Corporate activism, reporting, Human Rights, Guest lecture

Corporate Sociopolitical Activism (CSA)

a firm's public demonstration of support or opposition to a partisan sociopolitical issue

Populism

the political doctrine that supports the rights and powers of the common people in their struggle with the privileged elite

Corporate activism from a normative standpoint

- what is corporates role and what duties do managers have when making decisions

- shareholder-centric view treats corporations as vehicles to serve owners interest

- stakeholder theories see moral obligation to consider employees, customers & communities

Corporate activism from a instrumental standpoint

- evaluates its effectiveness in achieving business goals like higher stock returns, sales growth, employee productivity, rather than moral rightness

- benefits when aligned with stakeholders

- rirks like backlash when misaligned

Positive effects of CSA

- increased demand for „activists assets" triggers positive asset price effects

- translating into a higher share price of activist companies

Negative effects of CSA

- adverse reaction from investors

- investors evaluate CSA as a signal of a firms allocated resources away from profit-oriented objectives

Reputational crisis

Arises when the public's perception of the organization is negatively impacted, often due to poor service, unethical behavior, or negative media coverage.

Basic response strategies to reputational crisis

1. Refusal

2. Refutation

3. Repression

4. Recognition

5. Revision

6. Reform

Refusal

When challenge is illegitemate

Refute

When challenge is factually wrong, too costly or contrary to corp strategy

Repression

When challenge spreads false and damaging information about corporation

Recognition

When challenge has legitimacy and power, but change is expensive or contrary to corp. strategy

Revise / Reform

When challenge has urgency, legitimacy, power and changes are consistent with corp. strategy

ESG screening strategies

1. Exclusion

2. Norm-based

3. Best in class

4. Thematic

5. Engagement & voting

6. ESG Integration

Exclusion Strategy

Exclusion of specific investments/investment classes

Norm-based Strategy

Screening of investments according to compliance with international standards

Best in class Strategy

Best-performing investments are selected based on ESG criteria

Thematic Strategy

Thematic funds focus on specific issues related to ESG

Engagement & Voting Strategy

Voting of shares & engagement with companies on ESG matters

ESG integration Strategy

Explicit inclusion by asset managers of ESG risks and opportunities into traditional financial analysis and investment decisions

Reporting function in CR management

Management tool:

- defines vision, goals & targets

- performance data reviewed and explained

- important for internal communication

- often initiates improved management after baseline review

Differentiator:

- strengthen brand

- build reputation

Ahead of curve:

- anticipate regulation

- shape standards

CR Reporting

- measuring & disclosing sustainability information alongside / integrated with companies existing reporting practices

- process of assessing sustainability data and using analysis to internalize and improve an organizations commitment to sustainable development

Regulatory requirements in switzerland

Non-financlai reporting

- environment, social affairs, labor, human rights

Child labour

- due diligence & reporting obligations

Conflict minerals

- due diligence & reporting obligations

-> violated: fine/sanctions for failing reporting obligation

Mandatory CSR Reporting Pros/Cons

+ complete & consistent discolusure

+ holistic reporting, balanced, higher quality & credible

+ better comparison of performance & objectives

- no empirical evidence on impact

- high costs

- stifles innovation, inflexible to changes

Voluntary CSR Reporting Pros/Cons

+ coincides with idea that CSR is voluntary

+ more creative

+ adaptable to changes in environment

- reluctance in reporting behaviour

- focus on positive content

- incomplete reporting

- less transparency

Global Reporting Initiative (GRI)

Universal standards: mandatory for all reports

Sector standards: only sector which applies to company

Topic standards: topics chosen based on materiality analysis

Structure GRI

Requirements: must be reported in order to conform to GRI standards

Recommendations: information or courses of action that are recommended but not mandatory

Guidance: facilitating and understanding, explanations and examples

Materiality assessment

the process of determining material matters and material information to be reported on in sustainability statement, should include relevant and faithful information about all impacts, risks and opportunities

Swiss climate & innovation act

- net-zero emissions

- adaptation to climate impacts

- sustainable financial flows

- promote innovative technologies

- key sectors: energy, transport, industry, agriculture

Counterproposal responsible business initiative

- proof of corporate due diligence regarding human rights and environmental standards in the supply chain

- protection of affected stakeholders from corporate activities

International covenant on civil & political rights

Equality: discrimination based on sex, race, language

Security: protection of physical integrity

Due process: procedural fairness in law

Liberty: individual freedom of speech, association, press

International covenant on economic, social & cultural rights

Social: right to political participation

Welfare: right to be protected against severe poverty

Cultural: promotion & protection of the persons belongingness

Main institutions safeguarding human rights

- International court of justice

- European court of human rights

- International criminal court

Human rights obligations

- states have obligations to protect human rights

- only refers to states own conduct

- do not have any jurisdiction over acts and omission of third parties

Corporate Responsibility vs Human Rights

CR:

- do good

- moral

- private responsibility

- voluntary

HR:

- do no harm

- legal

- public responsibility

- mandatory

UN guiding principles on business & human rights

1. States have the duty to protect human rights

2. Companies have the responsibility to respect human rights

3. Affected people must have access to remedies

Stakeholder expectations related to sustainability

Governments: exponential increase in regulation

Consumers: ESG factors become a more important purchasing factor

Employee: fact-based sustainability claims in employer branding

Suppliers: challenging to achieve targets, as suppliers have lower maturity level in ESG

Competitors: growing need to demonstrate progress

Investors: pass on regulatory pressure to companies

Materiality types

Impact materiality: actual/potential impact on people (inside-out)

Financial materiality: actual/potential impact on economic value creation (outside-in)

Double materiality assessment

A framework which matches impact materiality to financial materiality, used to prioritize key strategic targets and scope

DMA application (impact materiality/financial materiality)

Non-mat/Non-mat: Pollution, Water resources, biodiversity

Mat/Non-mat: Climate change

Non-mat/Mat: Business conduct

Mat/Mat: Own workforce, value chain, consumer