The CSR Newsletters are a freely-available resource generated as a dynamic complement to the textbook, Strategic Corporate Social Responsibility: Sustainable Value Creation.

To sign-up to receive the CSR Newsletters regularly during the fall and spring academic semesters, e-mail author David Chandler at david.chandler@ucdenver.edu.

Thursday, February 20, 2020

Strategic CSR - Oxford

At its core, addressing climate change is a philosophical debate about whether we have the moral authority to maximize resource consumption today at the expense of resource availability for future generations. But, it is also a practical problem full of logistical challenges. Even if we can agree that significant change is necessary, how and when to go about it raises specific issues. The contrast between these two elements of the climate change debate are captured succinctly in the article in the url below – an editorial in the WSJ relating what it describes as "a lesson in common sense" that occurred recently at Oxford University:
 
"That's exactly what the bursar at St. John's College—the most richly endowed college at Oxford—delivered when he responded to students occupying his 15th-century quadrangle and refusing to leave until the college divested its oil-company shares. The students want the college to sell the more than $10 million of its endowment now invested in Shell and BP, and they want it now."
 
In response to the students' demands, Andrew Parker, the bursar, took a controversial stance:
 
"'I am not able to arrange any divestment at short notice,' he wrote. 'But I can arrange for the gas central heating in college to be switched off with immediate effect. Please let me know if you support this proposal.'"
 
Following the calls of outrage and accusations that Parker was minimizing the issue, being unnecessarily provocative, and endangering the students' health given that it is the middle of winter, the bursar continued:
 
"You are right that I am being provocative but I am provoking some clear thinking, I hope. It is all too easy to request others to do things that carry no personal cost to yourself. The question is whether you and others are prepared to make personal sacrifices to achieve the goals of environmental improvement (which I support as a goal)."
 
The journey from idealism to practical reality can be short when framed effectively.
 
Take care
David
 
David Chandler
© Sage Publications, 2020
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

A Heated Oxford Exchange
By Editorial
February 3, 2020
The Wall Street Journal
Late Edition – Final
A20
 

Monday, February 17, 2020

Strategic CSR - Casper

The article in the first url below discusses the troubles faced by Casper, the online mattress company, since it recently decided to go public:
 
"The company's stock began trading on the New York Stock Exchange [Thursday] at $14.50 a share, slipped below $14 in the afternoon and ended the day at $13.50. … The New York-based start-up had been valued at $1.1 billion by private investors last year. But that was before the five-year-old company publicly revealed in January that it lost $67 million on $312 million in revenue in the first nine months of 2019. … Casper reduced its proposed share price, valuing the company at less than $500 million. It raised $100 million in the offering."
 
Since the collapse of WeWork's business model, it seems that Wall Street is finally waking up to the importance to a firm of revenue generation. More specifically, from a strategic management perspective, the market now appears to more fully appreciate the importance of a sustainable competitive advantage (with the emphasis on 'sustainable'):
 
"Before it went public, Casper had been the toast of the start-up world. The company shook up a stodgy mattress industry by selling beds online, delivering them to people's doorsteps in boxes the size of mini-fridges. … Venture investors poured more than $340 million into the company, according to Crunchbase, and Casper began calling itself the 'Nike of sleep,' selling pillows, sheets, dog beds and other accessories to what it termed the 'sleep economy.' … But as Casper grew, competitors saw an easy opportunity and rushed in, with an average of one new 'bed-in-a-box' company launching per week between 2015 and 2018. There are now 175 competitors in the market, according to GoodBed, a mattress comparison website. There are even copycats from the older mattress companies, like 'Cocoon by Sealy.'"
 
As such, Casper has continued to struggle in the stock market, and currently sits at around $10 a share. Having recently bought a new mattress myself (from a chain store, locally), this story got me thinking about the online mattress business. I considered Casper when I was looking into mattresses, but dismissed the company on the basis that I couldn't try its products out in advance and returning the mattress, if there was a problem, would be too much hassle. Then I saw the article in the second url below, which details the environmental impact of this relatively new online mattress industry:
 
"The UK threw away more than 7m mattresses in 2017, the vast majority of which went straight to landfill. … Flytipping is another huge area of concern: English councils spend £58m a year on clear-up, with mattresses among the most commonly illegally dumped items. According to the National Bed Federation (NBF), only about 19% of mattresses are recycled. The reason? They are a nightmare to recycle."
 
A similar challenge is faced here in the U.S.:
 
"Mattresses are a global environmental nightmare. The US throws away 18.2m mattresses a year, but there are only 56 facilities available to recycle them."
 
The problem is more acute today, according to the article, because of the emergence and growth of the online mattress industry:
 
"Changing consumer behaviour is behind this ever-growing mattress mountain. Time was, you would change your mattress every eight to 10 years. But with online retailers offering more choice than ever, we have learned to expect better mattresses, and to replace them more frequently."
 
This industry has been enabled by specific innovation:
 
"The development of roll-down technology – which allows mattresses to be packed into small, easily shippable boxes – has led to a plethora of start-ups targeting a $30bn international market. There are now at least 175 companies that will ship roll-down mattresses to your front door."
 
