Corporate Identity in Play: The Role of ESG Investing

Summary of Study

Bottom Line: As opposed to just a focus on enhancing “the bottom line,” the rise of environmental, social, and corporate governance (hereafter “ESG”) is portrayed as one for corporations to operate to benefit all stakeholders – customers, employees, suppliers, communities, and shareholders. This report sketches out the rise of ESG investing and its potential role in reinforcing corporate “repurposing.” While there are potential impediments to further ESG growth, there is a high-level convergence among private and public actors regarding issues that are of interest to ESG investors and companies seeking to improve their ESG scores. In many ways, the durability of ESG comes from the fact that it is a means for a business to maintain or regain its “social license to operate.”

The rise in ESG investing and the debate on repurposing the public corporation are not unrelated.

Both express a view that the large public corporation should be more than a piece of private property that has been excavated and is insulated from its social and natural ecosystems.

The ESG concept is that the corporation is not managing its adverse impacts on humans and the planet well enough.

In fact, going further than just a focus on “making money,” ESG seeks to unlock value in creating shared value.

For corporations, this looks beyond shareholders and extends to the broader arena of all stakeholders, customers, employees, suppliers, communities, and shareholders.

ESG has also arisen because of the combination of two critical factors – the absence of a global regulator and national governance failures – have led firms to adopt enterprise-wide social responsibility policies and practices, with the aim of managing stakeholder-related risk.

Such practices have moved steadily away from philanthropic approaches to involve the conduct of core business functions.

ESG can therefore be seen as a means for business to maintain or regain its “social license to operate.”

Although challenging, getting ESG right is not fundamentally different from past instances of standard setting, whether by market actors, public authorities, or a combination of both.

For example, the most widely reported problem is significant inconsistencies in ESG data generated by data providers.

While the willingness seems to be there, the public and private sector must fully coordinate to solve these and other issues. 

Findings:

  • The rise of ESG centers on examining the purpose of a corporation, going beyond the business principles of simply maximizing shareholder value.
  • ESG is a movement for CEOs to lead their companies for the benefit of all stakeholders – customers, employees, suppliers, communities, and shareholders.
  • ESG can be seen as a means for a business to regain or maintain its “social license to operate.”
  • The best potential for ESG is that there appears to be a high-level convergence among private and public actors regarding issues that are of interest to ESG investors and companies seeking to improve their ESG scores.

 

Read the full study here.