• Save
Think Green presentation
Upcoming SlideShare
Loading in...5
×
 

Like this? Share it with your network

Share

Think Green presentation

on

  • 62 views

Clase del profesor Dennis Aigner en EGADE Business School sede estado de México

Clase del profesor Dennis Aigner en EGADE Business School sede estado de México

Statistics

Views

Total Views
62
Views on SlideShare
46
Embed Views
16

Actions

Likes
0
Downloads
0
Comments
0

1 Embed 16

http://miscursos.itesm.mx 16

Accessibility

Upload Details

Uploaded via as Microsoft PowerPoint

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment
  • Say something about this distribution and compare it to SCIAN and a few notes in one slide comparing the things to change in the distribution. <br /> Talk about the differences between expansion 500 distribution of firms and our case. <br />

Think Green presentation Presentation Transcript

  • 1. Corporate Social Responsibility and Financial Performance Dennis J. Aigner Paul Merage School of Business University of California, Irvine; EGADE Business School, ITESM
  • 2. Outline • Corporate Social Responsibility • Drivers of Environmental Performance • The Academic Literature • Socially Responsible Investing • Environmental Performance and Stock Returns • The Value of Sustainability • Sustainability Practices in Mexican Firms
  • 3. Corporate Social Responsibility • Definition: Going beyond what’s absolutely necessary based on applicable laws & regulations regarding environmental performance, worker health & safety, and investing in the communities in which the business operates. • “The social responsibility of business is to increase its profits”, Milton Friedman, 1970. • “While corporations must profit from their activities this does not mean that the corporation should be free from social obligations. On the contrary, it should be so organized as to fulfill automatically its societal obligations in the very act of seeking its own best self-interest”, Peter Drucker, 1946. • “All businesses today face a new reality…Businesses now operate in an environment in which long-term societal concerns—in areas from diversity to equal opportunity, the environment and workforce policies—have been raised to the same level of public expectation as accounting practices and financial performance”, Samuel Palmisano, CEO of IBM, 2005.
  • 4. Drivers of Environmental & Social Performance • Public Policy—Environmental Regulation, NGOs • Economic Drivers—Consumers, Markets, Investors • Values/Ethics/CSR—Corporate Irresponsibility, Industry Leadership • Filters—Media, Corporate Reporting
  • 5. CERES Principles • Protection of the Biosphere • Sustainable Use of Natural Resources • Reduction and Disposal of Wastes • Energy Conservation • Risk Reduction • Safe Products and Services • Environmental Restoration • Informing the Public Regarding Company Performance • Management Commitment to Principles • Audits and Reports of Progress
  • 6. WBCSD Action2020 Priority Areas • Climate Change • Release of Nutrient Elements • Ecosystems • Exposure to Harmful Substances • Water • Basic Needs & Rights • Skills & Employment • Sustainable Lifestyles • Food, Feed, Fiber and Biofuels
  • 7. IISD Research Areas • Climate Change Adaptation • Climate Change and Energy • Ecosystem Services • Finance • Freshwater Management • International Trade • Investment • Measuring Progress • Public Procurement • Global Subsidies Initiative
  • 8. Important Websites • cec.org (Commission for Environmental Cooperation) • wbcsd.org (World Business Council for Sustainable Development) • ceres.org (Coalition for Environmentally Responsible Economies) • iisd.org (International Institute for Sustainable Development • gemi.org (Global Environmental Management Initiative) • globalreporting.org (Global Reporting Initiative)
  • 9. The Academic Literature • Event Studies • Cross-Section Analysis • Meta-Analysis • Portfolio Studies • Theoretical Work
