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Summary to be added This meta-analysis both rejects and confirms notions developed by neoclassical economists. On the one hand, it rejects the idea that CSP [Corporate Social Performance] is necessarily inconsistent with shareholder wealth maximization (Friedman 1970; Levitt 1958). Instead, organizational effectiveness may be a broad concept encompassing both financial and social performance (Andrews 1987; Judge 1994). It is also worth noting that, according to most credible versions of stakeholder theory, shareholders are legitimate stakeholders. On the other hand, our findings also confirm the notions of libertarians such as Friedman that government regulation in the area of CSP may not be necessary. If the statistical relationship between CSP and CFP [Corporate Financial Performance] were negative, bottom-line considerations might constitute barriers to outcomes desired by the public, which in turn would make government intervention, which serves the ‘public interest’, a necessity. Yet, with CSP, the case for regulation and social control by governments (acting on behalf of ‘society’ or ‘the public’) is relatively weak because organizations and their shareholders tend to benefit from managers’ prudent analysis, evaluation, and balancing of multiple constituents’ preferences. Therefore, these actions are most likely adopted voluntarily, based on managers’ cost-benefit analyses of a firm’s investments. In contrast, ‘socially responsible’ command-and-control regulation may prescribe inflexible means–ends chains that are inappropriate for a particular firm’s non-market and market environments (Majumdar and Marcus 2001). Insurance & Sustainability; 2004; WestLB
OconEco’s view: Argues for socially responsible investing (SRI) investors In the last few years the number of empirical studies has increased steeply along with the market volume for SRI and the generally greater public interest in the topic of the social responsibility of companies. Looking at the findings as a whole creates the impression that those investing in companies with social responsibility do not need to fear systematic financial disadvantages compared to ‘normal’ investors. The restriction of the investment universe, which implies a loss in portfolio efficiency, a fact which the SRI philosophy has been widely criticised for, is by no means specific to this approach. In fact, the SRI approach is in no respect different from most other asset management processes which concentrate on specific sectors, investment styles or regions…
In our note ‘More gain than pain – Sustainability pays off’ (November 2002, with an update in October 2003) we examined how the sustainability factor affected share price performance using Jensen’s alpha. The basis for our analysis was a three-factor model (see Fama/French, 1996), which took into account other fundamental risk factors in addition to market risk and enabled the calculation of a multidimensional risk-adjusted excess return. The result is astonishingly robust and confirms the result of our earlier study. Taking the entire observation period (January 1999 to August 2003) as a basis, then the alpha of the DJSI is 0.2572% per month or around 3.1% p.a. which is significantly above our original result of 0.171% per month. In a generally very difficult equity market environment, with very different sub-regimes characterised by the different risk attitudes of market participants, the tested sustainability index was able to achieve a risk-adjusted outperformance. This time the result is statistically highly significant (1% level), of which only a part is attributable to the larger number of observations. As discussed throughout this article, a substantial number of studies support the notions that investing in companies with sound corporate governance programs and practices makes good economic sense and that good corporate governance fosters long-term profitability. Simply put, good corporate governance does, in fact, pay. Deutsche Bank Study
The message to companies that fail to communicate contextual and non-financial information in a credible and well-structured fashion is that although analytical investment models may be financially driven, confidence in their use increases when there is greater access to more contextual and non-financial information. - The Business Case for Corporate Citizenship (WEF)
- The Materiality of Social, Environmental and Corporate Governance: Issues to Equity Pricing
The industry sector reports prepared by brokerage house analysts show that long-term protection of shareholder value rests upon rigorous integration of environmental, social and corporate governance issues in the valuation process. Too many analysts and financial institutions tend to insufficiently acknowledge and appreciate environmental, social and corporate governance issues. The fact that a positive correlation exists between T&D [Transparency and Disclosure] rankings based on annual reports only and price-to-book, but not for T&D rankings based on all disclosure documents, suggests that U.S. companies that provide more voluntary disclosure in their annual reports command a higher stock price. |
