Strategic CSR - Buzzwords

I am increasingly seeing headlines such as this one, which appeared recently in the article in the url below:

"Don't Call it ESG, Call it Resilience."

In particular:

"There's a new buzzword in sustainability circles when it comes to investing in renewables and clean technologies: resilience."

The pertinent term here, I think, is "buzzword," which implies exactly the right amount of thought that has gone into this latest phase of the environmental conversation. To me, it feels more like a reaction to what suddenly cannot be said (i.e., ESG) than reflecting any serious attempt to chart a measured and coordinated approach to tackling climate change:

"'In the beginning you had 'social' and 'responsible investing' and then it became 'ethical investing' and then a whole host of other things have sort of emerged from that,' said Jason Britton, chief product officer at asset manager Sphere. ''Sustainability' was a buzzword for a really long time then 'regenerative' and 'triple bottom line,'' he said. 'This is an industry's effort to describe an incredibly complex thing in a series of one or two marketing words. 'Resilience' is the bingo buzzword of the day.'"

As a result, we should expect a demise similar to all the other acronyms or "buzzwords" that have come and gone, whether CSR, SRI, ESG, sustainability, green, offsets, and so on. In my world, words matter because, when ill thought through, they reveal underlying biases and ignorance, or simply an attempt to greenwash (to borrow another fluffy phrase). The sooner we realize that trends or buzzwords are not the way to tackle a fundamental and existential threat to humanity (see Strategic CSR – Jeans), the greater the chance we will have to do something serious about it:

"For investors, 'resilience' is the new catch-all term for investments aimed at mitigating the effects of climate change on their businesses. Often seen alongside terms like 'adaptation finance' or 'transition finance,' ESG professionals are using the word increasingly in marketing and communications related to their investments."

The sentiment 'moving deck chairs around on the Titanic' comes to mind. Of course, climate change is not waiting while we decide whether we are serious.

Take care

David

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (6e)

© Sage Publications, 2023

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler6e  

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Don't Call it ESG, Call it Resilience

By Yusuf Khan

February 28, 2025

The Wall Street Journal

https://www.wsj.com/articles/dont-call-it-esg-call-it-resilience-067a2a9a

 

Strategic CSR - BlackRock

A picture can tell a thousand words – specifically, a graph from the article in the url below about how BlackRock CEO, Larry Fink, has stopped publicly using the acronym, ESG. Of course, here in the U.S., there is a controversial ideological argument around the acronym. Equally important (and a symptom of that broader discussion) is how investors are voting with their dollars:

Take care

David

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (6e)

© Sage Publications, 2023

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler6e 

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The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

BlackRock Retreats From ESG Following Pushback

By Jack Pitcher and Amrith Ramkumar

March 4, 2024

The Wall Street Journal

Late Edition – Final

A1, A6

https://www.wsj.com/finance/investing/step-aside-esg-blackrock-is-doing-transition-investing-now-59df3908

Strategic CSR - Green-hushing

The article in the url below suggests that, in the face of growing polarization around ESG-related issues, companies are engaging in more "green-hushing":

"Executives at U.S.-listed companies mentioned 'environmental, social and governance,' 'ESG,' 'diversity, equity and inclusion,' 'DEI' or 'sustainability' on 575 earnings calls from April 1 to June 5, down 31% from the same period last year. … That is the largest such year-over-year decline and the fifth consecutive quarter of year-over-year drops, following a pickup in these discussions and corporate social efforts in the wake of the police killing of George Floyd in May 2020."

The chart in the article highlights the definite trend that emerged over the last couple of years:

 

Although executives are talking less often about the variety of issues that fall under the ESG umbrella, there does not seem to be any less action (which is encouraging):

"While such instances of 'green-hushing' may be part of a larger strategy for many companies to avoid weighing in on divisive issues, there is little sign that public companies are pulling back from the initiatives themselves, such as DEI employee training and emissions reductions. Companies still regularly voluntarily issue detailed sustainability reports, disclose greenhouse-gas emissions and tie a portion of their executive compensation to ESG metrics. Businesses are also busy preparing soon-to-be-unveiled new climate-disclosure requirements from the Securities and Exchange Commission by creating systems for collecting data and managing future compliance costs."

This reminds me of Walmart, which has long engaged in best-practice sustainability issues in its supply chain, but does not advertise their progress to their customers. Research suggests that customers who see a "green" product assume that it is priced as a premium product, even though it could easily be cheaper. But, Walmart is most concerned about its price sensitive customers and perceptions around value (rather than actual value), so better for the firm to engage in the practice, but not tell anyone about it.

