Anti-profit belief (APB) Belief that profit seeking conflicts with beneficial outcomes for society
Zero-sum The more the firm profits, the less value for the consumer (gain of one is a loss for
the other)
Pyramid of CSR Economic, legal, ethical, and philanthropic responsibility (stakeholder priority
large to small)
Philantropic Be a good citizen (= desired by society)
Corporate Citizenship Companies are responsible for contributing to communities in which they operate
Triple Bottom Line (TBL) Aims to measure the financial, social and environmental performance of the
= impact dimension corporation. Only a company that produces a TBL is taking account of the full cost
involved in doing business.
Goal: manage economic value added & rethink capitalism
CSR Companies integrate social and environmental concerns in their business
= voluntariness dimension operations and in their interaction with stakeholders on a voluntary basis
CSR Responsibility of enterprises for their impacts on society and outlines what an
= normative dimension enterprise should do to meet that responsibility
Sustainability Meeting the needs of the present without compromising the ability of future
= intergenerational dimension generations to meet their own needs
CSR vs ESG CSR => a business model that affects organizational processes
● Broad societal and environmental focus
● Stakeholder centric
ESG => a model used by investors to examine the sustainability of a company
● Highlights how ESG issues present risks and opportunities to financial
performance
● Investor centric
Berle vs Dodd debate Berle => shareholder approach
Dodd => stakeholder approach
Shareholder approach Main principle is profit maximization. Shareholders as company owners should
(Friedman) decide what to do with their share of company profits.
Principal agent view: agent (management firm) should conduct business in
principals interest (shareholders). Governments are responsible for social welfare.
Stakeholder approach A firm should create value for all stakeholders, not just shareholders. Therefore
(Freeman) strategy must be aligned with stakeholders interest. Companies must take
responsibility for positive/negative externalities of their business.
CSP and CFP Better CSP is related with better CFP
Reasons to invest in CSR 1. Cost and risk reduction
activities related to CFP 2. Gaining competitive advantage
3. Developing reputation
4. Seeking win-win outcomes: strategy integration, innovation
Creating Shared Value (CSV) Creating economic value in a way that also creates value for society. Can be done
in 3 ways:
1. Reconceiving products and markets (meet social needs while serving
existing markets)
2. Redefining productivity in the value chain (rethink logistics while acting as
a steward for natural resources)
, 3. Enabling local cluster development (operating together with your
environment)
Growing the Pie mentality Company purpose and profit need not be in conflict if we grow the pie
Externality A cost/benefit caused by an economic actor that is not suffered/enjoyed by the
same actor
Why disclose externalities? Public value differs from the private value
Stakeholder value = shareholder value / market cap – negative externalities + positive externalities
Impact Weighted Accounts A way for organizations to quantitatively assess their impact: how they create
(IWA) value for all stakeholders (measuring value beyond profit)
Two building blocks:
1. Integrated profit & loss
● Six capitals: Financial, Manufactured, Intellectual, Social, Human, Natural
(different types of value)
2. Integrated Balance Sheet
Both building blocks expand a traditional p/l or b/s by taking into account
stakeholder value
IWA topics 1. Identification (which impacts to include)
● Include multiple impacts by the double materiality view. Material if
they either affect the organization’s financial position or the welfare
of a stakeholder group. Include both direct and indirect impact.
2. Measurement
● Without accurate measurement no informed decisions can be made.
● Impact is the difference between the outcome of an activity and the
counterfactual outcome of a reference activity
3. Comparability (what are the relative sizes of impact?)
● Impacts are expressed in a wide range of units, making comparison
difficult.
● IWA requires that impacts be monetarily valued wherever possible.
4. Aggregation (how to make sense of many impacts)
● Aggregation is necessary to see the forest for the trees.
● Aggregate only within welfare categories. Conserve impact by
combining direct and indirect impact into an impact contribution, a
linear combination of the two. Summation of direct and indirect
impact would lead to overcounting.
5. Presentation
● How to present impact? By the integrated p/l & b/s
Integrated reporting Explain to financial capital providers how an organization creates value
over time (through IWA)
GHG protocol: 3 types of 1. Direct emissions from the company itself
emissions 2. Indirect emissions at facilities that generate electricity bought and
consumed by the company
3. Indirect emissions from up (supply chain) and downstream activities
(getting product to consumers)
, Issues ● Measurement error (complexity)
● Same activity is reported several times
- A mining company that supplies copper reports their emission from
mining activity in scope 1. A car manufacturer reports this same
activity in scope 3.
