Found 54 article(s) for author 'George Serafeim'

Tackling Climate Change Requires Organizational Purpose

Tackling Climate Change Requires Organizational Purpose. Rebecca Henderson, George Serafeim, 2020, Paper, “Unchecked climate change presents a profound threat to economic growth and political stability but despite widespread public concern about the issue, global emissions of greenhouse gases (GHGs) have not declined. Indeed current “business as usual” predictions imply that average global temperatures will rise by more than 4⁰C by 2100, with potentially catastrophic results. In this paper, we argue that while putting in place an effective regime for pricing GHG emissions is more essential than ever, it is unlikely to be sufficient. It is in this context that we hypothesize that increasing the fraction of commercial firms who are “authentically purpose-driven” might have a very significant effect on the problem of climate change.Link

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A Preliminary Framework for Product Impact-Weighted Accounts

A Preliminary Framework for Product Impact-Weighted Accounts. George Serafeim, February 7, 2020, Paper, “While there has been significant progress in the measurement of an organization’s environmental and social performance, metrics to evaluate the impact of products once they come to market lag far behind. In this paper we provide a framework for systematic measurement of product impact in monetary terms and delve into the rationale for the framework’s seven elements. We then apply the whole framework to two competitor companies and elements of the framework across companies in different sectors of the economy to show the feasibility of measuring product impact and the actionability of the framework. Not only does this application demonstrate feasibility, it also indicates the value of impact-weighted financial statement analysis. We see our results as a first step, rather than a definitive answer, towards more systematic measurement of product impact in monetary terms that can then be reflected in financial statements with the purpose of creating impact-weighted financial accounts.Link

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Intelligent Design of Inclusive Growth Strategies

Intelligent Design of Inclusive Growth Strategies. George Serafeim, 2019, Paper, “Improving corporate engagement with society, as advocated in the Business Roundtable’s 2019 statement, should not be viewed as a zero-sum proposition where attention to new stakeholders detracts from delivering shareholder value. Corporate programs for sustainable and ethical sourcing practices, however, have fallen far short of solving the underlying causes of extreme poverty, extensive use of child labor, and threats to the environment and human health. We identify several causes to explain this disappointing shortfall in societal performance, including traditional company policies and incentives that inhibit the implementation of innovative, inclusive growth strategies. We propose the role for a new actor, a catalyst, to help companies forge new relationships with external funders, local intermediary companies, NGOs, and community leaders. The catalyst aligns the multiple stakeholders from multiple sectors into enduring, mutually- beneficial relationships that produce more value than that currently produced when stakeholders connect only by transactional relationships. The catalyst attracts funding from public and private sources to invest in the new ecosystem, which can generate attractive financial returns while alleviating poverty and environmental degradation. Finally, the catalyst engages the multiple participants to collectively co-create explicit strategies and scorecards of metrics, which serve to motivate, create accountability, and enable an enduring governance model for a multi-stakeholder ecosystem.Link

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Why is Corporate Virtue in the Eye of The Beholder? The Case of ESG Ratings

Why is Corporate Virtue in the Eye of The Beholder? The Case of ESG Ratings. George Serafeim, Anywhere Sikochi, November 2019, Paper, “Despite the rising use of environmental, social, and governance (ESG) ratings in financial markets, there is substantial disagreement across rating agencies regarding what rating to give to individual firms. As what drives this disagreement is unclear, we examine the extent to which a firm’s ESG disclosure and average ESG rating explain this disagreement. Contrary to conventional wisdom that greater disclosure helps reduce disagreement, our findings suggest that greater ESG disclosure leads to greater disagreement across ESG rating agencies. These findings hold using firm fixed effects, changes models, and using a difference-in-differences design with staggered mandatory ESG disclosure shocks. We also find that rating disagreement is greater when firms have high or low average ESG ratings, relative to firms with medium average ESG ratings. Overall, our findings highlight the difficulty that firms face in resolving ESG rating disagreement and the need for developing rules and norms for evaluating ESG information.Link

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Human Capital and the Future of Work: Implications for Investors and ESG integration

Human Capital and the Future of Work: Implications for Investors and ESG integration. George Serafeim, 2019, Paper, “Human capital development (HCD) is a key consideration for most companies, but only recently investors have focused on understanding the risks and opportunities related to human capital with the emergence of environmental, social and governance (ESG) investment frameworks and impact investing. We argue that the importance of human capital is likely to be magnified in an environment of rapid technological change where the future of work is uncertain and that existing frameworks to measure and evaluate human capital development might not be fit for purpose. Against this backdrop, we derive a human capital development metric that focuses on outcomes rather than inputs; show that even in the current disclosure landscape one could measure with reasonable accuracy this human capital development metric for thousands of companies; and provide exploratory evidence on its relationship with employee productivity. Moreover, we develop an estimate of probability of automation of job tasks for each sub-industry and show the relation of this probability to elements of our HCD metric and other human capital characteristics. Finally, we outline an investor engagement framework to improve the disclosure landscape related to HCD and to empower effective investment stewardship.Link