This is opposite to a strategic CSR approach to business. Much better, in my opinion, to stand behind a clear set of values and run the business accordingly. In my mind, that generates greater loyalty to the firm among all stakeholders, which is essential in order to operate the business at its optimal potential.

Take care

David

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (6e)

© Sage Publications, 2023

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler6e 

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

Companies Seek to Avert Backlash, Avoid Talk of Social, Green Issues

By Mark Maurer

June 13, 2023

The Wall Street Journal

Late Edition – Final

A1-2

https://www.wsj.com/articles/executives-quiet-their-sustainability-talk-on-earnings-calls-amid-growing-culture-war-3a358c1f

 

Strategic CSR - ESG

The article in the url below demonstrates the challenge for investing in inserting altruistic or ideological motivations in place of market mechanisms. The danger is that the returns are diminished and that only a certain percentage of the market is willing to compromise their return on investment. This has been playing out with ESG funds for some time now, but reality appears to be catching up. As investigations by regulators into, first, Deutsche Bank (in Germany) and, soon after, Goldman Sachs (in the U.S.) were announced over the summer, the reality of the ESG façade has become increasingly apparent. Ultimately, it cannot be solved until we first agree on what needs to be measured (the E, S, and G), and then develop effective metrics of those constructs (many of which do not currently exist). For now, it should be painfully apparent that the majority of the ESG (or SRI) investment craze is not moving us any closer to a more sustainable economy and, in fact, might be doing more harm than good if it lulls us into the belief that we are actually making progress. At present, of course, all progress on tackling climate change appears to be put on hold as we deal with the consequences of the conflict in Ukraine:

"So far in 2022, the S&P 500 is down more than 13 percent, and it briefly dipped more than 20 percent below its peak, putting stocks in bear market territory. Dismal as the stock market may be, the situation looks even worse if you are worried about the future of the planet. The fact is that only one broad stock sector has provided consistent returns over the last year: old-fashioned fossil fuel, and the companies that extract, refine, sell and service it."

More specifically:

"In fact, when I looked at a performance table of the top companies in the S&P 500 for 2022, I found that 19 of the top 20 spots belonged to companies connected, in one way or another, with fossil fuel. The best performer was Occidental Petroleum, with a gain of 142 percent."

And, what is worrying is that this trend looks set to continue:

"Russia's assault on Ukraine and the mounting Western sanctions are improving prospects for fossil fuel, Bank of America noted in a report to clients on Thursday. 'Our commodity strategists expect that a sharp contraction in Russian oil exports could trigger a full-blown 1980s-style oil crisis,' with energy prices rising much higher, the report said. 'Not owning energy is becoming more costly,' it said. 'With China reopening, peak driving season and favorable positioning/valuations, we see more upside' for energy prices."

The whole point about strategic CSR is that a firm's self-interest is determined by its stakeholders. Thus, creating value for those stakeholders is what makes the firm successful. The moral challenge of that reality (the framework is descriptive, not normative) is when the stakeholders (i.e., all of us) want something that is not necessarily 'good' for us.

Take care

David

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

© 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-Fuel Shares Lead the Stock Market. How Awkward

By Roxane Gay

June 5, 2022

The New York Times

Late Edition – Final

BU3

https://www.nytimes.com/2022/06/03/business/stock-market-energy-climate-change.html

 

Strategic CSR - Impact investing

This is the last CSR Newsletter of the Spring semester. Have a great summer and I will see you in the Fall!

The article in the url below outlines how a new nonprofit, Social Finance, is using impact investing to build an innovative approach to vocational training:

"Bill Barber saw an ad on Facebook last year for American Diesel Training Centers, a school in Ohio that prepares people for careers as diesel mechanics. It came with an unusual pitch: He would pay for the schooling only if it landed him a job, thanks to a nonprofit called Social Finance. After making sure it wasn't a scam, he signed up. After going through the immersive five-week program, he got a job with starting pay of $39,000 a year — about $10,000 more than he made before as a cable TV installer."

The idea is that, rather than being rewarded for how many students enroll in a program or graduate from it, the training organization is rewarded based on how many students get well-paid jobs in their area of study:

"Right now, there are only a relative handful of these pay-for-success programs that train low-income Americans for better-paying careers. The challenge has been to align funding and incentives so that students, training programs and employers all benefit."

