Abstract
Though socially responsible investing (SRI) has been around for as long as portfolio diversification, if not longer, its widespread and transformative effect on investing culture did not begin to take hold until the better part of the last decade. Philanthropy was certainly not known for being a profitable area of activity, and the great monetarist and libertarian, Milton Friedman, provided a widely accepted basis that the costs for corporations, who spent time worried about anything beyond earning a return to their stockholders, would exceed the benefits.
The main reason why Friedman’s earlier view has been successfully challenged is because environmental, social, and governance (ESG) factors in investing is not about philanthropy but about risk management. Investors seeking to manage risks and profitability in the long run also should be concerned about ESG factors. So, why is the integration of ESG into investment analysis important for the reduction of risk? First, we need to only look back at the corporate governance failures of the late 1990s and later 2000s in the financial sector to understand how crucial good corporate governance is to avoiding financial disaster. The Enrons, WorldComs, AIGs, and Lehman Bros. of the world stand out as embodiments of what can go wrong on a massive scale as a direct result of corporate governance failures. Research has found links between corporate governance, social responsibility, environmental and financial performance.
This is a preview of subscription content, log in via an institution.
Buying options
Tax calculation will be finalised at checkout
Purchases are for personal use only
Learn about institutional subscriptionsNotes
- 1.
Friedman, Milton, Capitalism and Freedom, Phoenix Books, 1982.
- 2.
Moskowitz, Milton and Levering, Robert, “The best employers in the U.S. say their greatest tool is culture” Fortune, March 5, 2015.
- 3.
Barnett, Michael and Salomon, Robert, “Beyond dichotomy: the curvilinear relationship between social responsibility and financial performance”, Strategic Management Journal, V. 27, No. 11, pp. 1101–1122, November, 2006.
- 4.
Edmans, Alex, Does the stock market fully value intangibles? Employee satisfaction and equity prices, Journal of Financial Economics 101 (2011) pp. 621–640.
- 5.
World Economic Forum, “The Global Risks Report”, 2018 https://www.weforum.org/reports/the-global-risks-report-2018
- 6.
- 7.
Loder, Asjylyn, “Painstaking Progress for Fund that Aim to Do Good”, Wall Street Journal, March 21, 2019.
- 8.
Merker, Christopher K., “The Stampede into ESG”, CFA Enterprising Investor, May 29, 2017.
- 9.
Gunnar Friede, Timo Busch & Alexander Bassen (2015) “ESG and financial performance: aggregated evidence from more than 2000 empirical studies”, Journal of Sustainable Finance & Investment.
- 10.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
Copyright information
© 2019 The Author(s)
About this chapter
Cite this chapter
Merker, C.K., Peck, S.W. (2019). Farewell to Uncle Milt. In: The Trustee Governance Guide. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-21088-5_14
Download citation
DOI: https://doi.org/10.1007/978-3-030-21088-5_14
Published:
Publisher Name: Palgrave Macmillan, Cham
Print ISBN: 978-3-030-21087-8
Online ISBN: 978-3-030-21088-5
eBook Packages: Economics and FinanceEconomics and Finance (R0)