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Market Reaction to Mandatory Nonfinancial Disclosure

Market Reaction to Mandatory Nonfinancial Disclosure. George Serafeim, August 8, 2019, Paper, “We examine the equity market reaction to events associated with the passage of a directive in the European Union (EU) mandating increased nonfinancial disclosure. These disclosures relate to firms’ environmental, social, and governance (ESG) performance, and would be applicable to firms listed on EU exchanges or with significant operations in the EU. We predict and find (i) an average negative market reaction of –0.79% across all firms, (ii) a less negative market reaction for firms having higher predirective nonfinancial performance, and (iii) a less negative reaction for firms having higher predirective nonfinancial disclosure levels. In addition, results are accentuated for firms having the most material ESG issues, as well as investors anticipating proprietary and political costs as a result of the mandated disclosures. Finally, we find that the negative market reaction is concentrated in firms with weak preregulation ESG performance and disclosure, which exhibit an average return of –1.54%; in contrast, firms with strong preregulation disclosure and performance exhibit an average positive return of 0.52%. Overall, the results are consistent with the equity market perceiving net costs (benefits) for firms with weak (strong) nonfinancial performance and disclosure around key events surrounding the mandatory disclosure regulation of nonfinancial information.Link

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Corporate Purpose and Firm Ownership

Corporate Purpose and Firm Ownership. George Serafeim, August 2019, Paper, “Analyzing data from approximately two million employees in a sample of more than 1,000 established public and private US companies, we find that corporate purpose is lower among employees of public companies. This result is driven by weaker beliefs held by employees in the salaried middle ranks and hourly workers, and not by senior executives. Among public companies, purpose is progressively lower in companies with more concentrated shareholders, suggesting that shareholder power is associated with a lower sense of purpose among employees. A substantial portion of these patterns can be explained by differences in CEO backgrounds and CEO-employee pay gap. Public firms, particularly those with strong shareholders, choose outsider CEOs at a higher rate and pay them more relative to their employees. Altogether, this study finds that the strength of corporate purpose varies substantially across companies, and is related to the identity of the firm owners, and the choices they make.Link

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Four Things No One Will Tell You About ESG Data

Four Things No One Will Tell You About ESG Data. George Serafeim, July 2, 2019, Paper, “As the ESG finance field and the use of ESG data in investment decision‐making continue to grow, the authors seek to shed light on several important aspects of ESG measurement and data. This article is intended to provide a useful guide for the rapidly rising number of people entering the field. The authors focus on the following…Link

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3 Ways Investors Can Pressure Companies to Take Sustainability Seriously

3 Ways Investors Can Pressure Companies to Take Sustainability Seriously. George Serafeim, June 23, 2019, Paper, “Climate change and other environmental, social, and governance (ESG) issues are not political or partisan topics, and not limited to niche investors. Measuring and analyzing ESG information is becoming an important activity for any investor who seeks to optimize risk and return —a growing body of evidence shows that companies with strong ESG policies produce better financial results. Academic research analyzing 2,000 U.S. companies from 1993 to 2014 shows higher profit margins and superior risk-adjusted returns for those that made significant ESG investments to improve their performance on industry-specific material ESG…Link

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Harvard Business School Broadcast (Podcast)

Harvard Business School Broadcast (Podcast). Jan Rivkin, George Serafeim, William Kerr, June 20, 2019, Audio, “Bloomberg Businessweek Editor Joel Weber talks about Businessweek Best B-Schools rankings. Scott Sperling, Co-President at Thomas Lee Partners, explains why companies are taking longer to go public. Sal Khan, Founder of Khan Academy, talks about launching a partnership with NWEA. John Connaughton, Co-Managing Partner at Bain Capital, discusses opportunities in private equity investing. Jan Rivkin, Senior Associate Dean at Harvard Business School, talks about the HBS MBA program. George Serafeim, Professor of Business Administration at Harvard Business School, shares his thoughts on ESG and impact investing. Kelley Morrell, Head of Tactical Opportunities at Blackstone, talks opportunities beyond traditional private equity. Bill Kerr, Professor of Business Administration at Harvard Business School, discusses managing the future of work. Jonathan Nelson, Founder and CEO at Providence Equity, talks about investing in live events and the value of content. Hosts: Carol Massar and Jason Kelly. Producer: Paul Brennan.Link


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