And, what is interesting about such a crowded market is that there is intense competition to survive, which exacerbates the environmental impact of all these mattresses:
 
"Most of these start-ups offer 100-day comfort guarantees, during which consumers can return their mattresses for a full refund if for any reason they are not up to scratch. Some, such as the US's Nectar, even offer a 365-day guarantee. Theoretically, consumers can cycle between these providers for high-quality mattresses at no cost: a Wall Street Journal reporter recently calculated that if she took advantage of all the offers available, she would be able to sleep on a free mattress for eight years."
 
What most people no doubt do not realize when they return their mattress is that it most likely cannot be re-sold. And, because these mattresses are do difficult to recycle, they are most often dumped:
 
"Some online providers have arrangements with care homes or hospitals to collect lightly used mattresses, re-cover them, and put them back into use. Others send them for recycling. But many will, inevitably, end up in landfill."
 
Take care
David
 
David Chandler
© Sage Publications, 2020
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

Casper, the Mattress Start-up, Goes Through with Lackluster I.P.O.

By Erin Griffith
February 6, 2020
The New York Times
Late Edition – Final
B4

The mattress landfill crisis: How the race to bring us better beds led to a recycling nightmare

By Sirin Kale
February 12, 2020
The Guardian
 

Thursday, February 13, 2020

Strategic CSR - Carbon reports

The article in the url below is interesting not because it reports on firm's attempts to quantify the impact of climate change, but because it shows how bad they are currently at doing just that. First, the article shows how firms are trying to become more realistic in their estimations:
 
"In 2018, more than 7,000 companies submitted [climate change risk] reports to CDP, formerly known as the Carbon Disclosure Project. And, for the first time, CDP explicitly asked firms to try to calculate how a warming planet might affect them financially. After analyzing submissions from 215 of the world's 500 biggest corporations, CDP found that these companies potentially faced roughly $1 trillion in costs related to climate change in the decades ahead unless they took proactive steps to prepare. By the companies' own estimates, a majority of those financial risks could start to materialize in the next five years or so."
 
Second, however, the article provides concrete evidence that the range of possibilities is so vast as to render even genuine efforts meaningless:
 
"[It remains challenging for firms] to take scientific reports about rising temperatures and weather extremes and say what those broad trends might mean for specific companies in specific locations. Previous studies, based on computer climate modeling, have estimated that the risks of global warming, if left unmanaged, could cost the world's financial sector between $1.7 trillion to $24.2 trillion in net present value terms."
 
And, of course, given a range of possibilities, firms are still vastly under-estimating the potential impact:
 
"In its report to CDP last year, PG&E said that the rise in wildfire risk in the American West, partly driven by global warming, could create significant financial costs if the utility were held liable for the fires. PG&E estimated the "potential financial impact" from wildfires at around $2.5 billion, based on claims that the utility had paid out in 2017. However, that turned out to be overly optimistic: This past January, PG&E filed for bankruptcy protection and said it now faced up to $30 billion in fire liabilities shortly after its power lines sparked what became California's deadliest wildfire yet last fall."
 
The encouraging takeaway from the article, therefore, is that large numbers of firms are finally becoming serious about estimating the business risks associated with climate change. The discouraging takeaway is that they do not have the ability (either knowledge or willpower) to come close to their likely impact. Beyond this, however, two interesting (discouraging?) points stand out. First, that in estimating impact, some firms see a benefit to climate change:
 
"Some 225 of the world's largest corporations highlighted roughly $2.1 trillion of possible opportunities in a warming world, with the majority expected to materialize within the next five years. Eli Lilly, a drug maker in the United States, cited research suggesting that rising temperatures could drive the spread of infectious diseases — a problem the company was well-positioned to help address."
 
And second, that there remains a substantive geographical/cultural disparity in how firms deal with this challenge:
 
"The CDP report found that companies headquartered in the European Union are much more likely to detail the potential financial effects of global warming, in part because local regulations often require them to do so. By contrast, companies in the United States, China, Brazil and Mexico were far less likely to report significant financial risks."
 
Take care
David
 
David Chandler
© Sage Publications, 2020
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

Companies Expect to Feel Climate Change's Bite in 5 Years
By Brad Plumer
June 5, 2019
The New York Times
Late Edition – Final
B4
 

Tuesday, February 11, 2020

Strategic CSR - Babies

An article in The Sunday NYT last August covered the topical issue of fertility rates, which "have been dropping precipitously around the world for decades – in middle-income countries, in some low-income countries, but perhaps most markedly, in rich ones." Although not a direct response to that piece, the article in the url below shows the extent to which some companies are going in order to do their bit, while also trying to keep their employees present at work:
 
"Companies from Apple, Facebook and Tesla to Bain, KKR and Starbucks are offering employees fertility benefits."
 
Whether the move is well-intentioned or cynical, however, is up for debate:
 
"When Apple and Facebook began paying for employees to freeze their eggs in 2014, this generosity was met with cynicism. Critics dismissed it as another attempt at social engineering from Silicon Valley, no bastion of female-friendliness. Rather than empowering women, they feared, it would press them to delay motherhood; Apple would do better to install child-care facilities at its brand new headquarters."
 
