tobacco giants <a href="http://www.ncbi.nlm.nih.gov/pmc/articles/P">argued</a> that while their stocks offered high earnings fund managers had a duty to clients (often small pension fund holders like you and me) not to divest and to support new plans. But that relies on these accursed “sin stocks” delivering returns strong enough to outweigh ethical arguments.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/102164/original/image-20151117-30404-pcijgs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/102164/original/image-20151117-30404-pcijgs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/102164/original/image-20151117-30404-pcijgs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/102164/original/image-20151117-30404-pcijgs.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/102164/original/image-20151117-30404-pcijgs.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/102164/original/image-20151117-30404-pcijgs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/102164/original/image-20151117-30404-pcijgs.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/102164/original/image-20151117-30404-pcijgs.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Lighting up the index.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/my-cutout/2427276258/in/photolist-4GuqEE-4msefF-cAdHVN-29jZWX-9gP9f-hSo34H-nRai54-m3ky8x-5c3xJz-eC5dXD-bCYepp-927bRT-8VKGCw-6prKFG-ByXGa-aPJiY6-poob6R-5bPkpH-4xyMDn-KAs5Q-b1E4eM-aCmoj9-76bSKt-4b1hQC-4tgs4L-ahbVPW-4Cz8Q5-9tWpCX-s6dFt4-4FJKVh-4xyMF6-86wUKf-vt1xDP-5bTBim-4RfiwJ-4xyMEc-4xyMAt-4xCXNS-aixqy8-a2vy3e-dHhBe5-4715GC-76bT6X-aa63H9-63btDv-auQEps-ahbVQG-5XUGQQ-PntwA-qJqaao">Ximena Salazar</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>When tobacco stocks were shunned by several large funds in 2000, <a href="http://pages.stern.nyu.edu/%7Esternfin/mkacperc/public_html/sin.pdf">research</a> shows a 15-20% “SRI markdown”. But once that was completed, we see excess performance of about 3% a year since, in other words: beating the market. In fact, had you held on to that $100 tobacco stake from 1973, and re-invested all dividends, it would now be worth nearly $100,000. This performance is due to high payouts and relative stability since that late 1990s blip. The industry <a href="http://www.who.int/trade/glossary/story089/en/">doesn’t seem short of issues</a> that might motivate more investors to withdraw, but until those issues bite decisively, big tobacco has found <a href="https://epianalysis.wordpress.com/2011/11/14/tobaccosales/">success though globalisation</a> to keep its head above water.</p>
<h2>Oil well?</h2>
<p>But it hasn’t been all roses for the cigarette peddlars, despite their apparent resilience. Investors are simply not funding growth and expansion – they take their annual dividends and run. As a result, the industry’s share of the stock is falling. This indicates a dying sector – while it is still generating and paying high earnings, the tobacco corner is smaller now.</p>
<p>Only growth can support a niche play but tobacco’s capitalisation has declined from its peak and faces further SRI exclusion. In the S&P 500 index of top stocks in the US, three firms remain, with an index share of 1% (Philip Morris, Altria and Reynolds). Believing these will become less significant, managers that are focused on future growth have sold to dividend-seeking income funds. </p>
<p>If this is tobacco’s fate, can oil be next? The harms of conflict, pollution and climate change certainly have the potential to increase social costs and put future returns at risk. However, oil and gas investments are a much bigger fish to fry than tobacco. At their peak they accounted for 25% of market capitalisation, this has fallen but is still 10%. Moreover there are currently <a href="https://en.wikipedia.org/wiki/List_of_S%26P_500_companies">40 oil and gas</a> in the S&P list of America’s biggest stocks.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/102167/original/image-20151117-22432-aqwia0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/102167/original/image-20151117-22432-aqwia0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/102167/original/image-20151117-22432-aqwia0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=407&fit=crop&dpr=1 600w, https://images.theconversation.com/files/102167/original/image-20151117-22432-aqwia0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=407&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/102167/original/image-20151117-22432-aqwia0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=407&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/102167/original/image-20151117-22432-aqwia0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=512&fit=crop&dpr=1 754w, https://images.theconversation.com/files/102167/original/image-20151117-22432-aqwia0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=512&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/102167/original/image-20151117-22432-aqwia0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=512&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Rigged game. Murky future for oil stocks.