The nonprofit is backed by investors who purchase "career impact bonds," which raise the money needed to support the initial training:

"The Social Finance effort is powered by a fund of more than $40 million raised from philanthropic investors. The money goes toward paying for low-income students, as well as minority candidates and veterans, to enter the training programs. The group is not related to the online lender SoFi. It has supported four job training programs, including American Diesel Training, in the past year. It has plans to have double that number a year from now."

And the bonds generate a return once the students who get a job start repaying their training costs:

"The Social Finance income-share agreement with students ranges from about 5 percent to 9 percent depending on their earnings — less from $30,000 to $40,000, and generally more above $40,000. The monthly payments last four years. If you lose your job, the payment obligation stops."

What is most intriguing is that Social Finance is beginning to consult on how the model can be implemented at scale:

"Social Finance is advising Ohio on pay-for-success programs and is in talks with several other states. The financing arranged by Social Finance from investors is called a career impact bond, while the state-backed initiatives are called pay-it-forward funds — since payments from job-holding graduates help pay for new students. Social Finance is also preparing a proposal for the new labor secretary, Martin J. Walsh, recommending that the federal government provide matching funds to accelerate state programs."

And the results so far appear to be promising. For example, in the case of American Diesel Training (based in Ohio and featured in the article), the funding model appears to provide an effective mix of incentives and rewards for the students and their trainers:

"The first group of Social Finance-funded students started the five-week course last September. There are now about 70 students in each course. That is about four times as many as a year ago. Social Finance pays American Diesel Training just over 60 percent of its fee initially. The rest comes later, after a student lands and keeps a job. … A total of 229 students supported by Social Finance have been enrolled. The graduation rate is nearly 100 percent, and 89 percent have jobs. Their average annual income is $36,500, and the average gain from income before the program is $12,400."

Take care

David

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

© 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/

Greasing the Wheels of Opportunity

By Steve Lohr

April 8, 2021

The New York Times

Late Edition – Final

B1, B6

https://www.nytimes.com/2021/04/07/business/job-training-work.html

Strategic CSR - Jeremy Grantham

Following-on from Tuesday's newsletter, the article in the url below challenges the idea that an investment fund that excludes certain industries cannot be as productive as one that has no such restriction. In particular, the article reports on research by Jeremy Grantham looking at the effect on returns of excluding specific industries from funds he created:

 

"Mr Grantham checked the data to find out whether, and how much, omitting the stocks of any industry over three decades would have hurt a hypothetical investor. He created synthetic portfolios that left out each of the ten broad stockmarket sectors and compared their returns with the market as a whole."

 

The results were surprising, to say the least:

 

"[Excluding specific industries] made hardly any difference. The S&P index returned an average of 9.71% annually between 1989 and 2017; the index excluding energy stocks returned 9.74%. The range of returns, from the worst portfolio to the best, was just 0.5 percentage points."

 

So surprising, that he double-checked his results:

 

"This finding seemed like it might be a fluke. But a further check, going back to 1925, had a similar outcome. The spread between the best and worst portfolios was 0.54 percentage points; there was hardly any gap between the portfolio with energy stocks and without them. … The market, it seems, has done rather a good job over time of pricing stocks so that no broad industry group yields abnormal returns."

 

Grantham's conclusion is that, since there is no effective difference in excluding specific industries, there is no (financial) reason not to exclude oil stocks from any fund, or divest any funds of existing investments in oil stocks. On the contrary, given the risks facing the oil and gas industry in the (near) future, Grantham recommends that there might be very good reason to exclude them:

 

"Oil demand has already peaked in rich countries and, as climate fears grow and green technologies become cost-effective, it will eventually peak worldwide. But not everyone is keenly focused on this prospect. Scepticism regarding climate science is common in America. To the extent that sceptics are investors, and are betting on business as usual, at least some of the risks facing Big Oil may not be in the price. Investors might, for instance, miscalculate the speed of transition to greener energy. Advances in materials science and battery technology are making electric vehicles a cost-effective alternative to petrol-fuelled cars, Mr Grantham reckons. Other potential hazards face oil companies, including increased regulation and costly lawsuits. In other industries, such as tobacco, firms have been forced to pay up when found to have knowingly sold harmful products. He thinks the oil industry faces a similar reckoning."

 

He goes further:

 

"Is there also a moral case for disinvestment? … Bill Gates, a software mogul and philanthropist, has argued that people should not waste idealism and energy on a policy that will not cause any reduction in the use of fossil fuels. What matters are incentives set by governments: tax breaks to fund research in green energy; tax rises to discourage carbon use. But this misses the point, says Mr Grantham: 'You have to make the oil industry a pariah for bad behaviour.' Only then will politicians feel the need to act."

