. 2022. George Serafeim. HarperCollins Leadership.
In, Georg Serafeim, The Charles M. Williams Professor of Business Administration at Harvard Business School offers a roadmap and best practices for corporations to attain long-term competitive benefits that may arise after they incorporate environmental, social and company governance (ESG) goals give attention to issues akin to climate protection, diversity and inclusion, sustainability and the pursuit of profit. The importance of ESG aspects has increased as a result of the COVID-19 pandemic, making this book essential reading for all investors. Previously, ESG issues were considered “soft” and outdoors the scope of what a serious investor should take into consideration. Today, ESG issues will not be only vital in society, but in addition crucial within the economy. Today, it’s incumbent upon asset managers to include all long-term value drivers, including ESG aspects, as a part of their fiduciary duty to investors.
Based on a sample of greater than 2,300 corporations, Serafeim has found over the past decade that purpose-driven corporations that improve their performance on material ESG issues outperform their peers in stock returns by greater than 3% annually. Based on a sample of three,078 global corporations, the writer also found that corporations that responded to the COVID-19 pandemic with significant efforts to guard customers, employees and suppliers outperformed their competitors within the one month that included March by about 2.2% exceeded stock market collapse in 2020.
ESG investing began with negative screening, which proved to have minimal positive impact. According to Serafeim, corporations need to grasp which ESG issues are financially relevant of their industry and the way they will give attention to them. Companies that improve their performance on non-material ESG issues of their industry showed little difference in performance from their competitors. Financially material ESG issues for business banks include access to finance for underserved populations, protecting customer data, incorporating environmental risks into loans made and powerful anti-corruption practices. Key ESG issues for agricultural products corporations include greenhouse gas emissions, water management, worker physical safety and crop-related risks arising from climate change. Focusing on ESG issues which can be relevant to a selected industry could make the difference between success and failure.
I discovered Serafeim’s most telling example to be the $1.6 trillion Japanese government pension investment fund. Because this fund owns the “universe,” it strives to make the universe more sustainable reasonably than attempting to outperform the universe. Because pension funds have very long time horizons, so as to meet their obligations they need the Earth to be viable in 100 years. As “stewards of the community,” major investors are vital to sustainability because they hold quite a few positions in industries that face a major number of serious threats.
The last chapter is crucial for the “Impact Generation,” which strives for alignment between values and work. Since alignment is just not static, if one has the flexibility to effect change, it is perhaps appropriate to take a position at a currently misaligned company, reasonably than at a currently misaligned company. It is the slope of the alignment, not the present alignment level, that determines the potential reward. The decision relies on patience or personal discount rate.
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