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/stignygaard/3002902143/in/photolist-5zmEbT-qVJush-7ZcU2P-xoL6DG-qXEMfa-2BwAeD-dRuHpj-5PuWw1-6htWco-6Jmyv-5thxx4-rCJJcT-qVHJwj-muATX-bXhiYh-6Jmzu-71K9Q8-wHSCbR-rUZHf9-3t45f-cj2RnA-pTYDkb-HwKAd-34N5tH-4kSi5a-aQaLwt-esR4Ss-yKY4Se-r14Lc5-6trCak-9YTrqE-rufn6B-fCePGx-34N5tn-4HiZJQ-cdjURq-XaaqA-rCJEsD-8Eiz5y-bxeLor-gHXVUG-xBoj37-9kfA6B-aF3BRB-mNynP6-dYzzVT-iwkGaE-btDbD1-d28fvW-4kWmGm">Stig Nygaard</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Unlike tobacco, oil and gas will necessarily remain a significant part of asset allocation – and index funds have no choice but to match. Choosing to put less tobacco stocks in a portfolio than are in the market is no longer risky, but under-weighting oil is. Since 2000, US oil and gas stocks have also outperformed (green in the chart above, with a dip of late) but oil will take time to replace.</p>
<h2>Taking the hard road</h2>
<p>So let’s say the managers running our money can’t be convinced to sell oil giants yet. It doesn’t mean they are entirely without influence. <a href="http://rfs.oxfordjournals.org/content/early/2015/09/07/rfs.hhv044.abstract">Active ownership</a> allows asset managers to flag concerns and ask for governance or sustainability action.</p>
<p>Crucially, energy companies can chose to embrace green generation technology or not and fund managers will have a say in those decisions. The risk of CEOs talking without acting or, like VW, <a href="https://theconversation.com/lessons-from-vw-courage-climate-change-and-the-c-suite-47969">failing to spot flaws in their business</a> is severe reputational damage.</p>
<p>Tobacco signals a likely future for oil companies that struggle to change tack. Even if funds don’t divest, high dividends won’t persuade them to re-invest. Oil assets face becoming <a href="http://www.carbontracker.org/report/wasted-capital-and-stranded-assets/">stranded</a>, luring investors with high yield but low growth. Like tobacco, oil will fade from the index. No one wants to be the one turning the lights out; no fund wants to be the last selling out.</p><img src="https://counter.theconversation.com/content/50293/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Shackleton does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Efforts to break our financial addiction to the energy sector might find useful lessons in the slow decline of tobacco.Mark Shackleton, Professor of Finance, Associate Dean Postgraduate Studies, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/330792014-10-16T19:33:13Z2014-10-16T19:33:13ZDivestment backlash shows companies need to improve sustainability reporting<figure><img src="https://images.theconversation.com/files/61962/original/29298nvr-1413448596.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Universities in the US have led the divestment charge - the ANU is leading the Australian movement. </span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/40969298@N05/13637499555">Light Brigading/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Tony Abbott’s <a href="http://www.theguardian.com/australia-news/2014/oct/15/anu-fossil-fuel-divestment-decision-stupid-tony-abbott-says">criticisms</a> of the <a href="http://news.anu.edu.au/2014/10/03/university-to-divest-holdings-in-seven-companies/">ANU’s divestment decision</a> will come back to bite him. The tide of change is such that Vice-Chancellor Ian Young and the ANU Council will be seen as leaders. Others will follow.</p>
<p>Abbott has added his voice to a growing chorus condemning the decision by ANU to divest from seven resource companies, including treasurer <a href="http://www.afr.com/p/national/joe_hockey_takes_aim_at_lofty_anu_jCEPln8zAJDYAZRYomRhyK">Joe Hockey</a>, education minister <a href="http://www.abc.net.au/news/2014-10-13/pyne-says-anu-decision-to-ditch-mining-companies-bizarre/5808674">Christopher Pyne</a>, and blacklisted companies <a href="http://www.afr.com/p/national/joe_hockey_takes_aim_at_lofty_anu_jCEPln8zAJDYAZRYomRhyK">Santos</a>, <a href="http://www.miningaustralia.com.au/news/sloppy-criteria-for-anu-shares-divestment">Iluka Resources</a> and <a href="http://www.theguardian.com/australia-news/2014/oct/16/anu-fossil-fuel-divestment-false-information-miner-says">Sandfire Resources</a>. </p>
