Research

Purpose relevance at system & investor level

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The difference between purpose and sustainability (aka ESG)

Corporate purpose and sustainability are part of the mainstream lexicon in the corporate and investment communities, and the two terms are often used interchangeably as synonyms. This article for the Harvard Law School Forum on Corporate Governance argues that this is wrong, and that purpose and sustainability are related but different ideas. Purpose comes first, and sustainability can either contribute to it or can detract from it. 

Robert G. Eccles, Colin Mayer, and Judith C. Stroehle

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The board’s role in sustainability

Investors increasingly understand that a corporation’s performance on pertinent Environmental, social, and governance (ESG) factors directly affects long-term profitability—a recognition that is transforming 'sustainable investing' into, more simply, 'investing'. Most CEOs also now recognize that ESG issues should inform their corporate strategy. But one important constituency remains a stubborn holdout in the sustainability revolution: corporate boards. It is an unfortunate truth that directors tasked with securing their company’s future are often holding the enterprise back with an outdated emphasis on short-term value maximization. This article sets out a framework to help boards deliver on purpose. Called SCORE, it outlines five actions—simplify, connect, own, reward, and exemplify—that can help boards articulate and foster a firm’s durable value proposition and its drivers.

Robert G. Eccles, Mary Johnstone-Louis, Colin Mayer, and Judith C. Stroehle

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The origins of ESG in pensions: Strategies and outcomes

As intergenerational stewards of capital, pension funds can have many good reasons to embrace ESG issues in their investment practice. Yet, the particular structure of pension funds creates both a set of advantages and disadvantages for the integration of ESG. This paper reviews the historical origins, mandates, and structures of pension funds to tease out which of these characteristics enable and which impede the inclusion of ESG at pensions funds. A variety of strategies are linked to these markers to understand which outcomes are pursued, and how pension funds are uniquely positioned in achieving them.

Oxford: Judith C Stroehle
External: Stéphanie Lachance (PSP Investments)
 

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Exploring social origins of ESG 

Paper 1: Exploring social origins in the construction of ESG measures

As both demand and supply for information about companies’ sustainability performance continues to grow, many investors complain that the ESG data universe is getting too complex and confusing. Several studies have shown how rating agencies and data vendors display very little agreement on how to construct and use ESG measures. While commending these findings, this paper argues that only studying how data diverges is missing the insights of a more substantial question about the why of this divergence. Taking a lens of 'social construction', this paper sets out to explore the differences between ESG measures as a function of (a) data vendors’ diverse social origins and (b) their necessity to create a unique profile in a maturing market. Examining five cases of eight interconnected ESG data vendors and rating agencies, the paper thus shows how the origin of each company strongly influences its conception of sustainability, definition of materiality, and by extension, the way ESG issues are measured and sold. 
 

Paper 2: The social origins of ESG?: An analysis of Innovest and KLD

This paper uses the study of two ESG data vendors – KLD and Innovest – to exemplify the 'social origins of ESG' argument made by Eccles and Stroehle in Paper 1.

Oxford: Robert G. Eccles and Judith C. Stroehle 

External: Linda-Eling Lee (MSCI Inc.)

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The investor revolution

ESG issues have traditionally been of secondary concern to investors. But in recent years, institutional investors and pension funds have grown too large to diversify away from systemic risks, forcing them to consider the environmental and social impact of their portfolios.

Analysis of interviews with 70 executives in 43 global institutional investing firms suggests that ESG is now a priority for these leaders and that corporations will soon be held accountable by shareholders for their ESG performance.

This article sets out how companies should respond to this shift in focus.

Oxford: Robert Eccles 

External: Svetlana Klimenko (World Bank)

Management decision making & strategy

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Business in times of crisis

Government bailouts of corporate sectors in the Covid-19 crisis are part of a tripartite arrangement between government, business and institutional investors. This article sets out how business should respond to the changing preferences of customers, employees and societies by identifying value propositions that justify the provision of risk capital by institutional investors and that critical to this is the determination and implementation of corporate purposes by owners and board directors that focus on inter-generational horizons. The article goes on to explain that family owners are particularly well placed to do this, but institutional investors need to make it part of their stewardship function as well. Measurement is key and significant reforms are required in the areas of accounting, valuation and reporting. 

Mary Johnstone-Louis, Bridget Kustin, Colin Mayer, Judith C. Stroehle, and Boya Wang

Cost-accounting & measurement

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Measuring purpose - An integrated framework

This paper sets out a logical and inclusive approach to measuring purpose. It advocates a three-stage process, the first of which anchors the purpose, mission and vision of the organisation in its governance. The second stage identifies the business metrics that derive from purpose in relation to inputs, outputs, outcomes and impacts. In the final stage, these reporting metrics are converted into monetary values through enterprise cost-based accounting and societal valuation.

Oxford: Richard Barker, Robert G. Eccles, Colin Mayer, Judith C. Stroehle, and Rupert Younger

External: Clara Barby (Impact Management Project), Ronald Cohen (Global Steering Group for Impact Investment), Christian Heller (Value Balancing Alliance), Bruno Roche (Economics of Mutuality), George Serafeim (Harvard Business School), and Thaddeus Zochowski (Impact Investing and Sustainability Special Projects)

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Integrating frameworks for multi-capital accounting, reporting and valuation

This White Paper provides a summary of the insights gathered at the Oxford Impact Roundtables (OIR) in 2018 and 2019 and proposes a structured frame for the evaluation of the most popular sustainability accounting, reporting and valuation approaches and their relation to one another. Specifically, the paper considers the following frameworks: Sustainability Reporting, Triple Bottom Line, Integrated Reporting, Impact Valuation, Integrated Profit and Loss accounting (Integrated P+L) and the Mutual Profit and Loss statement (Mutual P+L). Recognizing that a multitude of frameworks exist and are in use, the analysis is focused on those that are most frequently used and relevant for the context of the OIR participants.

Judith C. Stroehle and Sudhir Rama Murthy

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How to measure performance in a purposeful company? Analysing the status quo

This paper examines the relevance of the British Academy Principles for Purposeful Business in the area of corporate measurement and performance. Drawing on expert interviews, case studies and document analysis, this paper analyses the current ecosystem of 'nonfinancial' measures, discussing which frameworks and methodologies organisations can choose from and how these may differ in utility. It further explores whether and how metrics can be practically integrated with the traditional financial performance measurement, such as profits and capital investments. This enquiry provides an analysis of the remaining gap between existing non-financial measurement and accounting efforts and their full integration into organizations. The paper concludes with a discussion of three areas in which non-financial measurement is believed to be most impactful: investment practice, management decision making & incentivization, and corporate governance.

Oxford: Judith C. Stroehle, Kazbi Soonawalla, and Marcel Metzner 

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How should a ‘sustainable corporation’ account for natural capital?

Corporate activity promotes economic growth. This has obvious benefits for society, yet by placing unsustainable demands on natural resources, it also poses serious problems. This paper proposes a reinterpretation of financial accounting in which it is argued that existing systems should not be viewed as independent of natural capital accounting; instead, financial accounting should be extended to record profit as a surplus with respect to financial capital once physical capital maintenance of (critical) natural capital has been recorded. 

Oxford: Richard Barker and Colin Mayer