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

© 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/

Inessential oils

By Buttonwood

January 11, 2020

The Economist

Late Edition – Final

61

https://www.economist.com/finance-and-economics/2020/01/09/jeremy-grantham-on-divesting-from-big-oil

 

Strategic CSR - 50th Earth Day

With a nod to tomorrow's 50th anniversary of Earth Day, the newsletters this week focus on the field of ESG/SRI investing. Today, the article in the url below offers a broad critique by the WSJ columnist (James Mackintosh) who occasionally returns to this issue. Whenever he does, I find his perspective insightful because he tends to cut through a lot of the fluff that surrounds ESG/SRI (created largely by the investing companies trying to jump on the bandwagon). This column is no exception – I find the central conundrum that he presents fascinating:

 

"Much of ESG is about what economists call externalities: things such as carbon emissions that are free to the emitter but costly to wider society. Making money from pricing externalities is a matter of identifying which ones will lead to government, consumer or worker action and which ones won't."

 

The comment may seem cynical, but I think reflects how many investors (whether professional or layperson) think and act. If so, it captures an economic reality that is missing from most CSR commentary around ESG/SRI investing. It also takes into account the inconsistent approach from politicians (and all stakeholders, broadly speaking) to public policy:

 

"Treating your workers badly might help your profits, but it is likely to backfire in the long run as they leave for other employers. Using cheap ingredients that poison your customers, even if it seems to be legal, leads to lawsuits or government crackdowns."

 

The challenge, of course, is to identify when the backlash will come (and how strong it will be):

 

"It took decades for government to act on evidence that tobacco was killing people but just a few years to move against vaping. Alcohol, meanwhile, remains a great business despite the damage it does."

 

The result is that, although the amount of capital flowing into SRI/ESG funds is increasing rapidly (even more so in the current political environment), it is not clear it is achieving the goals that are intended for it. If so, then the investment companies are arguably deceiving many who are trying to channel their investments in ways that reflect their values. As Mackintosh notes at the beginning of this column:

 

"It is hard to move in the world of investment without being bombarded by sales pitches for running money based on 'ESG,' or environmental, social and governance criteria. The trouble is that few involved seem to agree on how it works (or, more to the point, doesn't)."

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

© 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 Socially Responsible Strategy Can be Tricky

By James Mackintosh

November 13, 2019

The Wall Street Journal

Late Edition – Final

B1

https://www.wsj.com/articles/a-users-guide-to-the-esg-confusion-11573563604

 

Strategic CSR - EU Green Deal

In December, while the UN's COP 25 meeting was failing in Madrid, the EU announced its own Green Deal. The article in the first url below presents the highlights:

 

"It covers everything from housing and food to biodiversity, batteries, decarbonised steel, air pollution and, crucially, how the EU will spread its vision beyond its borders to the wider world. 'Our goal,' declared Mrs von der Leyen [the European Commission's new president], 'is to reconcile the economy with the planet.'"

 

These goals revolve around the bloc's commitment to be carbon-neutral by 2050 and, more immediately:

 

"By summer 2020 the commission intends to present a plan to reduce emissions in 2030 by 50-55% from 1990 levels. This represents a step up from its existing target of cutting emissions by 40% within the same time frame."

 

The key mechanism the EU envisions to achieve these targets is ESG and impact investments:

 

"All this green ambition comes at a price. The commission estimates that an additional €175bn-€290bn ($192bn-$320bn) of investment will be needed each year to meet its net-zero goals. Much of this will come from private investors. One way they will be encouraged to pitch in is with new financial regulations. On December 5th EU negotiators struck a provisional agreement on what financial products are deemed 'green.' Next year large European companies will be forced to disclose more information about their impacts on the environment, including carbon emissions. These measures, the thinking goes, will give clearer signals to markets and help money flow into worthy investments."

 

In particular, the European Investment Bank is to be re-purposed as "a climate bank":

 

"Already [the bank] has pledged to phase out financing fossil fuels by 2021. By 2025 Werner Hoyer, its boss, wants 50% of its lending to go to green projects, up from 28% today, and the rest to go to investments aligned with climate-change goals."