I was amazed to see how far-reaching this practice has become:
 
"More than one in four large American companies now pay for some fertility treatment, … one in 20 covers egg-freezing. In America Bain, a consultancy, KKR, a private-equity firm, and Tesla, a carmaker, pay for unlimited IVF cycles (which can cost $100,000). … [Recently] Starbucks said it would raise its fertility cover to $25,000, including for baristas who work over 20 hours a week for more than six months. For part-timers on $12 an hour that can add up to twice their annual salary."
 
Apparently, firms see this as a strategic opportunity, given the nature of the U.S. healthcare system:
 
"Most American states still do not require insurers to cover infertility treatment. So companies use the benefits to differentiate themselves. This helps recruit and retain staff. … Firms keen to promote 'diversity and inclusion' see health plans with IVF or surrogacy as a way to attract LGBT employees."
 
Critics, however, point out that such policies are often adopted after a scandal of some sort and are a relatively minor plus in a general workforce that still contains a great deal of discrimination for many workers (mothers, in particular):
 
"Some companies … appear to adopt fertility benefits in response to harassment scandals. Under Armour, Uber and Vice added family-friendly policies, including generous fertility perks, following such controversies."
 
Take care
David
 
David Chandler
© Sage Publications, 2020
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

Fert perks
August 10, 2019
The Economist
Late Edition – Final
51
 

Thursday, February 6, 2020

Strategic CSR - Amazon

The articles in the two urls below (which appeared soon after each other, either side of Black Friday in the NYT) indicate some of the consequences of the growth in online purchases that need to be delivered to our houses. The first article discusses the closure of a convenience store in Manhattan that appears to offer everything you would want in a neighborhood store:
 
"On Ninth Avenue in Manhattan, not far from where I live, there's a small neighborhood hardware store called Chelsea Convenience Hardware. … Inside, tools and supplies are piled to the ceiling, and when you enter, the owner, Naum Feygin, an immigrant from Boris Yeltsin's Russia, looks up to ask you what you need. The 'convenience' in the store's name is no misnomer, for the place is extraordinarily efficient. It is cheaper and faster than ordering from Amazon and offers expert advice that reduces the risk of buying the wrong thing. It is all too easy on Amazon, for example, to buy halogen bulbs that don't fit your lamp base; Mr. Feygin has spared me many such headaches. And the store's small size is a virtue: Unlike at Home Depot, you can be in and out in 10 minutes."
 
In spite of being more convenient, Mr Feygin's store is in trouble and is due to close. The author argues this doesn't make sense, but is also symptomatic of the online shopping world in which we now live:
 
"The closing is of no great economic significance, other than to Mr. Feygin. But it is a microcosm of the forces reshaping the United States economy, often paradoxically and for the worse. Why is a less efficient, less personalized and more wasteful way of buying screws and plungers — ordering online — displacing the local hardware store?"
 
The author answers his own question by arguing it is the perception of convenience (rather than actual convenience) that appears to be driving more people to prefer to shop online:
 
"Here we can see how an ideology of convenience is reshaping the economy. Ordering things like tape or bolts online is rarely cheaper or faster than popping down to the local hardware store — not to mention the wasteful packaging — but many of us do it anyhow. Clicking on a product from the comfort of your couch seems more convenient — and that impression of ease can have more influence on our behavior than better service, quicker acquisition and lower prices."
 
Mr Feygin sums this up more succinctly:
 
"'Amazon, eBay,' he explains. 'People ordering without advice.' They might not get what they need, but still they order online."
 
The second article comments on a more surprising consequence of our online economy (at least in terms of the scale of the problem). It reports the massive number of packages that go missing on a daily basis in the U.S. I was shocked to see the number of packages that never arrive in Manhattan:
 
"In New York City, where more orders are delivered than anywhere else in the country, over 90,000 packages a day are stolen or disappear without explanation, up roughly 20 percent from four years ago, according to an analysis conducted for The New York Times."
 
But, this is not just a big-city phenomenon:
 
"About 15 percent of all deliveries in urban areas fail to reach customers because of package theft and other less frequent issues, like deliveries to the wrong house, according to transportation experts. In suburbs and rural areas, thieves often follow delivery trucks and snatch just-delivered packages from homes, often out of sight of neighbors."
 
The result is what must be a major headache for Amazon (and other online retailers):
 
"Around the country, more than 1.7 million packages are stolen or go missing every day – adding up to more than $25 million in lost goods and services, according to an analysis for The Times. … In a new survey by insuranceQuotes.com, an online insurance service, nearly 1 in 5 respondents nationally reported having had a package stolen."
 
The article contains some of the solutions both people receiving the packages and the companies sending them are trying to implement in response. Although there is not much data to go on, however, it appears to be a problem that is increasing and is set to get worse:
 
"Most police departments do not track package thefts, but those that have examined the problem have reported notable increases. The Denver Police Department started compiling data on package thefts in 2015, and has seen a 68 percent increase in reported cases, to 708 last year, from 421 four years ago. In Washington D.C., 1,846 cases of package theft were reported as of mid-November, already exceeding last year's total of 1,546 cases, according to police records."
 