<p>But if these companies are unhappy with the analysis of their environmental and social performance, they should take responsibility for better valuing and reporting their environmental and social impacts. </p>
<h2>The risk of fossil fuels</h2>
<p>Abbott’s claim that divesting deprives fund members of a good investment could ultimately be proven incorrect. Even the generally conservative accounting profession is making an increasing amount of noise about the impact of climate change on asset valuations (or <a href="http://genfound.org/media/pdf-generation-foundation-stranded-carbon-assets-v1.pdf">stranded carbon assets</a>). </p>
<p>This is a particular issue in the fossil fuel sector.</p>
<p>“Fossil fuel companies should start accounting for the risk that their vast reserves may ultimately end up as stranded assets.” That’s the title of <a href="http://www.accaglobal.com/zm/en/discover/ab-articles/corporate-reporting/bursting-bubble.html">an article</a> published by the Association of Chartered Certified Accountants (ACCA) earlier this year. </p>
<p>A <a href="http://www.accaglobal.com/content/dam/acca/global/PDF-technical/sustainability-reporting/tech-tp-ca.pdf">report</a> published last year by the ACCA and the Carbon Tracker (with a foreword by the president of the International Federation of Accountants) found that companies typically do not disclose information that is material to investors on carbon risk. </p>
<p>Why isn’t the Prime Minister of Australia outraged about that rather than a university taking action?</p>
<p>The ACCA/Carbon Tracker report argues that to integrate climate risk into their business, companies need to consider potential CO<sub>2</sub> emissions of reserves, and risks to valuations of reserves if demand for fossil fuel energy falls.</p>
<h2>Moves towards more disclosure</h2>
<p>The Australian Government position is in stark contrast to the mood of recent <a href="http://drcaroladams.net/europe-focuses-on-the-role-of-corporate-reporting-in-transition-towards-sustainability/">events</a> in Europe looking at the role of corporate reporting in sustainable development and incorporating the sustainable development goals. </p>
<p>The events, attended by a wide range of stakeholders, <a href="http://drcaroladams.net/corporate-reporting-for-sustainable-development-and-innovation-from-germany/">concluded</a> that reporting by companies and mandatory reporting requirements were not providing sustainability information needed by investors to assess risk and long term performance.</p>
<p>This is where the focus of policy makers should be — not on a report prepared for ANU highlighting gaps in management and governance by companies of social and environmental sustainability issues.</p>
<h2>Assessing environmental value</h2>
<p>I know of companies which are starting to develop what they refer to as a “social and environmental profit and loss account” or “net impact statement”. Essentially they are evaluating what they are contributing to society and the environment, and setting against that their negative impacts. </p>
<p>This sort of information attracts ethical investors looking for long term returns. Some are starting to calculate how this impacts on financial profit.</p>
<p>KPMG released a <a href="http://www.kpmg.com/global/en/topics/climate-change-sustainability-services/pages/a-new-vision-connecting-corporate.aspx">report</a> last month outlining what they refer to as a “true value” approach assessing how social and environmental risks and opportunities will impact on future financial profit. The report uses hypothetical case studies to measure the impact of this value created (or lost) by companies on profit.</p>
<p>A <a href="http://www.miningaustralia.com.au/news/sloppy-criteria-for-anu-shares-divestment">report</a> in Australian Mining complaining about “sloppy criteria” for the divestment by ANU misses the point. It is up to companies to provide adequate information on their risks, policies and activities for investors.</p>
<p>And, at the end of the day, if the fundamental nature of a company’s business is unsustainable, other criteria for divestment, however “sloppy” are somewhat irrelevant.</p>
<h2>Universities led charge against Nike…</h2>
<p>Universities have a history of being a force for good. The complete turnaround by Nike on corporate social responsibility was due to widespread boycott of its sports products by US universities in the 1990s. </p>
<p>Nike had contracted with factories throughout Asia (which became known as Nike sweatshops) that were found out for using child labour, poor working conditions, excessive overtime, sexually harassing female workers and paying below the minimum wage. </p>
