MANDATORY READING | READING | IMPORTANT
1 Part 1 ...................................................................................................................... 2
1.1 Introduction course .............................................................................................2
1.2 Enhanced Shareholder Value Creation .......................................................2
1.3 Foundation of CSR .............................................................................................. 14
1.4 Benefit Corporation ........................................................................................... 15
1.5 The B-Corp movement goes big. ................................................................. 21
2 Part 2 | PWC...................................................................................................... 22
3 Part 3 | ESG reporting and ESG metrics .............................................. 23
3.1 Sustainability reporting ................................................................................... 24
3.2 Metrics ..................................................................................................................... 31
3.3 Navigating ESG Data ......................................................................................... 37
4 Part 4 | Socially Responsible Firms ....................................................... 38
5 Part 5 | ESG Performance and the Cost of Capital .......................... 43
6 Part 6 | Corporate Transactions and Corporate Monitoring ....... 47
6.1 Socially responsible customers .................................................................... 47
6.2 Responsible institutional investing ............................................................ 50
6.3 Peer effects of CSR............................................................................................. 52
6.4 Leviathan ................................................................................................................ 54
6.5 Shaped by their daughters............................................................................. 56
6.6 Wage gap ................................................................................................................ 58
7 Part 7 | Activism on Corporate Social Responsibility .................... 59
7.1 Shareholder Engagement on ESG Performance ................................... 59
8 Part 8 | Corporate donations and shareholder value .................... 65
8.1 Corporate donations and shareholder value (Liang and
Renneboog) ....................................................................................................................... 65
9 Part 9 | Employee Engagement ............................................................... 72
9.1 Edmans (2011): ................................................................................................... 72
10 Part 10 | Green bonds .............................................................................. 74
11 Part 11 | Bank screening ........................................................................ 74
12 Part 12 | Climate change ........................................................................ 74
,1 Part 1
1.1 Introduction course
1.2 Enhanced Shareholder Value Creation
- From SVM to ESVM?
o Shareholder value maximisation
§ The traditional view is creating value for shareholders
(residual claimants) and corporate governance should
prevent executives from pursuing their own interests.
- The Free Cash Flow Approach
o FCF = (1 − t) ∗ EBIT + Depreciation − CAPX − Change in NWC
o Expected after-tax cash flows of an all-equity firm.
o These cash flows ignore the tax savings the firm gets from debt
financing (the deductibility of interest expense)
o Plan of attack.
, § Estimating the FCF.
§ Account for the effect of financing on value.
o Preview: two ways to account for tax shield:
§ Adjust the discount rate (WACC method).
§ Adjust the cash-flow estimate (APV method).
- Weighted average cost of capital (WACC).
o Step 1: generate the FCF’s.
o Step 2: discount the FCFs using the WACC.
" $
§ 𝑊𝐴𝐶𝐶 = 𝑘! (1 − 𝑡) ∗ "#$ + 𝑘% ∗ "#$
, - From SVM to ESVM?
o Enhanced shareholder value maximisation.
§ To weigh and balance a plurality of independent
constituencies (stakeholders).
o ESVM: Legal context:
• In Central Europe:
o In civil law, stakeholder is embedded in law.
• In US:
o Common law with shareholder primacy. But
in most states, constituency statutes are
adopted: firms can consider the interest of
shareholders without violating shareholder
primacy.
• In UK:
o Since 2006, stakeholders have mentioned in
the UK “Co Act” “to enhance shareholder
value, including “the interests of the
company’s employees, the need to foster the
company’s business relationships with
suppliers, customers and others, and the
impact of the company’s operations on the
community and the environment.
o But directors should consider such factors to
promote the success of the company for the
benefit of its shareholders.
- From SVM to ESVM?
o ESVM
§ Consider the interest of stakeholders, this will serve long-
term stakeholder value maximisation.
§ Long-term value depends on stakeholders:
• Human capital:
o Employees
• Institutional infrastructure:
o Community of taxpayers.
• Tolerance for externalities:
o Local community.