● Expecting companies to control downstream emissions
Solution Value added (profit) accounting (=cost accounting) across the entire value chain.
AKA E-liability accounting
E-liability accounting Measures GHG at product level rather than at entity level. When an output is sold
from one company to the next in the value chain, the transaction involves both an
asset transfer and an e-liability transfer (in units of for example CO2)
Advantages of e-liability ● Eliminates double counting in scope 3 measurement
accounting ● Prevents outsourcing of scope 1 to scope 3 emissions
● Simplifies auditing
● Materiality can be based on magnitude of e-liabilities
Balanced Scorecard Translates strategy and mission of a firm in specific KPI. It assumes 4 perspectives:
1. Financial (to succeed financially, how to appear to shareholders)
2. Customer (to achieve our vision, how to appear to customers)
3. Internal (to satisfy shareholders, which process must excel)
4. Innovation and learning (to achieve our vision, how can we innovate and
learn)
Sustainable balanced scorecard Option 1) integration within the 4 traditional perspectives
Option 2) integration as a 5th perspective
Common Measure Bias and the Comparing unique measures (non-financial) is harder than common measures 🡪
(S)BSC neglect of non-financials
Corporate reporting = Financial accounting + impact accounting
Information asymmetry One party with better or more information
Adverse selection Market for lemons: when you buy a secondhand car, you do not know whether
you buy a good quality car or a lemon (information asymmetry). Therefore, you
want the price to be as low as possible, to factor in the fact you might buy a
lemon. This will drive high quality cars out of the market.
Moral hazard (hidden action) Acting recklessly after for example being insured.
● Behavior by one party considered inappropriate by the other party after a
contract has been made
How to reduce info asymmetry - Signaling (signaling information to the buyer through for example
certificates/diplomas)
- Screening (health checks)
- Monitoring (surveillance)
- Designing contracts in such a way that interest is aligned (moral
hazard -> variable compensation)
Benefits of reporting - Disclosure of information can reduce info asymmetry
- Firms more attractive for investor
- Better conditions at capital market lead to better liquidity and lower
cost of capital
Zero-sum The more the firm profits, the less value for the consumer (gain of one is a loss for
the other)
Pyramid of CSR Economic, legal, ethical, and philanthropic responsibility (stakeholder priority
large to small)
Philantropic Be a good citizen (= desired by society)
Corporate Citizenship Companies are responsible for contributing to communities in which they operate
Triple Bottom Line (TBL) Aims to measure the financial, social and environmental performance of the
= impact dimension corporation. Only a company that produces a TBL is taking account of the full cost
involved in doing business.
Goal: manage economic value added & rethink capitalism
CSR Companies integrate social and environmental concerns in their business
= voluntariness dimension operations and in their interaction with stakeholders on a voluntary basis
CSR Responsibility of enterprises for their impacts on society and outlines what an
= normative dimension enterprise should do to meet that responsibility
Sustainability Meeting the needs of the present without compromising the ability of future
= intergenerational dimension generations to meet their own needs
CSR vs ESG CSR => a business model that affects organizational processes
● Broad societal and environmental focus
● Stakeholder centric
ESG => a model used by investors to examine the sustainability of a company
● Highlights how ESG issues present risks and opportunities to financial
performance
● Investor centric
Berle vs Dodd debate Berle => shareholder approach
Dodd => stakeholder approach
Shareholder approach Main principle is profit maximization. Shareholders as company owners should
(Friedman) decide what to do with their share of company profits.
Principal agent view: agent (management firm) should conduct business in
principals interest (shareholders). Governments are responsible for social welfare.
Stakeholder approach A firm should create value for all stakeholders, not just shareholders. Therefore
(Freeman) strategy must be aligned with stakeholders interest. Companies must take
responsibility for positive/negative externalities of their business.
