Summary Corporate Sustainability
Contents
Summary Corporate Sustainability.......................................................................................................... 1
Lecture 1: Introduction........................................................................................................................ 2
Lecture 2: Concepts of CSR & Corporate Purpose .............................................................................. 3
Lecture 3: Sustainability Accounting ................................................................................................... 8
Lecture 4: Foundations of Sustainability Reporting .......................................................................... 12
Lecture 5: ESG reporting and regulation PART 1 ............................................................................... 17
Lecture 6: ESG reporting and regulation PART 2 ............................................................................... 23
Lecture 7: Stakeholder Engagement and Dialogue ........................................................................... 26
Lecture 8: Putting sustainability at the heart of our strategy - Ageas............................................... 30
Lecture 9: ESG Rating Agencies ......................................................................................................... 34
Lecture 10: ESG & Equity Capital Providers....................................................................................... 40
Lecture 11: ESG & Debt Capital Providers ......................................................................................... 44
Lecture 12: Governance and ESG ...................................................................................................... 50
Lecture 13 ESG assurance - guest lecture KPMG .............................................................................. 53
,Lecture 1: Introduction
Anti-Profit Beliefs (APB) - Bhattacharjee et al. (2017)
This refers to the perception that profit-seeking by firms conflicts with beneficial
outcomes for consumers and society. It stems from the idea that the more a firm
profits from an exchange, the less value it provides to the consumer and society.
Why individuals may view profit-making activities as contrary to societal benefit:
• Zero-Sum perception: Many individuals view market exchanges as zero-sum
games, where one party's gain is another's loss. This extends to corporate
profits, leading to the belief that higher profits mean less value for
consumers and society.
• Religion: Religious texts and stories often show that chasing profit is bad.
This makes people think that making a profit is not good.
• Forgetting Long-Term Benefits: People often only see the immediate
downsides of making a profit, such as higher prices, and forget the long-term
benefits, such as innovation and better products.
• Visibility negative outcomes: Negative news (scandals) tends to be more
visible and memorable than positive outcomes. This reinforces the belief
that profit-seeking is harmful.
• Invisibility positive outcomes: The benefits of profit, such as innovation and increased welfare,
are less visible and not as easily attributed to corporate profit-seeking behaviours.
Trade-offs firms face when balancing profit maximization with societal and ethical expectations
Engaging in CSR activities, where firms invest in socially beneficial projects that might not
immediately boost profits but enhance their reputation and relationship with stakeholders.
Challenges
• Firms must manage the expectations of diverse stakeholders. Each group may have different
priorities and values, creating complex challenges in decision-making. For example:
- Shareholders may demand maximum profits and dividends, while communities might require
investments in local projects and environmental protection.
- Customers seek low prices and high quality, whereas employees want fair wages and good
working conditions.
• A firm that operates in multiple countries must comply with varying environmental regulations.
Examples trade-offs
• Investing in eco-friendly technologies reduces CO2 emissions but increases short-term costs.
• Paying fair wages and ensuring good working conditions can raise operational costs, but
improving employee satisfaction and retention.
• Using high-quality materials can increase production costs, but lead to higher customer
satisfaction and loyalty.
Corporate Purpose and Financial Performance - Gartenberg, C., Prat, A., & Serafeim, G. (2019)
• High purpose–camaraderie: firms that score high on purpose and on dimensions of workplace
camaraderie (“This is a fun place to work”; “We are all in this
together”; “There is a team feeling”)
• High purpose–clarity: firms that score high on purpose and on
dimensions of management clarity (“Management makes its
expectations clear”; “Management has a clear view of where the
organization is going and how to get there”).
,Lecture 2: Concepts of CSR & Corporate Purpose
Corporate Social Responsibility (CSR)
This can include:
• Employee welfare
• Community programs
• Charitable donations
• Environmental protection
Sustainability
= Meeting the needs of the present without compromising the ability of future
generations to meet their own needs.
Who should provide activities for sustainable development?
Arguments to consider:
• Conflicts of regarding “business purpose”: Firms might need to balance profit with sustainability.
• Intrinsic motivation: Vary across sectors, affecting their commitment to sustainability.
• Competence/Knowledge: Different entities have different strengths, requiring collaboration.
• Potential impact: Each sector has unique capabilities to drive change.
- Firms have resources and scale
- Governments have policies and frameworks
- NGOs can raise awareness and educate
• Prevention or remedial actions: A mix of both is necessary, with roles varying by sector.
• Crowding out: If one entity takes the lead, others might contribute less.
Sustainable development requires collaboration: Governments establish legal frameworks and
incentives, the private sector implements aligned innovations and investments, and NGOs provide
expertise and community engagement for equitable,
environmentally responsible development.
Corporate Citizenship
Companies are responsible for contributing to the communities
in which they operate, including environmental stewardship and
social responsibility. Companies must comply with laws and
regulations and pay taxes. Governments provide the legal
foundations.