 

As the article notes, however, the EU's deal is grand in its ambition and woefully inadequate in terms of detail. Along these lines, the article in the second url below (written in response to new E.U. rule in responsible investments) tackles some of the challenges the EU will face in determining whether an investment can be defined as 'green' and, therefore, fit within the EU's guidelines to help it achieve its ambitious goals. The key comes down to whether the new policies are enabling investments that would not otherwise have been made:

 

"But a bigger question is whether the whole approach is productive as a way of allocating what should be 'concessionary' capital (meaning capital that accepts sub-market returns in exchange for social impact). The idea behind social-value investing ought to be, after all, to encourage things that would not happen otherwise. Sustainable or green investments wouldn't require a 'taxonomy' in the first place if they produced superior returns."

 

This is important because if such investments are only attracting capital that would have been allocated anyway, "Whatever the returns delivered, nothing of social value has been achieved that would not have happened anyway." In short:

 

"Creating classifications of social worth, or taxonomies of green-ness, may make people feel virtuous. But it has two big difficulties. The first is definitional: how do you construct a list that isn't capable of being gamed or delivering unintended consequences? The continuing EU political horse-trading suggests the green taxonomy could end up being one giant messy fudge. The second is more fundamental and reflects the fact that most investors continue to seek market returns and remain socially-neutral, whatever PR materials they may pump out. So as those investors who are socially-concerned buy green investments, thus driving up their value, socially neutral investors will simply sell those same stocks (to them, overvalued), meaning the net effect is zero."

 

Ultimately:

 

"Impact investments that really make a difference involve those that make them accepting sub-market outcomes."

 

That is, ESG/impact investing, in order to be true to its mission, should finance projects that otherwise would not have happened. If it is financing projects that would have happened anyway (due to the expected return/profit), then nothing is being changed. It is only when such investing funds projects that would not have happened that they will be making a difference – the trouble is that, the reason they would not otherwise have happened is because they are not expected to make a profit. In other words, the article is criticizing the attempt to justify such investments in terms of their returns and implying that, those funds that claim such a return are probably deceiving their investors.

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

© 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/

The way the wind is blowing

December 14, 2019

The Economist

Late Edition – Final

43-44

https://www.economist.com/europe/2019/12/14/the-eus-green-deal-is-full-of-ambition-but-needs-more-detail

The difficulty with the EU's sustainable investment rules

By Jonathan Ford

December 14, 2019

The Financial Times

https://www.ft.com/content/56f63be8-1dcb-11ea-9186-7348c2f183af

 

Strategic CSR - SRI/ESG

I find the debate around SRI/ESG (socially responsible investing/environmental, social, and governance) to be largely artificial and somewhat distracting. It seems to me that, given the difficulties we face measuring CSR (even defining CSR), identifying correlations between some set of compromise variables and firm performance is spurious (to put it generously). In other words, the filters that structure these investments (such as low pollution levels, or director diversity, or employee pay ratios, or whatever measure you like) miss the point. Primarily this is because, in my mind, CSR is everything the firm does (not easily identifiable parts), but also because this research suffers from omitted variable bias. That is, it is the progressive executive team that adopts good environmental practices (or diverse directors or equitable pay practices), so it is the progressive executive team that predicts performance (not the various practices they adopt). With this in mind, the article in the url below adds another important (and rational) explanation for why much of the discourse around SRI/ESG is misleading. In particular, it identifies a flaw in the argument intended to legitimize this industry—that investing in social responsibility need not compromise performance:

 

"The trouble is, even badly run companies, big polluters or terrible employers have some price at which they will be profitable investments. A recent example is the rebound in the sector environmentalists love to hate: Coal miners globally have returned almost 20% in the past 12 months in dollar terms, double the world market, according to Datastream indexes."

 

Beyond the challenges associated with measuring social responsibility, whenever you constrain choice there is a good chance you will affect outcomes. Similarly, if a lack of demand pushes the price of one stock down, that only makes it a more attractive investment (presuming it is an ongoing, profitable business). It is this same logic that undermines much of the oil and gas divestment activism:

 

"Lower stock prices mean a higher cost of capital for the company, which should hurt. But cheaper shares in the same business mean buyers should expect higher returns in future than they did before. If the do-gooders are successful in driving down stocks, the new shareholders in the badly behaved business should outperform, and the do-gooders underperform."