Take care
David
 
David Chandler
© Sage Publications, 2020
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/
 

Better, Cheaper and Faster than Amazon

By Tim Wu
November 24, 2019
The New York Times
Late Edition – Final
SR10
 

Battling Thieves, When 90,000 Packages a Day Go Missing

By Winnie Hu and Matthew Haag
December 3, 2019
The New York Times
Late Edition – Final
A21
 

Monday, February 3, 2020

Strategic CSR - Business Roundtable (II)

Following up on my post last semester about the Business Roundtable's recent announcement about the purpose of a corporation (see Strategic CSR – Business Roundtable), the article in the url below reports the results of research designed to learn more about the firms that signed-up to the statement:
 
"The Business Roundtable made a big splash in August by 'modernizing its principles on the role of a corporation.' No longer stressing the unique importance of maximizing shareholder value, the organization got 181 CEOs to sign a statement outlining a corporate commitment to various 'stakeholders.' … Why did they sign? We see two possibilities. Either they are genuinely committed to lead in socially conscious business practices, or they are trying to pre-empt criticism. One way to determine which explanation fits better is to compare the behavior of publicly listed signatory firms to that of public nonsignatory firms in the same industries."
 
Needless to say, the data suggest that any hope invested in the Business Roundtable's statement is probably optimistic. Specifically, looking at the five-year period leading up to the statement release (2014-2018), the researchers identified four dimensions along which the signatory firms performed in ways that, at best, suggest they are seeking to atone for past behavior. At worst, the data suggest the firms were using their Business Roundtable allegiance as cover for their transgressions. First, legal compliance:
 
"… from 2014-2018 signatory firms report a higher incidence of compliance-related violations than the nonsignatory firms, reported by federal agencies such as the Environmental Protection Agency and the Occupational Safety and Health Administration."
 
Second, share buybacks:
 
"Signatories have brought back a larger proportion of their shares—even as buybacks are increasingly condiment by politicians."
 
Third, predatory market dominance:
 
"[Business Roundtable] signatories have amassed market shares 5 percentage points higher than those of peer firms, on average, assessed based on sales. … Such market power increases the probability of regulatory scrutiny. … Thus Business Roundtable signatories may have greater reason than their peers to convince regulators of their benevolence."
 
Fourth, executive compensation:
 
"Business Roundtable signatories pay CEOs 4% more on average than peer firms but achieve lower stock returns relative to their benchmarks."
 
The researchers' conclusion suggests the Business Roundtable statement was not quite the revelation it was presented as at the time and that the group's commitment to a firm's broad set of stakeholders is less convincing, at least based on prior performance:
 
"These findings suggest that Business Roundtable signatories aren't leaders in socially conscious environmental, social or governance practices or stakeholder orientation. Instead, the average signatory is more likely to enjoy a larger market share, and has an incentive to pre-empt regulatory scrutiny that might expose rent-seeking behavior."
 
Take care
David
 
David Chandler
© Sage Publications, 2020
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/


Is There Real Virtue Behind the Business Roundtable's Signaling?

By Aneesh Raghunandan and Shiva Rajgopal
December 3, 2019
The Wall Street Journal
Late Edition – Final
A15
 

Thursday, January 30, 2020

Strategic CSR - Coal

Last week, I watched Greta's speech at the World Economic Forum at Davos (https://youtu.be/CWBGbAZlpRU, see also Strategic CSR – Greta) and I am caught between two reactions. On the one hand, of course, she is exactly right. Everything she said was on point in terms of tone, scale, and urgency. And a lot of powerful people in the room took it on the chin, and then lined up for some more (both tragic and funny, in equal amounts). On the other hand, however, I know that her critics are correct that she is being completely unrealistic in terms of what is possible. There is no way we are going to become carbon neutral today and carbon negative tomorrow (even though she is correct that this is what is required). It is in light of these conflicting emotions that I wanted to share the article in the url below. In my opinion, it is one of the first honest (and serious) attempts I have seen by a government of a developed economy to address climate change:
 
"Germany announced on Thursday that it would spend $44.5 billion to quit coal — but not for another 18 years, by 2038. The move shows how expensive it is to stop burning the world's dirtiest fossil fuel, despite a broad consensus that keeping coal in the ground is vital to averting a climate crisis, and how politically complicated it is."
 
The reason for the delay? Exactly the kind of complexity that Greta says we must overcome and her critics say is exactly why she is being unrealistic. First, are the natural resource constraints Germany faces – some are simply natural limitations, while others are politically self-imposed (but none the less complicating because of that). After all, the only reason America has reduced its coal consumption is because it is lucky enough to have abundant supplies of natural gas:
 
"Germany doesn't have shale gas, as the United States does, which has led to the rapid decline of coal use in America, despite President Trump's support for coal. Germany also faces intense opposition to nuclear power. After the Fukushima disaster in 2011, that opposition prompted the government to start shutting down the country's nuclear plants, a transition that should be complete by 2022."
 
Second, are the political interests that make a negotiated settlement so challenging:
 
"The money … is to be spent on compensating workers, companies and the four coal producing states — three in the country's east and one in the west. It followed months of negotiations between regional officials and Chancellor Angela Merkel's government."
 