  • 10. Meta-analysis(1) Orlitsky, et al. (2003) 52 studies, 388 “effects” (correlations, t-tests, etc.), of which 249 are only about “social” performance and 139 are only about environmental performance. All effects are transformed into correlations between a measure of corporate social performance (CSP) and corporate financial performance (CFP). Observed correlations (weighted by sample size) are regressed against a measure of sampling error and a measure of “reliability” (measurement error). Over the entire data set of 388 correlations, the observed r=.18. 24% of its variability is explained by sampling error and measurement error. “Corrected” r=.36. It would take 1,037 studies averaging null findings to bring this down to r=.05 (“file drawer” analysis).
  • 11. Meta-analysis(2) Margolis, et al. (2009) 192 effects over 167 studies. Average effect size: +.13. Statistically significant. It would take 15,767 studies with an effect size of zero to render the meta results non- significant.
  • 12. Cost of Equity Capital El Ghoul, et al. (2011) Data covers 2809 US firms from 1992-2007. For high-CSR firms, cost of equity capital is 4.54% (mean) or 4.24% (median), compared to 5.10% (mean) or 4.64% (median) for low-CSR firms, a difference of 56 or 39 basis points. Statistically significant.
  • 13. Socially Responsible Investing • From 1999 to 2003, the total amount invested in SRI funds in the US grew by 167% (>40% per year). From 2007 to 2010, the growth rate was 13%. Today, $3.1T is invested, 12.3% of all mutual fund investments (www.ussif.org). • In the EU, the SRI market is growing rapidly. The total investment as of 2009 was $6.9T, an increase of 87% in two years (www.eurosif.org). • In Asia, the SRI market is immature but growing quickly. Total investment: approximately $2.3B as of 2005 (www.asria.org). • UNEP’s Principles for Responsible Investment now has 940 signatories, 245 asset owners (pension funds), 541 investment managers, and 154 professional service partners. (www.unpri.org/signatories/) • As of October 2013, campaigns to divest in fossil fuel companies have been launched at 330 U.S. colleges and universities, 40 municipal and state pension funds, and 10 religious institutions (http://350.org). Many foundations are doing the same thing (http://divestinvest.org).
  • 14. Environmental Performance & Stock Returns • MSCI/KLD • Dow Jones • FTSE • IPC Sustentable BMV (Mexico)
  • 15. KLD Environmental Ratings • Binary ratings of publically-traded firms for 14 environmental performance measures, 7 “strengths” and 7 “concerns”. Basis for MSCI KLD (Domini) 400 stock index. • Examples of “strengths”: pollution prevention, recycling, clean energy. • Examples of “concerns”: hazardous waste, regulatory problems, emissions. • Research has found that KLD’s “concerns” ratings do a good job of evaluating past (negative) environmental performance. Also, firms with more “concerns” tend to produce more pollution going forward and have more compliance issues. But KLD’s “strength” ratings do not accurately predict lower pollution levels and fewer compliance violations.
  • 16. MSCI 400 Performance • Annual: In 2012, 13.24% vs. 16.13%. Did relatively better in 2008 and 2009. • 3-year: 12.39% vs. 14.27% but less volatile. • 5-year: 4.51% vs. 4.14% and less volatile. • 10-year: 7.54% vs. 8.10% but less volatile. • Since inception (1990): 9.66% vs. 9.30% and less volatile.
  • 17. Dow-Jones Sustainability NA Index • Top 20% of largest 600 NA companies in S&P Global Index • 90% US stocks; 10% Canadian stocks • 57 industry groups • Compared to MSCI, somewhat heavier on “dirty” sectors like oil & gas • Annual (2013): 15.49% vs. 18.33% • 3-year: 10.30% vs. 13.21%
  • 18. FTSE 4 Good Indices
  • 19. FTSE 4Good Indexes (2012) FTSE 4Good Global Annual: 3.8% vs. 10.8% 3-year: -19.9% vs. -13.3% 5-year: 2.5% vs. 16.3% FTSE 4Good US 100 Annual: 11.4% vs. 13.1% 3-year: -9.7% vs. -9.6% 5-year: 7.3% vs. 11.6%
  • 20. The Value of Sustainability Requires a Systematic Assessment of How Pursuing Sustainability Initiatives Affect: • Reputation, brand strength • Competitive, effective, desirable products and services; new markets • Productivity • Supply Chain Costs • Operational burden, interference • Cost of capital (lender & investor appeal) • Legal liability
  • 21. Reputation and Brand Strength • On average, 1/3rd of market value is in reputation; 1/4th to 1/3rd of that relates to a company’s environmental and social performance. • In a global survey, 8/10 business leaders said that environmental and social performance contributed to their company’s reputation, at least to some extent. • In the EU and US, a large majority of consumers said that in deciding to buy a product or service, the company’s environmental and social reputation was an important factor. • Great harm can come from negative environmental and social performance.