 

The Figure in the article that shows total returns of the coal sector relative to all stocks is enlightening. The article also has another Figure showing how much individual firms have varied in ESG ratings—reinforcing the idea that we really have no idea of how to measure CSR. But, none of this means that SRI/ESG products are not viable. It just means that, if the industry is to be successful, it has to be more honest with potential customers/investors. Just like there is a cost to purchasing a higher quality product (expressed in terms of a price premium), there is a cost to investing using one or more SRI/ESG filters. Given that reality, customers can choose. The added value comes from knowing that certain firms and industries are being avoided—that investments are aligned with values. But the cost, over the medium to long term, almost by definition, is likely to be lower returns.

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (4e)

© Sage Publications, 2017

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

 

 

If You Want to Do Good, Expect to Do Badly

By James Mackintosh

June 29, 2018

The Wall Street Journal

Late Edition – Final

B1

https://www.wsj.com/articles/if-you-want-to-do-good-expect-to-do-badly-1530185698

 

Strategic CSR - Human psychology

The article in the url below presents a fascinating, counter-intuitive perspective on the SRI industry:

 

"An analysis of fund inflows into U.S. stock ETFs and mutual funds that invest with a social, governance or environmental purpose (often called sustainable, ESG or impact funds) paints an interesting picture of investor psychology. Namely, while most traditional investors run for the hills when news comes out that conflicts with their expectations or ideas about the world, sustainable investors appear to dedicate more of their money to the cause when news or policy decisions that go against their values are announced."

 

The empirical support for this conclusion is fascinating:

 

"In perhaps the clearest representation of this, during December 2016, one month after the election of Donald Trump, a staggering $2.1 billion flowed into U.S. equity sustainable funds—representing a 3.5% increase in the category's total assets under management as of Nov. 1."

 

How exceptional was this "Trump bump"?

 

"The 'Trump bump' (which was the largest single monthly increase into the sustainable-investing class ever) was 170% larger than the next-largest one-month inflow. And the growth has continued. Since the election, $8.1 billion has flowed into these funds, a 13.1% jump from the assets under management on the eve of the 2016 presidential election—by far the greatest percentage inflow into any class or style of fund (e.g., value, growth, small-cap funds) since the election."

 

The authors extended their investigation, also looking at flows into environmental funds following the passing of COP 21 in Paris and, later, the announcement by the U.S. that it was withdrawing from the pact:

 

"In the month following the Paris Climate Agreement (which was signed in December 2015), $50.1 million flowed out of environmental-focused funds (amounting to a 1.05% drop in assets under management from the previous month). Conversely, when President Trump withdrew the U.S. from the climate agreement in June 2017, $98.5 million flowed into them (a 1.32% increase in assets under management)."

 

Similarly, the #MeToo movement appears to have influenced money flows into and out of social funds that employ gender or diversity filters:

 

"Surrounding the accusations of sexual abuse that came to light around Hollywood's Harvey Weinstein, Kevin Spacey and other celebrities, iShares MSCI KLD 400 Social ETF (DSI)—the largest socially conscious ETF—saw inflows of $48 million during November 2017. This was the fund's single largest monthly inflow, pushing it close to the $1 billion mark in assets. And, it isn't just individual investors who seem to be moving their money. In the four months following the news about Mr. Weinstein, TIAA-CREF Social Choice Equity Fund institutional class (TISCX) jumped $211 million (starting from $1.9 billion)—a striking 11% inflow."

 

People are both fascinating and frustrating, which at least keeps all of us social scientists in a job!

 

"Many factors are driving the increasing popularity of sustainable investing, including demographic demand (high among millennials and women), generational wealth transfer, a strong market and new sustainable financial products. But macro political and cultural trends are clearly the largest drivers—specifically, negative news that conflicts with sustainable investors' views of the world. Asset managers and wealth advisers should take note: Politics is personal, especially when it comes to investing."

 

This study reminds me of patterns around gun sales – when Obama (a proponent of gun reform) was elected, gun sales spiked (due to a fear that he wanted to remove guns from society by making them illegal), while sales dropped after the election of Trump (a Second Amendment supporter), leading to the bankruptcy of the 200-year-old gun-maker Remington in March. It also reminded me of subscriptions to The New York Times or viewership of CNN, which jumped the more that these media institutions have come under attack for their supposedly biased reporting.