And this is in Germany, one of the richest, most powerful economies in the world. Even so, it is unable to act independently and, as a result, is criticized by activists for acting too slowly:
 
"Germany's timetable, though, could present challenges to the European Union's efforts to swiftly cut its greenhouse gas emissions, as the bloc's new leadership has announced. Countries around the world are watching how quickly the 28-country union, which, taken together is currently the third-largest emitter of planet-warming gases, can reduce its carbon footprint. Germany is the largest economy in the European Union. Environmental organizations criticized the government plan for being too slow and for not expanding renewable energy sources quickly enough."
 
In other words, none of this is to say that what Germany is doing is sufficient to prevent the worst of climate change from occurring (it certainly isn't), but it is a policy response that is both serious and recognizes reality. If we are to make substantive progress, we are going to have to do something similar with the oil companies, and then the gas companies after that. It seems to me that we either pass a meaningful carbon tax and strangle them to death or we bribe them out of existence. Most politicians seem to prefer bribes to violence so, in this sense, what Germany is doing is an honest attempt to make meaningful progress. I don't see many similar attempts elsewhere:
 
"… coal remains ascendant in some parts of the world, in part because it has been the go-to fuel for so long, it employs millions of people globally, and because the industry often enjoys robust political backing. … The Asia-Pacific is where coal continues to grow. China, which consumes half of the world's coal, continues to build more coal plants at home and abroad. … Not least, China's ambitious global infrastructure building drive knows as the Belt and Road Initiative includes at least 63 coal-fired power plants. India also continues to rely on coal. It has recently relaxed rules to encourage foreign investment in the Indian coal mining sector, and has been in talks to import metallurgical coal, used to make steel, from Russia. And even as it reels from wildfires made more intense by climate change, Australia, one of the world's biggest coal exporters, is digging for more, encouraged in part by the growing Asian market. Among the most contentious projects is a new $2 billion coal mine in the country's northeast."
 
Clearly, we need more of Greta. In the meantime, the article in the second url below gives an idea of the scale of the undertaking ahead:
 
"In order to meet the goals of the Paris agreement to keep global warming below 2°C, … UBS, a bank, calculated that capital spending on renewable energy, power grids and batteries will need to rise globally to $1.2trn a year on average from now until 2050, more than double the $500bn spent each year on oil and gas. To help fund that, it reckons that oil-and-gas companies will need to divert $10trn of investments away from fossil fuels over the same period."
 
That is $1.2trn, a year, every year, between now and 2050. I don't see any way that will happen unless a combination of significant pressure to change from stakeholders, combined with lucrative incentives to do so, are brought to bear, and quickly.
 
Take care
David
 
David Chandler
© Sage Publications, 2020
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/


Germany Plans to Quit Coal, but it Will Take 18 Years
By Somini Sengupta and Melissa Eddy
January 17, 2020
The New York Times
Late Edition – Final
A8
Blowin' in the wind
By Schumpeter
January 18, 2020
The Economist
Late Edition – Final
61
 

Tuesday, January 28, 2020

Strategic CSR - BlackRock

The article in the url below comments on Larry Fink's recent annual letter to CEOs that has received so much media attention. As CEO of BlackRock, "the world's largest asset manager with nearly $7 trillion in investments," Fink's opinions clearly matter, and he has increasingly embraced more of a stakeholder perspective to firm management (e.g., see Strategic CSR – BlackRock):
 
"Laurence D. Fink, the founder and chief executive of BlackRock, announced Tuesday that his firm would make investment decisions with environmental sustainability as a core goal. … this move will fundamentally shift its investing policy — and could reshape how corporate America does business and put pressure on other large money managers to follow suit."
 
So, the key question is, Will this announcement indeed "reshape how corporate America does business"? On the one hand, saying publicly that climate change represents a risk to companies and, therefore, a risk to the shareholders of those companies is hardly demonstrating great insight. In fact, you could argue that the biggest aspect of this story is that it is, in fact, a story when, to anyone paying the slightest bit of attention, this has been obvious for many years (decades?). On the other hand, however, it still matters when the CEO of one of the world's largest investment groups alters their position in a direction that advances the debate. Specifically in this year's letter, Fink focuses on sustainability and commits to ensure BlackRock's investments from now on will favor those firms that are more sustainable:
 
"[Fink] said BlackRock would begin to exit certain investments that 'present a high sustainability-related risk,' such as those in coal producers. His intent is to encourage every company, not just energy firms, to rethink their carbon footprints."
 
In addition to demanding greater transparency on climate issues/performance and divesting from firms that earn a significant percentage of profits in coal-related industries, Fink pledged to introduce new funds that closely adhere to this positive sustainable vision:
 
"[BlackRock], he wrote, would also introduce new funds that shun fossil fuel-oriented stocks, move more aggressively to vote against management teams that are not making progress on sustainability, and press companies to disclose plans 'for operating under a scenario where the Paris Agreement's goal of limiting global warming to less than two degrees is fully realized.'"
 
