Business and Society

ESG and ethical business operations

By Philip Joos | November 10, 2022 | 2 min read
I spent the late 1990s in Silicon Valley working on my PhD at Stanford. My stay coincided with the glory days of the newfangled internet and of local technology companies such as Yahoo, Netscape, Sun Microsystems, Google and Webvan. Venture capital was easy to come by for startups eager to change the world, and 1998 still holds the record for new listed companies in the US. During a speech in 1996, Alan Greenspan, chair of the Federal Reserve at the time, was the first to use the words ‘irrational exuberance’ to warn people of the dangers of a possible financial bubble. 

Revolutionary technological advances

Nobel prize winner Robert Shiller published a book of the same title in March 2000. As it happens, this appeared in the exact same month that the dot-com bubble burst. Shiller’s book showed that valuations of technology and internet businesses were no longer based on historic parameters and that a stock market adjustment was inevitable. This proved true. In the late 1990s, financiers and stock market investors were inspired to exuberance by society’s revolutionary technological advances such as online banking and shopping, mobile data transfers and an unprecedented access to information. 

ESG (Environmental, Social & Governance)

It’s interesting to note that 15 years after the dot-com collapse, the capital markets are once again exhibiting a similar level of enthusiasm for ESG investments that promise to fund society’s sustainable transition. Ever since the Paris Agreement in 2015, it has been clear that companies must contribute to this transition process if we want to address climate change and biodiversity loss. By embracing electric mobility and more sustainable energy sources, for example. Various rating companies provide ESG (Environmental, Social & Governance) performance indicators to improve our insight into businesses’ sustainability efforts. 

Morally superior?

Individual investors have seen a deluge of sustainable funds and investment options in the past few years. These funds’ managers rely on ESG ratings to put together their investment portfolios. Private investors are asked to believe that sustainable funds only invest in companies that support the environment and practice corporate social responsibility, with respect for human rights, anti-corruption policy, ethical trade and unionization. Do high ESG ratings really mean these businesses are morally superior, though?

The worth of ESG ratings

The Russian invasion of Ukraine certainly taught us an important lesson about the worth of ESG ratings. Together with my colleagues Demers, Hendrikse and Lev, I looked at ESG ratings for 75 (non-Russian) European non-financial multinationals with substantial Russian operations (over 100 million in Russian assets and turnover), including AB Inbev, Renault, Nestlé, Metro, Solvay, Shell and Adidas. According to the World Bank, Russia has scored very poorly on legal certainty and accountability for many years. The country is also known as a hotspot for corruption, poor working conditions and disregard for the environment. 

Ethical business conduct

We compared our 75 companies’ ESG ratings to those of other European multinationals of comparable size, without Russian operations. The difference is noteworthy. Those 75 companies have a substantially higher average ESG rating and social ‘S’ component than their peers. Interesting, right? Even after a full 12 days of warfare, 28% of the 75 European multinationals still hadn’t expressed any public views regarding the war. For ESG ratings to be relevant to socially responsible investing, they must first offer better insight into the management of multinationals with operations in countries where human rights are violated and corruption is rampant. At any rate, the current ESG exuberance has little to do with ethical business conduct. 

This article originally appeared as a column by Prof.dr. Philip Joos in CFO Magazine Belgium, April 2022.

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About Philip Joos

Philip JoosProf.dr. Philip Joos is professor of accounting at the Tilburg School of Economics and Management (TiSEM) and is part of the TIAS Finance LAB. At TIAS,

Philip Joos teaches in the following programs: Business Valuation Program (BVP), Executive Master in Finance (MIF), Executive Master of Business Valuation (MBV), Executive Master of Finance and Control / Register Controller (EMFC)


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