CSP and CFP Better CSP is related with better CFP
Reasons to invest in CSR 1. Cost and risk reduction
activities related to CFP 2. Gaining competitive advantage
3. Developing reputation
4. Seeking win-win outcomes: strategy integration, innovation
Creating Shared Value (CSV) Creating economic value in a way that also creates value for society. Can be done
in 3 ways:
1. Reconceiving products and markets (meet social needs while serving
existing markets)
2. Redefining productivity in the value chain (rethink logistics while acting as
a steward for natural resources)
, 3. Enabling local cluster development (operating together with your
environment)
Growing the Pie mentality Company purpose and profit need not be in conflict if we grow the pie
Externality A cost/benefit caused by an economic actor that is not suffered/enjoyed by the
same actor
Why disclose externalities? Public value differs from the private value
Stakeholder value = shareholder value / market cap – negative externalities + positive externalities
Impact Weighted Accounts A way for organizations to quantitatively assess their impact: how they create
(IWA) value for all stakeholders (measuring value beyond profit)
Two building blocks:
1. Integrated profit & loss
● Six capitals: Financial, Manufactured, Intellectual, Social, Human, Natural
(different types of value)
2. Integrated Balance Sheet
Both building blocks expand a traditional p/l or b/s by taking into account
stakeholder value
IWA topics 1. Identification (which impacts to include)
● Include multiple impacts by the double materiality view. Material if
they either affect the organization’s financial position or the welfare
of a stakeholder group. Include both direct and indirect impact.
2. Measurement
● Without accurate measurement no informed decisions can be made.
● Impact is the difference between the outcome of an activity and the
counterfactual outcome of a reference activity
3. Comparability (what are the relative sizes of impact?)
● Impacts are expressed in a wide range of units, making comparison
difficult.
● IWA requires that impacts be monetarily valued wherever possible.
4. Aggregation (how to make sense of many impacts)
● Aggregation is necessary to see the forest for the trees.
● Aggregate only within welfare categories. Conserve impact by
combining direct and indirect impact into an impact contribution, a
linear combination of the two. Summation of direct and indirect
impact would lead to overcounting.
5. Presentation
● How to present impact? By the integrated p/l & b/s
Integrated reporting Explain to financial capital providers how an organization creates value
over time (through IWA)
GHG protocol: 3 types of 1. Direct emissions from the company itself
emissions 2. Indirect emissions at facilities that generate electricity bought and
consumed by the company
3. Indirect emissions from up (supply chain) and downstream activities
(getting product to consumers)
, Issues ● Measurement error (complexity)
● Same activity is reported several times
- A mining company that supplies copper reports their emission from
mining activity in scope 1. A car manufacturer reports this same
activity in scope 3.
● Expecting companies to control downstream emissions
Solution Value added (profit) accounting (=cost accounting) across the entire value chain.
AKA E-liability accounting
E-liability accounting Measures GHG at product level rather than at entity level. When an output is sold
from one company to the next in the value chain, the transaction involves both an
asset transfer and an e-liability transfer (in units of for example CO2)
Advantages of e-liability ● Eliminates double counting in scope 3 measurement
accounting ● Prevents outsourcing of scope 1 to scope 3 emissions
● Simplifies auditing
● Materiality can be based on magnitude of e-liabilities
Balanced Scorecard Translates strategy and mission of a firm in specific KPI. It assumes 4 perspectives:
1. Financial (to succeed financially, how to appear to shareholders)
2. Customer (to achieve our vision, how to appear to customers)
3. Internal (to satisfy shareholders, which process must excel)
4. Innovation and learning (to achieve our vision, how can we innovate and
learn)
Sustainable balanced scorecard Option 1) integration within the 4 traditional perspectives
Option 2) integration as a 5th perspective
Common Measure Bias and the Comparing unique measures (non-financial) is harder than common measures 🡪
(S)BSC neglect of non-financials
Corporate reporting = Financial accounting + impact accounting
Information asymmetry One party with better or more information
Adverse selection Market for lemons: when you buy a secondhand car, you do not know whether
you buy a good quality car or a lemon (information asymmetry). Therefore, you
want the price to be as low as possible, to factor in the fact you might buy a
lemon. This will drive high quality cars out of the market.
Moral hazard (hidden action) Acting recklessly after for example being insured.
● Behavior by one party considered inappropriate by the other party after a
contract has been made
How to reduce info asymmetry - Signaling (signaling information to the buyer through for example
certificates/diplomas)
- Screening (health checks)
- Monitoring (surveillance)
- Designing contracts in such a way that interest is aligned (moral
hazard -> variable compensation)
Benefits of reporting - Disclosure of information can reduce info asymmetry
- Firms more attractive for investor
- Better conditions at capital market lead to better liquidity and lower
cost of capital