One concern is that, at this time, it is not immediately clear how BlackRock is going to determine which firms are considered 'sustainable' and which firms are not. Perhaps more critical, however, is that although this statement sounds progressive, implementing the vision across its stable of investments is going to be difficult given BlackRock's business model. As the article in the second url below notes:
 
"In a stroke, Larry Fink became one of the most powerful champions of green investing in global finance. But behind his new sustainable-investing push at BlackRock Inc. lies an uncomfortable truth: going green won't be easy or quick. Today BlackRock funds hold a 6.7% stake in Exxon Mobil Corp., for instance, as well as 6.9% in Chevron Corp. and 6% in Glencore Plc. And, in all likelihood, they'll keep holding them, for the same reason that BlackRock is so big and successful: two thirds of its roughly $7 trillion in assets are squirreled away in funds that passively track market indexes, rather than actually pick stocks or bonds."
 
So, in short, there are at least two reasons to be skeptical as to whether BlackRock's announcement will have much of an impact. The primary reason, as noted above, is that much of the firm's $7trn in investments is locked-up in passive index funds (at least $2trn) that, by definition, permit zero control over the allocation of capital (so, no real incentive for firms to change?). Moreover, the concentrated ownership the passive model promotes also tends to disincentivize competition (see here). Second, related to the measurement issue, is how BlackRock is going to decide which management policies/practices to support and which to vote against. In other words, how is it going to decide what constitutes 'sustainable' behavior? Already, some analysts are predicting that the firm will not even be able to meet its commitment about coal producers, let alone its more aggressive targets. Either way, while this announcement may be good business and excellent PR, it seems that it will do little to shift the needle on climate change, when what we need is dramatic action, and quickly. As the first article quietly buries further down the article:
 
"Because of its sheer size, BlackRock will remain one of the world's largest investors in fossil-fuel companies."
 
For now, therefore, I am filing BlackRock's announcement under the category of greenwash and will watch to be (hopefully) proven wrong. As the article in the third url below suggests, the firm's past record does not provide much reason for hope. For example, "the pledged coal divestments … are less than 0.1% of BlackRock's assets." More damning:
 
"In 2019 [BlackRock] opposed 93% of shareholder resolutions in America urging companies to become greener, compared with an industry average of 56%, according to Morningstar, a research firm. It only recently joined Climate Action 100+, a coalition of asset managers that presses big polluters to clean up."
 
Take care
David
 
David Chandler
© Sage Publications, 2020
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

New Lodestar for BlackRock: Climate Crisis

By Andrew Ross Sorkin
January 14, 2020
The New York Times
Late Edition – Final
B1, B6
BlackRock's Uncomfortable Truth: Going Green Won't Be Easy
By Annie Massa
January 14, 2020
Bloomberg Businessweek
Green giant
January 18, 2020
The Economist
Late Edition – Final
72
 

Wednesday, January 22, 2020

Strategic CSR - Welcome back!

 
Welcome back to the Strategic CSR Newsletter!
The first newsletter of the Spring semester is below.
As always, your comments and ideas are welcome.
 
 
The article in the url below summarizes a recent report by the International Energy Agency, the 'World Energy Outlook.' The report comments on existing trends in energy and forecasts future trends up to 2040. There is not much to say about the report other than, in spite of all the positive press surrounding the growth in alternative energies and awareness of climate change, our emissions of greenhouse gasses worldwide continue to rise:
 
"Wind turbines, solar panels and electric vehicles are spreading far more quickly around the world than many experts had predicted. But this rapid growth in clean energy isn't yet fast enough to slash humanity's greenhouse gas emissions and get global warming under control. … One reason: The world's appetite for energy keeps surging, and the rise of renewables so far hasn't been fast enough to satisfy all that extra demand. The result: fossil fuels use, particularly natural gas, keeps growing to supply the rest."
 
There are a number of statements that are discussed in the article (and worth reading), such as "Renewable electricity is set to surpass coal. Soon" and "What happens in Africa is crucial," but the inescapable conclusion is that we haven't even begun to take the serious decisions necessary in order to combat climate change.
 
Take care
David
 
David Chandler
© Sage Publications, 2020
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

Less Coal, More Wind: Energy Trends Shaping Climate Change

By Brad Plumer
November 13, 2019
The New York Times
Late Edition – Final
A7
 

Wednesday, December 4, 2019

Strategic CSR - Plastic bags

 
This is the last CSR Newsletter of the Fall semester.
Have a great winter break and I will see you in 2020!
 
 
The article in the url below reports a Canadian shopkeeper's innovative approach to discouraging plastic bag use by his customers:
 
"If concern over the climate crisis or revulsion over the contamination of the food chain are not enough to change consumer behaviour, one grocery store is hoping that another emotion may persuade people to shun single-use plastic bags: shame."
 
After noticing that a new charge of 5 cents for the bags was not dissuading his customers from taking them, he thought a more direct approach would be more effective:
 
"Customers who don't bring their own bags to the East West Market in Vancouver will instead have to carry their grocery home in bags reading 'Wart Ointment Wholesale' or 'Into the Weird Adult Video Emporium.' … The bags are meant to force customers to think twice about consumption habits."
 
The trouble is that the bags have now become popular in their own right:
 
"[David Lee Kwen, the shop's owner] admits there may have been an unintended consequence to the bags: 'Some of the customers want to collect them because they love the idea of it,' he said. But he still believes the plan is working. 'Even if you have the bag, you have to explain its origin to your friends. And then, we've started a conversation.'"
 