  • 22. Green Products and Services • Companies can spur innovation by incorporating sustainability considerations into their design processes. • Green design can improve efficient use of resources all along the product life cycle. • Consumers are inclined to buy (and pay extra for) green products in many circumstances. • Green procurement policies are in place in many countries. • Greening the supply chain is an aspect of many large companies. • Growing demand for green certification of products.
  • 23. Productivity • Eco-efficiency initiatives often improve productivity and hence profitability (e.g., reducing material or energy intensity; reducing risk of toxic material hazards; recycling). • Numerous surveys and case studies in the EU and US demonstrate increased worker productivity from a company’s commitment to improved environmental and social performance. • A proactive approach to sustainability can help manage various risks that can cripple a business.
  • 24. Operational Burden • A company that neglects sustainability invites public distrust, which can lead to greater regulation, operational burden and cost.
  • 25. Supply Chain Costs • By working proactively on sustainability issues with suppliers and contractors, a company can help assure that critical supplies and services will be available on an ongoing basis and that supply chain costs are properly controlled.
  • 26. Cost of Capital • A significant number of investors and lenders make their decisions not only on a traditional financial analysis, but on an evaluation of the company’s social and environmental performance. • Research has shown that highly ranked ESG firms (Environment, Social, Governance) enjoy a lower cost of capital. • Firms with superior environmental performance enjoy lower borrowing costs and lower insurance premiums for liability and environmental risks.
  • 27. Legal Liability • Companies that are guided by sustainability principles and good governance are less likely to incur crippling legal liabilities.
  • 28. CERES Roadmap for Sustainability • Analyzes the drivers, risks and opportunities in making the shift to sustainability. • Lays out strategies and results from companies that are doing this. • >200 examples of best practices across 20 sectors. • Key drivers: competition for natural resources, climate change, globalization, “connectivity and communications”.
  • 29. CERES 2014 Study of 613 of the Largest US Companies • Governance: Only 17% of companies fell into the top two tiers (good or excellent); >50% fall into Tier 4 (poor). • Stakeholder Engagement: 35% had some degree of meaningful stakeholder engagement, up from 28% in 2012. 65% fail to engage in any meaningful way. • Disclosure: 20% of companies fell into Tiers 1 & 2, compared with only 8% in 2012. However, 51% fell into Tier 4, not having taken even the first steps toward transparency. • Operations: (1) GHG Emissions & Energy Efficiency. Only 16% of companies are in Tiers 1 & 2. 57% fell into Tier 4 (poor). 71% have at least some reduction activities in place. (2) Facilities & Buildings. Of the 127 companies
  • 30. CERES 2014 Study of 613 of the Largest US Companies • across five sectors, 50% have made at least some effort to improve the sustainability of their facilities & buildings. (3) Water Management. Of 103 companies across four water-intensive sectors, no firms fell into Tier 1 and only 14% fell into Tier 2. (4) Human Rights. Only 11% of companies fell into Tiers 1 & 2 for their comprehensive programs and policies. 71% fell into Tier 4. • Supply Chain: (1) Policies & Codes. 58% of firms have supplier codes of conduct, up from 43% in 2012. (2) Procurement Practices. 47% of companies consider environmental or social criteria in procurement, but only 8% do so systematically (Tier 1). (3) Engaging Suppliers.