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (4e)

© Sage Publications, 2017

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

 

 

Ethical Investing Seems to Thrive on 'Bad' News

By Derek Horstmeyer

April 9, 2018

The Wall Street Journal

Late Edition – Final

R5

https://www.wsj.com/articles/ethical-investing-thrives-when-theres-bad-news-1522941625

 

Strategic CSR - Value

The article in the url below demonstrates how the concept of value is widely misunderstood – even among those, such as business journalists, who should know better. The author, adopting the stereotypical stance of a Wall Street Journal journalist, equates the creation of value with the largest dollar amount. That is, he suggests that for an investor in a socially responsible investment (SRI) fund to accept a lower return is for that investor to receive less value:

 

"Wall Street considers it a truism that money sloshes around the globe seeking the highest return. But there are countless investors, believe it or not, who are willing to accept lower returns. P.T. Barnum supposedly said there's a sucker born every minute. Many of them go into so-called socially responsible investing. … the basic idea is to throw money away. In reality there is no trade-off of Vice vs. Nice. There are only returns."

 

Putting aside the contentious issue of whether SRI funds are able to match the performance of the market, let's assume SRI funds perform at a lower rate – say 1, or 2, or even 3% below the market as a whole. This doesn't mean that the investor is receiving less value. If the value I get from knowing my funds are supporting companies/issues in which I believe (and, to some extent, build my identity around), then that could easily compensate for any lower financial return, and will probably exceed it. Instead, this journalists resorts to the well-trodden, knee-jerk ground of Milton Friedman's quotes about CSR (which, in my opinion, are also misunderstood – see Chapter 5, pp. 90-92 + Strategic CSR – Bill Gates) to undercut his own argument:

 

"Profits are the best measure of a business's value to consumers—and to society. No one holds a gun to the customer's head. If the buyer weren't glad to pay the free-market price, he would make the product or perform the service himself. Yet this idea is questioned all the time."

 

I agree that "profits are the best measure of a business's value to consumers—and to society," but that is exactly why SRI funds exist. If an SRI fund is profitable then, by definition, it is creating value for the investors who select it over other, more conventional investment options. To see what this means at the societal level (i.e., the population of all firms), it is instructive to look at the makeup of those companies that are considered 'successful.' The fact that many of them are global brands that persuade consumers to pay a significant premium for the 'lifestyles' that accompany their products disproves the author's point about SRI funds. In other words, he cannot say SRI funds are a waste of money because they deliver returns that are below those of other competing investment options, yet also say that a consumer is demonstrating Nike's 'value' by paying a significant price premium for those parts of sneakers (e.g., design, logo) that do not serve a functional purpose. In both cases, consumers are receiving something other than functional value in exchange for the 'price' they are willing to pay. Why is there even a market for $150 sneakers if it is not to provide some value to those who are willing to pay that much? If this argument applies to Nike, then, by definition, it applies to SRI funds. The Wall Street Journal cannot have it both ways.

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (4e)

© Sage Publications, 2017

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

 

 

Stocks Weren't Made for Social Climbing

By Andy Kessler

January 22, 2018

The Wall Street Journal

Late Edition – Final

A15

https://www.wsj.com/articles/stocks-werent-made-for-social-climbing-1516565984

 

Strategic CSR - Impact investing

The article in the url below presents a multiple-choice quiz on the socially-responsible (or impact)-investing industry. The article includes 10 questions. Here are a selection, with the answers underlined:

 

3. Last year, investors put how much money into ESG funds in the U.S.?

A. $20 million

B. $100 million

C. $1 billion

D. $3 billion

 

4. At the start of 2016, the sustainable, responsible and impact investing category represented what percentage of all investment under professional management in the U.S.?

A. 22%

B. 10%

C. 5%

D. 0.1%

 

5. From 2014 to 2016, sustainable investing grew by what percentage in the U.S.?

A. 12%

B. 20%

C. 33%

D. 55%

 

6. On a global level, what is the dollar amount of assets professionally managed under ESG strategies?

A. $15.56 trillion

B. $22.89 trillion

C. $34.45 trillion

D. $45.67 trillion

 

7. True or false: There is no official governing body that regulates environmental, social and governance criteria.

 

Explanations for the answers, along with additional information and the other questions, is provided in the article.

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (4e)

© Sage Publications, 2017

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

 

 

Test Your Smarts on … Ethical Investing

By Matthew Kassel

July 10, 2017

The Wall Street Journal

Late Edition – Final

R8

https://www.wsj.com/articles/how-much-do-you-know-about-ethical-investing-1499349815

 

Strategic CSR - CEO Pay (II)

Continuing with this week's focus on CEO pay, the article in the url below reports progress in the UK with pay ratio disclosures that were designed to reduce the huge discrepancies between the pay at the top and the pay of the firm's median employee. Unfortunately, as with many laws motivated by good intentions, the results have not matched the design:

"CEO pay and its reflection of firm performance has been a preoccupation of U.K. policy makers for a while, and since 2002 companies have had to produce a directors' compensation report for shareholder vote, albeit a non-binding one. A few shareholder revolts later, executive pay became subject to a binding vote at least every three years from 2013, and the disclosure details were enhanced to provide more transparency for investors."