• Revenues:
o Customers.
1 Part 1 ...................................................................................................................... 2
1.1 Introduction course .............................................................................................2
1.2 Enhanced Shareholder Value Creation .......................................................2
1.3 Foundation of CSR .............................................................................................. 14
1.4 Benefit Corporation ........................................................................................... 15
1.5 The B-Corp movement goes big. ................................................................. 21
2 Part 2 | PWC...................................................................................................... 22
3 Part 3 | ESG reporting and ESG metrics .............................................. 23
3.1 Sustainability reporting ................................................................................... 24
3.2 Metrics ..................................................................................................................... 31
3.3 Navigating ESG Data ......................................................................................... 37
4 Part 4 | Socially Responsible Firms ....................................................... 38
5 Part 5 | ESG Performance and the Cost of Capital .......................... 43
6 Part 6 | Corporate Transactions and Corporate Monitoring ....... 47
6.1 Socially responsible customers .................................................................... 47
6.2 Responsible institutional investing ............................................................ 50
6.3 Peer effects of CSR............................................................................................. 52
6.4 Leviathan ................................................................................................................ 54
6.5 Shaped by their daughters............................................................................. 56
6.6 Wage gap ................................................................................................................ 58
7 Part 7 | Activism on Corporate Social Responsibility .................... 59
7.1 Shareholder Engagement on ESG Performance ................................... 59
8 Part 8 | Corporate donations and shareholder value .................... 65
8.1 Corporate donations and shareholder value (Liang and
Renneboog) ....................................................................................................................... 65
9 Part 9 | Employee Engagement ............................................................... 72
9.1 Edmans (2011): ................................................................................................... 72
10 Part 10 | Green bonds .............................................................................. 74
11 Part 11 | Bank screening ........................................................................ 74
12 Part 12 | Climate change ........................................................................ 74
,1 Part 1
1.1 Introduction course
1.2 Enhanced Shareholder Value Creation
- From SVM to ESVM?
o Shareholder value maximisation
§ The traditional view is creating value for shareholders
(residual claimants) and corporate governance should
prevent executives from pursuing their own interests.
- The Free Cash Flow Approach
o FCF = (1 − t) ∗ EBIT + Depreciation − CAPX − Change in NWC
o Expected after-tax cash flows of an all-equity firm.
o These cash flows ignore the tax savings the firm gets from debt
financing (the deductibility of interest expense)
o Plan of attack.
, § Estimating the FCF.
§ Account for the effect of financing on value.
o Preview: two ways to account for tax shield:
§ Adjust the discount rate (WACC method).
§ Adjust the cash-flow estimate (APV method).
- Weighted average cost of capital (WACC).
o Step 1: generate the FCF’s.
o Step 2: discount the FCFs using the WACC.
" $
§ 𝑊𝐴𝐶𝐶 = 𝑘! (1 − 𝑡) ∗ "#$ + 𝑘% ∗ "#$
, - From SVM to ESVM?
o Enhanced shareholder value maximisation.
§ To weigh and balance a plurality of independent
constituencies (stakeholders).
o ESVM: Legal context:
• In Central Europe:
o In civil law, stakeholder is embedded in law.
• In US:
o Common law with shareholder primacy. But
in most states, constituency statutes are
adopted: firms can consider the interest of
shareholders without violating shareholder
primacy.
• In UK:
o Since 2006, stakeholders have mentioned in
the UK “Co Act” “to enhance shareholder
value, including “the interests of the
company’s employees, the need to foster the
company’s business relationships with
suppliers, customers and others, and the
impact of the company’s operations on the
community and the environment.
o But directors should consider such factors to
promote the success of the company for the
benefit of its shareholders.
- From SVM to ESVM?
o ESVM
§ Consider the interest of stakeholders, this will serve long-
term stakeholder value maximisation.
§ Long-term value depends on stakeholders:
• Human capital:
o Employees
• Institutional infrastructure:
o Community of taxpayers.
• Tolerance for externalities:
o Local community.
• Revenues:
o Customers.
