Essec Business School

With Nicolas Mottis and Marie-Laure Djelic

Carbon footprint. Sustainability. Impact on local communities. Are your average, mainstream asset managers taking these kinds of non-financial performance factors into consideration when buying shares and building a portfolio? More than ever, the answer is yes.

“Socially Responsible Investment – or SRI – was initially a niche area of expertise for a handful of asset managers,” explains Nicolas Mottis. “Five or ten years ago, when you talked about sustainable development or non-financial performance, no one knew what you were talking about. Today, the attitude to these questions has completely changed. More and more investors are relying on ESG (Environmental, Social, Governance) criteria to decide whether or not they should invest in a company. […] not only looking at the cash generated, but also looking at the non-financial performances.” In fact, many agree that the scales have now tipped – that ESG criteria have become a common point of reference and that SRI has now effectively become a mainstream practice.

According to Professor Mottis, this much is true here in France. In order to determine the extent of SRI mainstreaming he explains, “we launched a survey of [French] SRI analysts and we asked them how they interact with traditional financial analysts and with traditional asset managers: do they listen to your analysis? How do you influence the traditional asset management industry? The results showed that there is real mainstreaming in France in the sense that more and more asset managers refer to ESG criteria when they make decisions for their portfolio.”

And the old belief that socially responsible investments are weaker performers or poorly diversified? This way of thinking is out of date. Today’s uncertain economy is actually pushing investors to look at non-financial performance in order to better evaluate investment risks. It’s encouraging investors to take the bigger picture into account.

“One of the consequences of the crisis has been to increase the level of risk for many investors which is pushing investors to look at other criteria, specifically non-financial criteria. This is a way to reduce risk and anticipate more precisely the potential effect of a bad corporate reputation. For example, the impact an environmental crisis could have on a company and their shares,” explains Professor Mottis. “We believe that the crisis could have a positive impact on the mainstreaming of SRI. It could really encourage investors to look at other criteria, not only at pure financial data.”

Today, the concept of social responsibility is far-reaching, permeating both academic thought and public discourse. This trend is apparent at ESSEC where it is analyzed in one form or another by all departments and was an important factor in the birth of its Centre for Capitalism, Globalization and Governance, the intellectual hub headed by Marie-Laure Djelic. The Centre’s recent focus on socially responsible investment was therefore a natural one. 

“One of the preoccupations of the Centre, which is more closely related to the seminar we organized [in June] on socially responsible investment, has to do with the social responsibility of business, in the context of globalization and globalized capitalism,” Explains Marie-Laure Djelic. “There are several debates circulating around academic communities (regarding] socially responsible investment” so the seminar came to fruition easily.

As Professor Djelic explains, questions relating to social responsibility lend themselves well to trans-disciplinary analysis. After meeting separately several colleagues from different institutions working on this topic –– it became clear to Professor Djelic that these academics could benefit from meeting and exchanging at length. After this, “it turned out to be very simple to put together a group of papers that looked at this topic. Some of the authors knew each other but didn’t necessarily have the opportunity to really talk to each other about these issues.  It’s very useful to exchange in this kind of setting – a small focused workshop.”

The analysis yielded some interesting results since the topic of Socially Responsible Investment has a unique position between the corporate and financial worlds. Contributors to the discussion included Afshin
 Mehrpouya of HEC, Aurélien 
Acquier of ESCP, Fabrizio 
Ferraro of IESE and Diane‐Laure 
Arjaliès of HEC. What ultimately emerged was a picture of this RSI mainstreaming trend.

All
 presenters 
agreed
 that
 the 
field 
of
 SRI
 has
 significantly 
matured 
over
 a 
period
of
 ten
 years and has become  a
 familiar
 notion
 within
 the 
financial
community. This 
is
 well 
illustrated 
in 
the 
profound
 change 
of 
logic
 that
 has
characterized
 the 
field
 - away 
from
 shaming, condemnation 
and exclusion 
tactics
towards, increasingly,
 participatory 
engagement 
and
 dialogue.


But according to Professor Mottis, what is really interesting is the impact that the mainstreaming of SRI can ultimately have on operations at the business unit level through the influence that asset managers can have on CEOs. “What we begin to observe today,” he explains, “is that there are more and more signs of influence at the operations level. In plants you can find more indicators on safety, on environmental issues, much more than in the past.”

However, the question then becomes: are these signs of real impact or is it just greenwashing?  “Greenwashing is a big risk,” confirms Professor Mottis. “When you look at these two interfaces between companies and financial markets, it’s quite easy for a company to produce a nice brochure with nice examples [of their social responsibility]. Is it just an exception […] or is it something that you would find in any business unit?”

While it is easy to be cynical, this new focus of ESG criteria and socially responsible investment are bringing attention to some big issues.  According to Professor Mottis, you really see past the risks of greenwashing and realize the potential benefits of this trend when you look at the trickle-down effect on business practice. “When you look at the other interface - the interaction between CEOs and business units – you see more and more examples of practices that really change: On safety, on environmental issues and governance issues,” he explains.  “Things are really changing.” While greenwashing is certainly practiced by some firms, at the end of the day a link can still be drawn between the rising importance of ESG criteria within financial markets and an increase in socially responsible practices at the business unit level.

Before buying, investors wanting to build a socially responsible investment portfolio should gather as much information as possible on the environmental and social impact of firms. This is an important step in the right direction. Ultimately, their attention to ESG and commitment to socially responsible investment is helping to encourage responsible corporate leadership.  

Further Reading:

 "L'ISR à la recherche de nouveaux élans", published in Revue Française de Gestion
 "Socially Responsible Investment in France", published in Business & Society
 "L'investissement socialement responsable en France : opportunité "de niche" ou placement "mainstream" ?", published inGérer et comprendre
 "Création de valeur, 10 ans après...", published in Revue Française de Gestion