Sustainability Evolved: ESG & Valuations

Olga Emelianova

April 17, 2012.  14-220 Newman Vertical Campus

The Sustainability Practice Network and the Robert Zicklin Center for Corporate Responsibility sponsored a panel discussion about environmental, social and governance (ESG) performance in corporate valuations.

Robert Solomon, Associate Professor, NYU, Introduced the program and commented on the size of the audience and how it’s grown over the years.  He continued on Friedman vs Freeman debate and the role of business

Karoline Barwinski, ESG Investment, ClearBridge Advisors, spoke about the history of Social Responsible Investing (SRI): 18 & 19th century usually motivated along religious grounds, avoid “sinful” activities (e.g. tobacco,alchohol, guns).  She continued about the role ClearBridge plays as part of LeggMason: portfolio construction and ESG integration;  company and thought leader engagement; advocacy via proxy voting;  and client interaction

Olga Emelianova, ESG Senior Analyst, MSCI (and a Zicklin alumna!), started by looking at more than the role of management but also risk exposure of the company.  These companies would then be expected to demonstrate stronger mitigation systems.

Flory Wilson, Director of International Labs, B Labs, spoke about certified B Corporations (e.g. Patagonia.)  They must: meet comprehensive and transparent social and environmental performance standards; meet higher legal accountability standards; and build business constituency for public policies that support sustainable business.  In other words, a better way to do business.  One could draw an analogy to sort of LEED cert for business.  There something in the DNA of these companies that keeps customers coming back through difficult economic times.

Questions from the audience

Is there a statistical correlation between ESG reporting and a company’s stock price?  RS: It depends. ESG activities seems to buffer companies when they enter a risk country.  It acts likes an “insurance” policy that investors respond to.  Half-hearted efforts do not produce positive stock market return and may be have the opposite effect.

Why was Delaware absent from the B-Corp list?   FW: Legislators and business leaders have driven the movement.  B-Labs has only provided guidance.  B-Corp legislation has been introduced in another dozen states this year.  When there is a critical mass of states with legislation, Delaware will likely follow suit.

How extensive are ESG practices beyond developed countries?  OE:  There is an increase of CSR in companies of the BRIC countries.  Some are notable and others lack credibility.  It seems mostly reflected in policies rather than actual performance.  FW:  In some cases, there are condition imposeds upon the developing country companies.  RS:  With regards to flowers and coffee in Guatamala, often there is a race to the common denominator and CSR certifications are just window dressing

Is having too much a disclosure a bad thing?  Are some aspect of business better left in the dark?  FW:  We would say no.  If you’re a certified B-Corp, we expect transparent reporting on ways you are doing well and areas where you need improvement.  KB:   We want to invest in best-in-class firms, but that is not always possible. Sometimes we need help companies disclose more data and encourage relevant issues to their business.

How do we embed ESG criteria in corporate behavior?    RS: That’s a deeper philosophical question.  Maybe we are getting this economic “thing” wrong and we need to do it better. FW:  Check out the YouTube st0ry of stuff.  Super cheap products do not account for all the cost\impact of the product

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