<p>This was widely publicised by CorpWatch (a US based research group), Naomi Klein in her book “No Logo”, Michael Moore and the BBC in documentaries and various anti-globalisation and anti-sweatshop groups. </p>
<p>Nike originally denied the claims and expressed a view that what happened in supplier factories weren’t its concern. This only served to increase the campaign against it. Nike now takes transparency, accountability and corporate responsibility seriously and has restored its reputation. </p>
<p>And social and environmental sustainability practises in the supply chain are of increasing interest to large corporate customers concerned about reputation risk.</p>
<h2>… and tobacco</h2>
<p>The British Universities Superannuation Scheme (USS), at the time the third largest fund in the UK, made a significant <a href="http://www.timeshighereducation.co.uk/news/when-ethics-wins-the-pension-fund-debate/149342.article">response</a>, through a campaign for responsible investment led by academics through “Ethics for USS” and students through “People and Planet” in the 1990s.</p>
<p>They questioned the morality of investing in tobacco which was dropped by the Australian Sovereign Wealth Fund <a href="https://theconversation.com/future-fund-drops-tobacco-should-fossil-fuels-be-next-12337">last year</a>. As a result of the academic and student led campaigns, the USS became the first large UK pension fund to adopt a socially responsible investment policy.</p>
<p>The approach included engaging with companies in which they invested to drive change towards more responsible behaviour. The USS sets out its proactive approach and explains its rationale for not divesting in companies on moral and ethical grounds only and legal advice that it is not permitted to make decisions purely on a moral or ethical stance <a href="http://www.uss.co.uk/UssInvestments/Responsibleinvestment/BackgroundRationale/Pages/default.aspx">here</a>.</p>
<h2>Students taking the lead?</h2>
<p>In any case there is a strong and increasing link between some “moral and ethical grounds” and financial returns. In recognition of this Australian superfunds have also <a href="http://drcaroladams.net/superfunds-looking-for-greater-transparency-on-esg-risks/">called for</a> greater disclosure on Environmental, Social and Governance risk.</p>
<p>This is not to say that universities themselves should not being doing much more to develop future <a href="http://drcaroladams.net/the-development-of-leaders-able-to-respond-to-climate-change-and-sustainability-challenges/">leaders able to respond to climate change and sustainability challenges.</a> But that is another issue.</p>
<p>Of course, we must not forget that in making the decision to divest, Ian Young and the ANU Council were responding to student protests. They are the true leaders in all of this.</p><img src="https://counter.theconversation.com/content/33079/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Carol A Adams is a part time Professor at Monash University and consults through Integrated Horizons. She writes on her website 'Towards Sustainable Business' at <a href="http://www.drcaroladams.net">www.drcaroladams.net</a> </span></em></p>Tony Abbott’s criticisms of the ANU’s divestment decision will come back to bite him. The tide of change is such that Vice-Chancellor Ian Young and the ANU Council will be seen as leaders. Others will…Carol A Adams, Professor, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/315692014-09-23T01:46:08Z2014-09-23T01:46:08ZStyle over substance: sustainability reporting falling short<figure><img src="https://images.theconversation.com/files/58895/original/zzkgspy9-1410522936.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Sustainability reporting still lacks consistency and comparability</span> <span class="attribution"><span class="source">Image sourced from www.shutterstock.com</span></span></figcaption></figure><p>Once on the fringe of institutional investors’ considerations, reporting on environmental, social and governance related issues is now common practice among major listed companies.</p>
<p>But the quality and consistency of sustainability reporting remains a problem, with some companies distorting their reporting to highlight positive news.</p>
<p>Despite the sector being driven by the needs of socially responsible investors, sustainability reporting practices are diverse, reflecting the differing motivations behind these disclosures. There is still a need for many companies to demonstrate greater transparency and genuine evidence of good corporate citizenship as their primary motivators in this area.</p>
