Are companies about shareholder or stakeholder value?
Sustainability is becoming mainstream and influencing how companies see themselves, and even leading CEOs have begun to encourage greater reflection on the role and obligations of the organisations they run .
- Sustainability influences how companies see their roles and responsibilities
- What is the purpose of companies and does it need to be redefined?
- The critical role of the financial sector in helping to deliver more sustainable outcomes
The increasing attention being focused on the need to redefine the purpose of companies was evident in the keynote addresses of the recent second annual conference of the Global Research Alliance for Sustainable Finance and Investment (GRASFI) .
Obligation to create shareholder value…
Professor John Kay opened the conference by arguing that the assumptions that corporate executives are employees of the owners of the business, and that the shareholders are the owners of the business, are both false.
He demonstrated that, under different ownership tests, shareholders cannot be said to own the corporation. If anybody does, it is the managers, but really nobody owns corporations. As a result, managers do not have the obligations to shareholders described by Milton Friedman , they have obligations to fulfil the purpose of the corporations that employ them, whatever these are. These include, but need not be limited to, creating shareholder value.
…or should companies serve all stakeholders?
Colin Mayer expanded on the role of companies in the closing address. He spoke about the need to reconfigure the role of corporations. In his view, the purpose of companies is to find profitable solutions to problems. In doing this successfully, they are likely to make profits and reward shareholders, but maximising profits, per se, is not their purpose. Companies should serve all stakeholders – society, employees, suppliers, the environment, future generations, etc.
The conference built on the success of the first meeting. The unique mix of backgrounds – academics, students and industry practitioners – and the rich diversity of approaches to sustainability issues ensured a lively exchange of views and incisive questions. The papers explored themes from macro-prudential frameworks to engagement, disclosure and innovative data.
Financial sector can do better helping to deliver more sustainable outcomes
There was a strong focus on climate change, and the unexpected or unintended consequences of climate change regulation. Another theme was the critical role of the financial sector in helping to deliver more sustainable outcomes, and a clear “can do better” verdict on the industry in this regard. The event underlined the need for coordination in sustainability research, and the many mutually advantageous opportunities for collaboration between the academic sector and industry.
The award for the best paper overall was presented by BNPP AM CEO Frederic Janbon  and went to Norah Prankatz (Maastricht University) and Alexander Wagner (University of Zurich) for “Climate Change and Adaptation in Global Supply-Chain Networks”. This innovative piece examines how companies adapt to the climate-change related disruption risks for their supply chain networks.
 “Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.” From Business Roundtable https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans; August 2019
 GRASFI, founded in 2017 to promote multi-disciplinary academic research on sustainable finance and investment, consists of around 20 universities, each with expertise in this emerging field.
GRASFI aims to
- organise a major annual academic conference
- develop academic collaboration between researchers working on sustainable finance and investment
- nurture the growth and development of graduate students and junior academics working on sustainable finance and investment.
In 2018, BNP Paribas Asset Management became GRASFI’s exclusive asset management sponsor for three years for its annual academic conference.
 Milton Friedman, The social responsibility of business is to increase its profits’, in Beauchamp and Bowie (eds.) (1988); https://www.johnkay.com/1998/02/03/the-role-of-business-in-society/
 BNP Paribas Asset Management aims to achieve long-term sustainable investment returns for clients. This means that we integrate sustainable investment practices into the heart of what we do. We want our investments to be a driving force for change: for clients, their beneficiaries and the world we live in. We have identified three critical pre-conditions for a more sustainable and inclusive economic system:
- An energy transition to a low carbon economy
- Environmental sustainability
- Equality and inclusive growth.
Read BNPP AM’s Global Sustainability Strategy here to find out more
This article appeared in The Intelligence Report – 18 September 2019
We are glad to report sustainable investing is making progress. One example is the market for green bonds, where issuance has grown impressively over a short time, as Felipe Gordillo and Xuan Sheng Ou Yong explain in the first article of this issue.
The adoption of ESG investing in Asia Pacific has accelerated over the last two to three years, particularly in the form of a greater push by leading institutions or governments, but more work still needs to be done, also because Western models cannot simply be copied locally, argues Ligia Torres, CEO Asia-Pacific, in this edition of The Intelligence Report .
Green bonds have experienced a remarkable ‘multiplication of interest’, but issuance is still falling short of what is needed to finance the transition to a low-carbon economy. In this issue of The Intelligence Report, Felipe Gordillo, senior ESG analyst, and Xuan Sheng Ou Yong, green bonds & ESG analyst, discuss the shape of and outlook for this market .
Here’s reflation, well, for now
Recent geopolitical news has caused financial markets to trade in a reflationary fashion, shrugging off weak data and concern over structural Sino-US tensions, even if the economic slowdown may evoke memories of Q4 2018. Are the similarities actually there?, we ask in this issue of The Intelligence Report .