Companies that operate in a socially responsible manner 'pay' for this with a loss in financial profit. Yet at the same time, socially responsible business practices can enhance a company's value. Dutch economist Lammertjan Dam concludes this from his research into the financial/economic aspects of socially responsible business practices.
Future generations will have to bear the cost of pollution produced by current generations. Socially responsible companies try to prevent this 'passing of the buck'. What are the implications of practicing socially responsible business for the financial/economic position of such a company? Dam developed a model to analyse the relationship between corporate social performance and various indicators for corporate financial performance. He concludes that socially responsible business practices reduce a company’s financial profit but could potentially enhance its value.
For example, he studied the corporate financial performance indicators of banking institutions that have adopted the so-called Equator Principles. With these, financial organisations try to realise sustainable development by means of project funding. Banks that are signatories to these principles were found to score significantly better for some of these indicators compared to banks that were not signatories. However, being a signatory does not undermine the market value of these financial institutions. On the contrary, the environmental-friendliness of a company also appears to reflect a certain value. If the environmental friendliness of a company is correctly incorporated in the share price and if the stock market is efficient then the current generation of managers and directors will insist that the company becomes more environmentally friendly so that the shares can later be sold for a good price. According to Dam, such an approach can solve the time-honoured conflict between current and future generations.
Furthermore, Dam's research reveals that companies with a relatively poor score for environmental standards are more frequently located in poor countries, corrupt countries or countries with weak environmental legislation. With his research, Dam provides new evidence for the so-called ‘Pollution Harbour Hypothesis’, which states that multinationals transfer their polluting operations to countries with weak environmental legislation. Socially responsible businesses, on the other hand, find such countries far less attractive.
Dam's doctoral research 'Corporate Social Responsibility and Financial Markets' was funded by the NWO programme Environment & Economics.
Source: NWO
Related stories:
Responsible investments do perform
University of Queensland Business School academic, Dr Darren Lee, was one of eight experts from around the world dispelling the myth that responsible investments are doomed to under-perform.
Blackstone teams up with India's CMS on IT services
US investment fund Blackstone and India's CMS Group announced the formation of a new company on Monday to provide information technology management and business outsourcing services.
Alcohol sponsorship linked to hazardous drinking in sportspeople
A new study provides the first evidence of a link between alcohol-industry sponsorship and hazardous drinking among sportspeople.
Black entrepreneurs 4 times more likely to be refused credit than white businesses
A research paper, by Dr Stuart Fraser of Warwick Business School at the University of Warwick, has found that many Ethnic Minority owned Businesses (EMBs) in the UK struggle to obtain credit in comparison to White owned businesses. Black and Bangladeshi owned businesses are the most likely to be refused credit, facing up to four times as many refusals as white owned businesses.
Unhappy people watch TV, happy people read/socialize, says study
A new study by sociologists at the University of Maryland concludes that unhappy people watch more TV, while people who describe themselves as very happy spend more time reading and socializing. The study appears in the December issue of the journal
Social Indicators Research.
Colonies in collapse: What's causing massive honeybee die-offs?
“To the bee, a flower is a fountain of life, and to the flower, a bee is a messenger of love,” wrote poet Kahlil Gibran. Whether or not love is involved in the exchange, the evolutionary dance between pollen-transporting honey bees and nectar-producing flowers is one of nature’s most extraordinary symbiotic relationships, a hundred million years in the making.
Regulation of tobacco products favors big tobacco, makes US farms less stable
In an attempt to reinvent itself as a "responsible corporate citizen," tobacco company Philip Morris supports regulation of tobacco products by the U.S. Food and Drug Administration.
Pay for performance has improved blood pressure monitoring and reduced health inequalities
Pay for performance has substantially improved blood pressure monitoring and control in England, and the difference in monitoring levels between the most and least deprived areas has all but disappeared.