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Saving the World Doesn't Require the Purest Intentions

Mike Scannell | State Street Corporation

August 02,2017

It's an enduring stereotype: The selfless do-gooder.

The tireless volunteer with meager means but a big heart. The man or woman changing the world while eschewing material goods and, of course, money.

Rejecting wealth is often seen as a stepping stone to achieving noble goals...but what happens when the pursuit of wealth is what actually makes the goals achievable? It's not a theoretical question -- at least, not anymore.

As the economy evolves to reward commitment to environmental, social and government (ESG) factors, corporate leaders' quests to maximize profit can help save the world. To paraphrase an iconic fictional profiteer, greed can do good.

"I don't care how you get in the water, as long as you get wet," said Richard Pearl, State Street's Global Corporate Responsibility Officer. Corporations and their leaders, he said, don't have to have the motivations of saints to tackle social challenges. "There are very few Mother Theresa's in the world. There are a lot more corporations, and they can promote good while they pursue profitability."

Through much of human history, the idea of social good emerging as a (happy) byproduct of the pursuit of profit has been met with incredulity...and in some cases, rightly so. In the 1770s, renowned Scottish economist Adam Smith argued that individuals' selfish desire for income benefited society. And while regulations and public pressure have ultimately curbed some of the more egregious corporate offenses, even through the modern era companies still committed an array of abuses that jeopardized the well-being of employees, customers and, in the case of environmental malfeasance, broad swaths of the public. All too often, adhering to standards designed to safeguard society at large was seen as damaging to the bottom line.

The correlation between saving the world and making money is an imperfect one.

That view persists to this day in some corners, but fortunately, such pessimists are increasingly finding themselves in the minority. Rather, more and more corporations are finding that there's a competitive advantage to doing good instead of being bad. Today's socially-conscious consumers like doing business with companies that have shown a commitment to the environment, human rights, social justice and so on. So do investors, for that matter, and their preferences have helped give rise to an ever-growing number of ESG-themed funds. Socially responsible companies may also find greater success in recruiting top candidates.

Companies are even advertising their good work through sustainability reports, which as Harvard Business School professor George Serafeim noted in a 2014 paper for the Brookings Institution,1 are issued by more than 6,000 companies, up from fewer than 30 in the 1990s.

Companies are also discovering more tangible benefits to social responsibility and sustainability. Energy efficiency initiatives as well as recycling and reuse programs help cut costs, while developing high-quality, environmentally-friendly products can bolster sales. One study2 has shown that companies with superior corporate social responsibility (CSR) performance have better access to financing.  "The systematic integration of ESG factors in the business strategy and model of a company can increase the value of the different forms of capital and minimize the amount of negative externalities," Serafeim wrote. "As a result, firms that integrate ESG factors will outperform their competitors in the long-term."

Rick Lacaille, global chief investment officer (CIO) of State Street Global Advisors agrees, "At SSgA we believe that there is a positive pay-off associated with investment in companies that demonstrate superior ESG scores, taking all other factors into consideration. Commitment to ESG can be a reflection of a management focus on the long term, and the drive for sustainable profit maximization."

The recognition of ESG-related profit potential, however, doesn't always make for perfect corporate citizens. ESG advocates must grapple with the fact that the correlation between saving the world and making money is an imperfect one. For instance, when an ESG-related decision boils down to a choice that would have a good impact on society and a choice that would have a great impact, companies may choose the merely good option because the latter is less fiscally sound. For instance, companies may raise wages for low-skilled workers but do so in a way that falls short of what activists demand because they've calculated that reputational benefits don't compensate for the costs of significantly higher hikes. Major oil companies provide a more extreme example: In recent years, they've announced investments in renewable energy, but those investments still pale in comparison to what they spend on their core business: nonrenewable fossil fuels.

Pearl believes that the corporate world will never entirely rid itself of businesses that are distinctly ESG-unfriendly. It's important to consider time, especially when it comes to corporate leaders' pursuit of profits. History is littered with examples of when the focus was on profit maximization. But in the end the profits were often only sustainable for a short time. Under certain circumstances, corporations do need deal with the short term needs and management teams should be galvanized for action, but when this becomes the dominant pattern for strategy development and management action, it can give rise to weak ESG behaviors – skimping on safety or environmental controls, poor labor practices, miss-selling and more.

But even the companies that do the biggest damage will find it in their interest to change more and more of their practices for the better. "They won't be great," Pearl said, "but they'll make great improvements" that help them profit in a socially-conscious economy. Greed: It might just do the planet good.

1. Serafeim, George. "Turning a Profit While Doing Good: Aligning Sustainability with Corporate Performance." Center for Effective Public Management at Brookings. December, 2014.

2. Cheng, Beiting, Ioannis Ioannou, and George Serafeim. "Corporate Social Responsibility and Access to Finance."Strategic Management Journal 35, no. 1 (January 2014): 1–23.


Topics: ESG , Corporate Responsibility

Mike Scannell | State Street Corporation

Mike Scannell is a senior vice president and president of the State Street Foundation, head of Corporate Citizenship, Talent Acquisition and Global Inclusion. He is responsible for State Street’s philanthropic and community support programs globally. An avid runner, Michael has completed 17 marathons and 12 half-marathons.