As a result, he will transfer the designs to canvas bags:
 
"The bags, which Kwen has run in limited numbers of 1,000, cost customers five cents. It costs extra for him to print the newly designed bags so he's hopeful customers instead opt to bring in their own. In the meantime, he plans to transfer the images on the plastic bags to canvas bags. 'It's a double-edged sword. We wanted to address an issue, but we've also made something popular, so it's turned out great.'"
 
A graphic showing the designs appeared in a NYT article about the same story:
 
 
Take care
David
 
David Chandler
© Sage Publications, 2020
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

Grocery store urges customers to rethink plastic with embarrassing bags

By Leyland Cecco
June 11, 2019
The Guardian
 

Sunday, December 1, 2019

Strategic CSR - Energy subsidies

The general idea behind lifecycle pricing is that, for the market for any product to work effectively, all costs (and benefits) need to be incorporated into the price. The easiest example of this is to ensure the cost of carbon is priced into the market for energy. Doing so would raise the price of fossil fuels and, as a result, make alternative energies (that use less or no carbon) more competitive. It makes the market more transparent and allows for a more realistic comparison among competing products.
 
In order to price fossil fuels effectively, however, there is another side to the story. That is, in addition to society not forcing the cost of carbon to be accounted for in the price at which fossil fuels are sold, the companies that extract and refine these polluting products are given massive subsidies by the state. These gifts, which artificially support this industry, are politically motivated and do much to ensure the vast majority of current fuel sources continue to cause damage – the cost of which is being externalized to future generations. The article in the url below reports the most recent effort by the IMF to calculate the value of these subsidies:
 
"Fossil fuel companies receive a significant quantity of what we might think of as conventional subsidies — government funding to reduce the retail price of fuel. The IMF describes these as 'pre-tax' subsidies, and they amount to roughly $500 billion a year."
 
What is fascinating, however, is that the IMF also estimates the value to the industry of both regular subsidies and externalized costs:
 
"The International Monetary Fund periodically assesses global subsidies for fossil fuels as part of its work on climate, and it found in a recent working paper that the fossil fuel industry got a whopping $5.2 trillion in subsidies in 2017. This amounts to 6.4 percent of the global gross domestic product."
 
That is trillion, with a t!  Perhaps not surprisingly:
 
"… the vast majority of the IMF's subsidy tally comes from failing to price greenhouse gas emissions, a.k.a. 'post-tax subsidies.' In essence, the world's carbon polluters are dumping their waste into the atmosphere for free. About 87 percent of greenhouse gas emissions don't face any kind of carbon price at all."
 
Moreover, many of the subsidies are not only tax breaks, but also things like price caps for citizens, which artificially increases demand, with the difference in price paid by the government to the energy producers. Either way, the extent to which these subsidies are significant and growing is evident in one of the graphs presented in the article:
 
 
One example of the costs that get externalized from the companies onto society as a whole is the security needed to protect the supply chains of fossil fuels:
 
"A huge chunk of foreign policy and military strategy for many countries involves protecting shipping lines for fossil fuels. The US military spends at least $81 billion a year protecting oil supplies. Meanwhile, there are no carrier groups defending wind turbine supply chains or a strategic silicon reserve for solar panels."
 
In addition to these security costs, there are costs associated with transportation, health-related consequences, tax credits and R&D write-offs, as well, of course, as the pollution associated with consuming these energy products. The IMF calculations attempt to account for all of these costs as subsidies that support industries and companies that otherwise would likely be unprofitable. In the process, of course, they cause significant environmental damage for which they never have to pay:
 
"We as a society pay these costs. Economists have come up with dollar values for how much carbon dioxide harms the world per unit of emission, a value known as the social cost of carbon. But such costs usually aren't built into the price tag of gasoline, coal-fired electricity, and natural gas heating. As a result, the people most responsible don't pay directly for their pollution. It also leaves few incentives to limit greenhouse gas emissions, so problems like climate change go unabated."
 
The article argues, as do all sensible economists, that pricing carbon accurately is essential to correct these market inefficiencies and, more importantly, combat climate change. The size of all existing subsidies, however, gives an idea of the overwhelming inertia that needs to be broken:
 
"Clearly, pricing the negative consequences of fossil fuels, especially carbon dioxide, is critical. 'If fuel prices had been set at fully efficient levels in 2015, estimated global CO2 emissions would have been 28 percent lower, fossil fuel air pollution deaths 46 percent lower, tax revenues higher by 3.8 percent of global GDP, and net economic benefits (environmental benefits less economic costs) would have amounted to 1.7 percent of global GDP,' according to the IMF report. In other words, even without new technologies, restrictions on fossil fuel supplies, and changes in consumption patterns, simply pricing fossil fuels in line with their damage to society would take a massive bite out of global greenhouse gas emissions."
 
The key word, however, is "accurately." A cost of carbon that is too low will not have the intended/desired effect. This is where we stray out of economics and into politics, which is the reason why we have the subsidies for this industry in the first place. It is also why we have yet to establish an accurate cost of carbon, anywhere in the world:
 
"… so far, no country has achieved what … economists would consider an optimal price on fossil fuels. The emissions that are priced are often given a value far below their impact on the world."
 