 

Given the complexity of the problem, there are plenty of loopholes in which to jump through:

 

"But the law stops short of requiring the publication of a ratio between the pay of top executives and average employee. 'Unfortunately, instead of disclosing this simple ratio, the final disclosure policy only mandates the disclosure of relative changes in pay, and the definition of pay doesn't include equity-based incentive compensation,' said Jenny Chu, university lecturer in the Finance and Accounting group at the Cambridge Judge Business School. Firms also can determine which group will be used in the calculation of change in employee pay, and companies tend to 'engage in more opportunistic reporting for the sake of reputation management rather than fundamental change in disclosure transparency.'"

 

The result has been little, if any, change:

 

"The study found that CEO-employee pay ratio at FTSE 100 companies 'barely budged' to 122.37 in 2014 from about 123 in the previous two years."

 

The key, as always in shaping firm behavior, is stakeholder pressure. Corporations are social constructions that are designed to advance social progress. As such, they reflect our collective set of values. To the extent that stakeholders are willing to hold firms to account, behavior is much more likely to be shaped in the way intended:

 

"Increased disclosure in and of itself won't result in changes to remuneration or design, but pressure from investors and shareholders or from other interested parties such as customers or potential recruits could do so, said Melissa Reid, an associate at law firm Cleary Gottlieb Steen & Hamilton LLP. 'I don't think that having an additional ratio would significantly, if at all, change pay structures, it would just be [an] additional compliance burden,' she said. But if shareholders' advisory bodies, for instance, advocate for ratios of a particular level to affect how votes on pay are exercised that could have a bigger impact, she said."

 

Stakeholders (in this case the shareholders) have the potential to deliver the results they say they want. If this pressure does not arise, then other stakeholders will either have to work out how to pressure the firm more directly (e.g., more effectively designed legislation) or they can pressure shareholders to demand the change from firms (e.g., increased demand for socially responsible investing products). If no stakeholders apply any pressure, of course, then the firm will continue to carry on as always (and would be correct to do so).

 

Note: Reported on the same day as the article below:

"Bosses of the largest 100 British companies saw their pay increase more than 10 percent to 5.48 million pounds ($7.2 million) last year, 140 times the average wage of their employees." (see http://www.bloomberg.com/news/articles/2016-08-08/top-u-k-bosses-get-10-pay-increase-as-may-urges-crackdown).

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (4e)

© Sage Publications, 2017

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

 

 

CEO-Employee Pay Ratio Disclosure no Panacea

By Mara Lemos Stein

August 9, 2016

The Wall Street Journal

http://blogs.wsj.com/riskandcompliance/2016/08/09/the-morning-risk-report-ceo-employee-pay-ratio-disclosure-no-panacea/

 

Strategic CSR - SRI trends

The article in the url below contains up-to-date data on the growth of the SRI industry:

 

"Sustainable, Responsible and Impact Investing (SRI) in the United States has grown substantially over the past two years. The total US-domiciled assets under management using SRI strategies expanded from $3.74 trillion at the start of 2012 to $6.57 trillion at the start of 2014, an increase of 76 percent, according to the US SIF Foundation's latest biennial survey, the Report on US Sustainable, Responsible and Impact Investing Trends 2014."

 

The chart accompanying the article speaks volumes:

 

http://www.greenmoneyjournal.com/wp-content/uploads/2014/12/Chart1.png

 

There is nothing particularly counter-intuitive about these data and many of you will not be surprised to see the large increases. Nevertheless, it is always good to have empirical support using specific numbers you can relay to your students.

 

Other useful SRI information is available on sites such as this: http://www.ussif.org/sribasics

 

Have a good weekend.
David

 

David Chandler & Bill Werther

Strategic Corporate Social Responsibility: Stakeholders, Globalization, and Sustainable Value Creation (3e)

© Sage Publications, 2014

 

Instructor Teaching and Student Study Site: http://www.sagepub.com/chandler3e/

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/

 

 

The 2014 U.S. SRI Trends Report

By Cliff Feigenbaum

January 15, 2015

Green Money Journal

http://www.greenmoneyjournal.com/january-2015/trends/