<p>According to <a href="http://www.kpmg.com/global/en/issuesandinsights/articlespublications/press-releases/lists/expired/corporate-responsibility-reporting.aspx">KPMG</a>, sustainability reporting has evolved into mainstream business practice over the last two decades. Now 95% of the largest 250 companies worldwide provide sustainability disclosures. This is further supported by the <a href="http://acsi.org.au/images/stories/ACSIDocuments/generalresearchpublic/Sustainability%20Reporting%20Journey%202014.Jul%2014.pdf">Australian Council of Superannuation Investors (ACSI)</a> which claims 85% of the ASX200 now provide some level of sustainability disclosure. </p>
<p>The socially responsible investment community relies on sustainability reporting data to derive market value of companies. </p>
<p>Yet despite the formation of the United Nations Principles of Responsible Investment, consisting of more than 1200 signatories, the quality of sustainability reporting still remains questionable. </p>
<p>The indicators used by publicly listed Australian companies, even within industry sectors, are often inconsistent. </p>
<p>I recently compared sustainability reports between 2007 and 2011 for 10 companies within the construction industry. I found significant differences in common indicators such as carbon emissions and health and safety. These differences were not only in terms of the units adopted for the indicators, but also the reporting time frame and the nature of information disclosed. </p>
<p>For example, some companies separated <a href="http://www.cleanenergyregulator.gov.au/Carbon-Pricing-Mechanism/About-the-Mechanism/What-emission-types-are-in-and-out/Pages/default.aspx">scope 1 and 2 carbon emissions</a>, some made no distinction, and some divided emissions into whether they derived from diesel, electricity, petrol or gas. Individual companies also changed their assessment of health and safety indicators from year to year, making it difficult to assess any progress in the area.</p>
<p>Companies were also more likely to graph indicators with favourable trends. Of the graph indicators that I analysed (covering a range of issues across economic, environmental and social dimensions), 68% distorted results to highlight positive news more prominently. </p>
<p>These findings are worrying as investors are increasingly interested in environmental, social and governance data as a way of assessing companies’ risks. These investors need to be able to compare data over time and between companies to be able to distinguish real leaders from laggards. However, the inconsistency of indicators and evidence of graph obfuscation is making it difficult to benchmark companies’ performance.</p>
<p>The <a href="https://www.globalreporting.org/reporting/g4/Pages/default.aspx">G4 Sustainability Reporting Guidelines (G4)</a> provide an opportunity for companies to respond better to the demands of stakeholders. They are divided into two parts: reporting principles and standard disclosures; and the implementation manual. <a href="http://banarra.com/images/uploads/pdf/G4_In_Practice_-_Australias_Early_Adopters.pdf">Early adopters of G4</a> in Australia have already reported on its many benefits.</p>
<blockquote>
<p>“We’re on a journey towards more meaningful reporting and disclosure and G4 has a key role to play in that. It worked well with integrated reporting and helped us share the non-financial risk and value story with our stakeholders.” - Stockland Australia</p>
<p>“G4 helped us show people what we’re doing and why. It’s a good tool in terms of internal communication. It also has a role to play externally, helping us demonstrate that we as a business are embedding sustainability and it is key to our success - and you might want to do it too.” - ERM Australia</p>
</blockquote>
<p>Companies certainly need to keep in mind two important G4 principles. First, they need to ensure there is comparability between their own reports over time and those of their competitors. Second, they need to represent both positive and negative performance in a balanced manner. </p>
<p>Until companies can fully adopt these principles, sustainability reporting will not have significant meaning for investors.</p><img src="https://counter.theconversation.com/content/31569/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Renard Siew is a volunteer with the Global Reporting Initiative - Focal Point Australia (views in the article are his own and do not reflect that of GRI).</span></em></p>Once on the fringe of institutional investors’ considerations, reporting on environmental, social and governance related issues is now common practice among major listed companies. But the quality and…Renard Siew, Postdoctoral fellow, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.