Carroll’s pyramid
This outlines 4 layers of corporate responsibility,
including economic, legal, ethical, and discretionary
(philanthropic) expectations that society has of
organizations at a given point in time. It emphasizes that
firms must simultaneously meet all responsibilities for
sustainable business operations:
1. Economic: The foundation upon which all other
responsibilities rest. Businesses must be profitable to
survive, rewarding investors and enabling growth.
2. Legal: Businesses must comply with laws and
regulations, reflecting society’s codified ethics.
Compliance ensures fair business practices and lawful conduct.
3. Ethical: This involves adhering to societal norms and values, even when not legally required,
ensuring fair and just business practices.
,4. Philanthropic: These include voluntary actions like donations and community involvement. While
not mandatory, society expects businesses to give back and contribute to social causes.
Tension:
• Resources spend on legal, ethical, and philanthropic purposes detract from profitability.
However, social activities can ultimately lead to economic benefits, such as risk reduction,
competitive advantages, and improved legitimacy and reputation.
• Ordering of stakeholder priorities
Triple Bottom Line (TBL) – John Elkington
TBL measures a firm’s performance in three
dimensions: economic (profit), social (people), and environmental (planet). It
emphasizes the importance of considering not only financial gains but also
social and environmental impacts as only companies that do this are taking
account of the full cost involved in doing business.
Goals:
• Manage economic – not just financial value added/destroyed
• Provoke to rethink capitalism
Tension: it is unclear whether TBL aggregation and analysis helps decision-talers and policy makers to
track impact.
CSR
This is a business model from businesses taking responsibility for their impact on society and the
environment, by integrating social and environmental concerns into business operations,
the company culture, and interactions with stakeholders on a voluntary basis.
• It goes beyond financial materiality to address the wider effects of a company’s operations on
society and the environment.
• Value creation: Looks at both positive and negative impacts and how the firm contributes
to/mitigates these (Community development, Environmental degradation)
• Stakeholder-centric: Considers the interests and well-being of a broad set of stakeholders,
including employees, communities, and ecosystem.
European Commission, 2011, Key Points on CSR
• Legal compliance: Ensure full legal compliance and recognize CSR extends beyond the law.
• Integration of Concerns: Embed social, environmental, ethical, consumer, and human rights
concerns into business operations and strategy, collaborating with stakeholders.
• Investment in Human Capital and the Environment: Engage in activities that may not
immediately boost profits but contribute to a sustainable future.
• Engagement and Transparency: Engage with stakeholders for an external perspective on social
impact and be transparent about CSR efforts.
• Risk Management: Identify and mitigate potential adverse impacts on environment and society.
• Value Creation: View CSR as a means to create value and explore opportunities like sustainable
products and new markets.
• Reporting and Disclosure: Voluntarily report on CSR activities and impacts, using standards like
the Global Reporting Initiative (GRI).
ESG
This is a model used by investors to examine the sustainability of a company including a set of
(quantifiable) criteria.
➢ Environmental = impact on nature (climate change, resource depletion, waste, pollution)
, ➢ Social = relationships with employees, suppliers, customers, etc. (labor practices, human rights)
➢ Governance = Leadership, executive pay, audits, internal controls, and shareholder rights.
• Financial materiality: highlights how ESG issues present risks and opportunities to the firm’s
financial performance.
• Risk management: involves identifying and reporting on ESG factors that could affect the
company’s bottom line (regulatory, reputational, operational risk).
• Investor-centric: Tailored to the information needs of investors who use ESG data to assess
potential financial impacts on their investments.
Blue = ESG
Red = CSR
Shareholder vs. Stakeholder View - Historical Context
Berle's Shareholder Primacy:
• Managers have a legal fiduciary duty to prioritize the interests of shareholders.
• Investors put their funds into a firm and should receive the returns generated by that
investment.
Dodd's Stakeholder Theory:
• Corporations have a dual function: profit-making and providing social service.
• Corporations are embedded in society and the environment and thus have responsibilities
towards them.
• Corporations receive their legitimacy from society and must give back to it.
• Corporations’ actions impact society beyond just profit generation, including social and
environmental effects (externalities)
Shareholder view - Friedman
Core Principle: The only social responsibility of business is to increase its profits, within the bounds of
law and ethical conduct.
Argumentation:
• Profit Maximization: Companies should focus on maximizing profits because shareholders, as
owners, should decide how to use their share of profits for social good.
• Principal-Agent Theory: Managers (agents) are accountable to shareholders (principals) who
provide the capital, and should act in their interests (Jensen & Meckling, 1976).
Assumptions of Shareholder Primacy (Edmans, 2020):
• Firms don’t have an advantage over individuals in socially responsible actions, such as donations.
• Governments can effectively steer social objectives through mechanisms like taxes.
• Investments in CSR should be made if they have a positive net present value (NPV), though NPV
can be uncertain, making investment under shareholder capitalism hard to justify
Stakeholder view – Freeman
Core Principle: A firm should create value for all stakeholders, not just shareholders. This includes
employees, customers, suppliers, communities, and the environment.