  • 31. CERES 2014 Study of 613 of the Largest US Companies • 33% of firms have established some sort of program to engage suppliers on sustainability issues, but only 14% do so at a good or excellent level. The vast majority (67%) either do nothing or don’t disclose. (4) Measurement & Disclosure. 34% of firms monitor supplier sustainability performance, 18% in Tiers 1 & 2. • Transportation & Logistics: In 115 companies over five sectors, 46% have at least some activities aimed at improving the environmental impacts of their distribution networks, but the majority do not. • Products & Services: Of the 419 companies evaluated over 16 sectors, 49% are making at least some effort to
  • 32. CERES 2014 Study of 613 of the Largest US Companies • promote, innovate, or invest in sustainable products & services. The Technology Hardware sector was particularly strong, with >50% in Tier 1. • Employee Engagement: 40% of companies engage employees to some extent on sustainability issues, up from 30% in 2012. However, only 6% fell into Tier 1 for company-wide engagement and job-specific sustainability training.
  • 33. 43 Survey Application • Original list consisting of 600 companies that had been in the Expansion 500 for at least one year during 3 years (2008, 2009, 2010). • Reduce the list to consider conglomerates, to exclude subsidiaries and to be geographically feasible to reach (84% Mexico City & Monterrey). • 400 companies contacted by phone or email, then made appointments to explain survey and clarify scope of same. • Confidentiality letters were sent to companies that requested them. • Response rate of approximately 25%. Main non-response issues were lack of interest/time, refusal to share data, sustainability not a priority for the company .
  • 34. 44 Distribution of Companies Distribución por sectores en UCMexus 15% 3% 3% 30% 8% 41% A - Agropecuario, Alimentos y Bebidas B - Recursos Naturales y Minería C - Construcción D - Industrias Manufactureras E- Comercio F - Transportes, Comunicaciones y Servicios
  • 35. 45 Distribución por sectores 500 Expansión 7% 12% 7% 3% 14% 57% A - Agropecuario, Alimentos y Bebidas B - Recursos Naturales y Minería C - Construcción D - Industrias Manufactureras E- Comercio F - Transportes, Comunicaciones y Servicios Expansión 500 Distribución por sectores de BMV 13% 13% 13% 7% 13% 41% A - Agropecuario, Alimentos y Bebidas B - Recursos Naturales y Minería C - Construcción D - Industrias Manufactureras E- Comercio F - Transportes, Comunicaciones y Servicios BMV Comparative
  • 36. Comparative Surveys • Economist: Online survey of 566 US based executives (39% VP or above) in Sept. 2008. 29% public companies in 17 different industries . Self- selected, but population is not specified. • McKinsey: December 2007. 2192 executives worldwide (27% CEOs or other “C” level executives). Data are weighted to reflect representation in the population. No mention of what the population is, however. • MIT: Online survey of 2000 respondents taken from March to April 2009. Report concerns 1560 responses from for-profit companies worldwide. No indication of population. Self-selected responses. • Delmas: Oct-Nov 2003. Population consisted of 3255 facilities in 8 U.S. industrial sectors. 562 responses (17.2% response rate). No indication of how the list was compiled. 46
  • 37. 47 How active is your company in terms of the following areas of environmental sustainability? Very active Regularly active Sum Rarely active Not active Do not know % % % % % % 41.0 37.6 78.6 14.6 5.6 1.2 45.5 27.2 72.7 14.1 9.1 4.1 32.3 38.5 70.8 21.3 5.2 2.6 47.5 28.1 75.6 19.3 2.5 2.5 39.0 35.1 74.1 13.5 9.7 2.8 39.7 35.1 74.8 14.2 2.8 8.2 20.8 43.5 64.3 29.1 4.1 2.4 30.8 36.6 67.4 24.9 5.2 2.6 24.8 43.7 68.5 22.3 7.7 1.5 28.0 28.4 56.4 27.6 13.1 2.8 Environmental risk control Eco-design products Product manufacturing Supply chain reduction of environmental impacts Community collaboration in terms of environmental practices Water resources management Other natural resources conservation and management Waste reduction Waste recovery Answer Options Energy resources conservation
  • 38. 4848 What are the main reasons for your company to adopt environmental sustainability practices? (“most important” rankings only) Ours % MIT % 21.3 8 14.3 N/A 25.2 10 12.0 N/A 4.2 9 63.6 N/A 16.0 35 13.7 9 34.6 10 Answer Options Revenue growth Increased profits Environment protection Brand/image improvement Recruitment and retention of employees Cost savings Public relations Internal pressure (i. e. employees) Opening new markets