Take care
David
 
David Chandler
© Sage Publications, 2020
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

Fossil fuels are underpriced by a whopping $5.2 trillion

By Umair Irfan
May 17, 2019
Vox
 

Tuesday, November 26, 2019

Strategic CSR - Amazon

The article in the url below details Amazon's attempts to make its supply chain more efficient by requiring its suppliers to limit their packaging:
 
"Amazon is pressuring brands to make their packaging more efficient, which has prompted vendors to make costly changes to their businesses or face fines. Since last fall, Amazon has told companies they must make packaging for thousands of larger products more compact and easier to open by Thursday. Eventually, Amazon wants every product it ships to meet similar standards, according to the company and its suppliers. In a letter to vendors, Amazon said the requirements will make packages more environmentally friendly."
 
As an indication of its growing purchasing power, it is increasingly able to enforce its requirements:
 
"The company has also been pushing brands to sell products in quantities and at prices that best fit its storage and delivery systems; brands that don't comply are being cut from Amazon's site."
 
My question, therefore, is: Is this an example of sustainability (which the CSR community would no doubt applaud) or is it an example of an overly-aggressive, dominant market power forcing suppliers to alter their practices irrespective of their interests/concerns? Or, is it both at the same time and do we care about the distinction?
 
The article reminded me of Walmart's efforts to squeeze costs out of its supply chain, for example by forcing laundry detergents to introduce concentrate products that are then, supposedly, diluted by the end customer when we put it in our laundry machines? By not shipping the extra water, Walmart (and its suppliers) saved millions of dollars in packaging and reduced fuel costs – savings that are not one-off, but are compounded year-on-year as the products in specific industries, and their supply chains, changed forever.
 
To me, this speaks to the confounding effect of altruism in the CSR debate. I go into length about this in the textbook in the discussion about voluntary vs. mandatory CSR. It seems to me that the most effective way to bring about change is to incentivize firms to engage in practices that are deemed to be beneficial. If the incentives are real, then the self-interest of the firm is automatically aligned with the broader societal (collective set of stakeholders) interest. But, in order for the incentives to be real, stakeholders have to truly care and reward those firms that engage in the desired practices and punish those firms that shun those practices.
 
That, in a nutshell, is the argument driving strategic CSR.
 
Happy Thanksgiving!
David
 
David Chandler
© Sage Publications, 2020
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

Amazon Pushes Brands to be Less Boxy

By Annie Gasparro
July 30, 2019
The Wall Street Journal
Late Edition – Final
B2
 

Sunday, November 24, 2019

Strategic CSR - United

Given that many of you in the U.S. will be travelling this week for the Thanksgiving holiday, the article in the url below covers the progress airlines are making on reducing the environmental impact of their core product. It details a one-off plane trip from Chicago to LA, operated by United, designed to demonstrate the range of new policies and practices the company is exploring to achieve carbon neutral plane flights. The airline has previously committed to reduce its emissions "by more than 50% by 2050," and this flight was designed to demonstrate its progress to date:
 
"The meals were served on compostable or recyclable plates; hot beverages were served in recyclable paper cups, an industry first, according to the airline. The cutlery was compostable. In first class, passengers' meals were covered with a beeswax wrap instead of the usual plastic and there was no plastic ring around the napkin."
 
A reduction in waste was the first of four areas of operations that United was using the flight to demonstrate. The other three areas were:
 
  • Fuel: "The Boeing 737-900 flight, with 161 passengers, was powered not just by traditional jet fuel; 30% was biofuel made from agricultural waste."
  • Efficiency: "Pilots used single-engine taxi procedures instead of using both engines to reduce fuel burn on the runway."
  • Offsets: "The airline purchased carbon offsets to cover the remaining portion of flight where it didn't achieve zero emissions."
 
Although this was only a one-off flight, United reported zero waste from the flight, with the exception of waste generated separately by the customers:
 
"The goal: zero cabin waste instead of the average 65 pounds of garbage taken off a United flight. (They got it down to 14 pounds, all of it passenger garbage.)"
 
What I find interesting about the experiment, however, are the customer reactions. The article reports a limited sampling, but all the comments are either superficial or negative:
 
"Annika Bjorklund, 17, … and her father, Steve, were on Flight 310 but didn't know the special events were planned. 'I think it's a really cool thing,' she said. Steve Bjorklund praised the airline's sustainability efforts but said they wouldn't dictate his choice of airline. 'I'm a United flyer,' he said. 'I'm going to fly United anyway.' Joanne DeTrana watched the festivities somewhat skeptically from the B11 gate area. … 'I believe in sustainability but I think sometimes you can carry it to the Nth degree,' she said. 'To me, that's not a big marketing sell.' DeTrana said it wouldn't factor into her ticket buying decisions. 'Price and comfort top that list, she said."
 
In other words, United goes to all that effort and its passengers merely shrug their shoulders. This still may be useful for the firm if it motivates its employees but, in order for United to continue these efforts, a key stakeholder group needs to demonstrate that it wants and appreciates them. Otherwise, what is the point?
 
Take care
David
 
David Chandler
© Sage Publications, 2020
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/


Biofuel, beeswax wraps and recyclable coffee cups: United debuts 'eco-friendly flight'
By Dawn Gilbertson
June 6, 2019
USA Today