Bill Rees

Corporate Social Responsibility and the Open Society

We analyse the FTSE4Good corporate social responsibility score of 1,825 firms in 25 countries and hypothesise that corporate social responsibility imposes costs on the firm’s owners, whereas benefits may only partially accrue to those owners or instead to various other stakeholders. Managers may then be expected to more enthusiastically adopt CSR practices where these other stakeholders are influential but they will be less committed where entrenched owners may resist discretionary expenditure. Our evidence is consistent with this hypothesis and corporate social responsibility, as measured by FTSE4Good, is higher where entrenched shareholders are absent, where internal firm governance is good, where firms are accountable through the FTSE4Good process and where the World Bank’s assessment of “voice and accountability” is high. We view these characteristics as generally descriptive of an open society.

The FTSE4Good Effect: The Impact of Responsible Investment Indices on Environmental Management

This paper provides results consistent with the proposition that engagement by and threat of deletion from a responsible investment index motivated persistent improvements to corporate environmental management practices, especially for firms where the threat of exclusion from the index was likely to be costly. We use the natural experiment provided by the FTSE4Good upgrade of their environmental management criteria in 2002 when they engaged with index member firms that would not meet the new requirements but did not engage with non-member firms that would similarly fail. By 2005 49% of the 388 large and internationally diverse firms that had received engagement and been threatened with exclusion from the FTSE4Good index had complied, as opposed to 23% of the 658 firms which were not subject to engagement or potential exclusion. This result is statistically significant even after controlling for environmental risk, industry, country, governance and financial performance. Further results indicate that the effect of FTSE engagement produces a difference in compliance which persists for at least five years.

Investor Influence on Firms’ Environmental, Social and Governance Performance

This paper demonstrates that strategic equity holdings by employees and family or by corporations discourage investment in environmental, social and governance (ESG) activities as measured by ASSET4 performance scores. Conversely, debt or government equity finance is positively associated with ESG scores. The results are based on a large, recent and international sample and are generally consistent across conventional pooled cross-sectional and time-series regression models and propensity score matching experimental techniques. However the regression results for investment institutions are inconsistent with those from propensity score matching. The paper adds to our understanding of investor influence over firm management in general, over governance and environmental and social performance in particular and the way in which institutional arrangements might stimulate ESG investment.