  • 39. 49 In your opinion, does the adoption of environmental sustainability practices improve your company's financial results? Response Percent Combined Economist 56.7% 35.8% 7.5% 7.5% 11% Slightly improves Greatly improves Answer Options 89%92.5% Does not affect
  • 40. 50 Five years from now, do you think that environmental sustainability practices will be more or less important to your company's business strategy? Response Percent Economist 49.2% 42.7% 5.9% 39% 0.6% 5% 1.6% 12% 44% Answer Options Much more important More important Equally important Less important Do not know
  • 41. 51 How likely is it that your company could increase profits by adopting environmental sustainability practices in the following areas? (Top five categories) How likely is it that your company could increase profits by adopting environmental sustainability practices in the following areas? (Top five categories) 0.0 20.0 40.0 60.0 80.0 100.0 Energy resources conservation Water resources management Other natural resources conservation and management Waste reduction Supply Chain Very likely % Very likely + Likely % Very likely Very likely + Likely % % 57.3 88.9 49.7 81.6 44.5 83.0 56.8 83.9 35.6 70.6 Answer Options Supply Chain Energy resources conservation Water resources management Other natural resources conservation Waste reduction
  • 42. 52 Within your company, what are the external challenges that represent the most significant obstacles for addressing issues of environmental sustainability? (Top three categories) Response Percent MIT 44.1% 10% 40.4% 26% 37.2% 16% Lack of customer demand or need for Insufficient economic incentives Lack of clear industry standards Answer Options Within your company, what are the external challenges that represent the most significant obstacles for addressing issues of environmental sustainability? (Top three categories) 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% Lack of clear industry standards Lack of customer demand or need for Insufficient economic incentives Response Percent MIT
  • 43. 53 How would you consider your company's position compared to its closest competitors in the following areas? Much better % Better % Sum % Same % Worse % Response Count 17.7 47.6 65.3 33.4 1.4 87 38.0 38.4 76.4 21.7 1.9 91 36.5 26.9 63.4 30.1 6.5 89 26.4 37.5 63.9 26.3 9.9 90 34.5 40.3 74.8 20.7 4.5 86 35.0 42.5 77.5 19.5 3.0 86 46.4 38.0 84.4 13.6 2.0 85 34.1 48.0 82.1 15.9 2.0 87 16.3 38.8 55.1 39.6 5.4 87 33.1 25.3 58.4 36.2 5.5 87 32.4 29.7 62.1 31.6 6.2 89 15.2 40.3 55.5 41.9 2.6 86 Other natural resources management Revenue growth Competitiveness Operational performance (efficiency) Supply chain information Answer Options Energy resources management Water resources management Ability to find and exploit new opportunities Awareness about environmental sustainability issues Environmental sustainability investment Profitability Waste management
  • 44. 54 Has the implementation of environmental sustainability practices enabled your company to have a greater capacity to respond to new market conditions, i.e., opportunities or threats? Response Percent Combined 12.8% 25.4% 25.4% 9.4% 5.1% 6.5% 9.1% 6.4% Not applicable. Company does not have sustainability practices in place 63.5% 14.5% Regular Low Very low No impact Very high High Do not know Answer Options
  • 45. Readings • Aburdene, Patricia, Megatrends 2010. Charlottesville, VA: Hampton Roads Publishing, 2005. • Avlonas, Nikos, and George P. Nassos, Practical Sustainability Strategies. Hoboken, NJ: John Wiley & Sons, 2014. • Blackburn, William, The Sustainability Handbook. Washington, DC: Environmental Law Institute, 2006. • Henderson, David, The Role of Business in the Modern Society. Washington, DC: Competitive Enterprise Institute. • Holliday, Charles O. Jr., Stephan Schmidheiny, and Philip Watts, Walking the Talk. San Francisco: Berrett-Koehler, 2002. • Kotler, Philip, and Nancy Lee, Corporate Social Responsibility. Hoboken, NJ: Wiley, 2005. • Savitz, Andrew, The Triple Bottom Line. San Francisco: Jossey-Bass, 2006. • Vogel, David, The Market for Virtue. Washington, DC: Brookings Institution Press, 2005. • Yankelovich, Daniel, Profit with Honor. New Haven, CT: Yale University Press, 2006.