Resumen de Integrated evaluation of sustainable investing in stock markets
Socially responsible investing (SRI) has become one of the most prominent topics for researchers, business community, financial markets and society in recent years. Over the past decade, SRI has grown rapidly around the world, especially after the most recent global financial crisis. In fact, there are a growing number of investors -especially institutional investors but also individual investors- seeking to stimulate the economic recovery in a more sustainable way.
Currently ¿sustainable investing¿ is the natural evolution of SRI. According to Woods and Urwin (2010) a ¿sustainable investing¿ approach requires a full integration of environmental, social and governance factors (ESG factors) into responsible investment process and active ownership, but also emphasises the importance of long term, intergenerational awareness. In this context, corporate social responsibility (CSR) can be considered as the term used to refer to sustainable development of companies.
However, it is difficult to estimate the corporate performance in CSR terms (Graafland et al., 2004). Therefore, in the absence of a generally accepted method to evaluate the sustainability performance of organisations and the recognised need for individuals, organisations and societies to find models, metrics and tools for measure the social and environmental performance of companies (Singh et al., 2009), the evaluations provided by sustainability stock indices and sustainability rating agencies are being used as main reference in the market.
For this reason, in order to better understanding, this thesis examines the evaluation process of sustainability rating agencies, the society¿s perception about SRI, and the shareholder engagement practices in fund management companies in order to provide an original, valid, and reliable methodology to evaluate the CSR performance in organizations integrating expert knowledge in the evaluation process.
To that end, this thesis focuses on six main research objectives: (i) to analyse the evaluation criteria and methodologies used by sustainability indices and ESG rating agencies to assess sustainability in companies; (ii) to study the Spanish society¿s perception about SRI and to identify their preferences as regards ESG criteria, their real-life investment needs and the most relevant sustainable financial products; (iii) to examine the integration of shareholder engagement practices and ESG criteria into fund management companies; (iv) to design a comprehensive method for assessing CSR performance by means of Fuzzy Inference System to correct the possible offsetting of negative scores with good scores; and (v) to propose an application of two multi-criteria decision-making (MCDM) methods to generate aggregate scores selection of best alternative according to the preferences of investors and companies. Objectives are addressed by means of five research essays developed in this thesis.
After an introduction in the first chapter, the second chapter addresses the different criteria and methodologies for evaluation used by sustainability indices and sustainability rating agencies. The results suggest that companies are faced with a lack of information that makes it difficult for them to discover which actions would open the door into one of the sustainability indices ¿ and investors also face difficulties selecting sustainable targets for investment. Therefore, there are some aspects that can be improved and these include the transparency of the company evaluation process and the criteria; as well as the homogenization of evaluation scales, risk definitions, and so on.
The third chapter examines the Spanish society¿s perception about SRI to identify their preferences as regards ESG criteria, their real-life investment needs and the most relevant sustainable financial products. The results show, on the one hand, that SRI is in an early stage and Spanish investors need more exact information regarding ESG criteria in order to invest in socially responsible companies and products. On the other hand, the occupational and educational variables are the most important determinants when making investment decisions. Moreover, this chapter offers some guidelines that could be used by Spanish institutions, managers and investors and moreover by foreign managers -when approaching the Spanish market- in order to promote the growth of socially responsible financial products.
The fourth chapter examines the integration of shareholder engagement practices and ESG criteria into investment strategies of French and Spanish fund management companies. The results show, on the one hand, that shareholder engagement practices in Spain are in an early stage compared to French shareholder engagement practices. On the other hand, the results reveal that engagement practices are developing and diversifying thanks to the progress of SRI and the integration of ESG issues into investment funds. This study will allow us to advance in the design of strategies for the incorporation of shareholder engagement (an advanced SRI strategy) into fund management companies.
The fifth chapter proposes a methodology for using Fuzzy Logic in the design of a comprehensive sustainability rating for firms. This approach is applied to organizational information taken from the 2008 Accountability Rating (AR2008). Fuzzy Logic corrects one of the weaknesses revealed by methodologies based on the aggregation of scores ¿the offset effect- enabling decision-maker to manage it, and allows to obtain information about the sustainability position of the company, in order to be used by internal decision-making processes at organizations, as well as by external stakeholders like investors, public administration, society, etc.
The sixth chapter proposes a Fuzzy Inference System and Fuzzy TOPSIS methodology to provide an original, valid, and reliable methodology to evaluate the CSR performance in organizations integrating expert knowledge in the evaluation process. To that end, the proposed methods are applied to measure the environmental performance in European, North American and Australasian agri-food. This chapter contributes to the literature by proposing two multi-criteria decision-making solutions to correct the weaknesses of rating evaluation methodologies in four aspects: (i) proposing a properly statistical technique for aggregation and weighting to evaluate the sustainability of the company under the term `triple bottom line¿, (ii) correcting the possible offsetting of negative scores with good scores and introducing the role of the decision-maker in the assessment process of sustainability rating agencies; (iii) incorporating the investors and companies¿ preferences in the rating agencies evaluation process, and (iv) reaching consensus between investors and companies.
Finally, seventh chapter summarises the main conclusions of this PhD dissertation and explains how this thesis advance socially responsible investing literature.
To sum up, the results of this thesis advance sustainable investing literature especially in two SRI strategies (screening and shareholder engagement), and improve sustainability rating agencies evaluation process. Firstly, it presents a list of standard criteria and methodologies used by sustainability indices and sustainability rating agencies. Secondly, it contributes to the literature on SRI by discussing findings from an empirical study of Spanish investors. The study draws attention to society¿s perception about SRI with the aim to know their preferences as regards ESG criteria in order to incorporate them in the rating evaluation process. Thirdly, it reveals that shareholder engagement practices in Spain are in an early stage compared to French shareholder engagement practices. Moreover, engagement practices are developing and diversifying thanks to the progress of SRI and the integration of ESG issues into investment funds. Fourthly, this thesis opens a broad range of interest research questions regarding sustainability rating agencies evaluation process and their limitations, and proposes two multi-criteria decision-making solutions to correct the main weaknesses of rating evaluation methodologies: the possible offsetting of negative scores with good scores and the lack of adaptation of rating criteria and rating evaluation methodologies to the needs and preferences of investors and companies.
Besides the emphasis on theory and fundamental research nature, the dissertation has practical and social value.
From business perspective, the results from this thesis will enable analysing the positioning of any organisation in term of its contribution to sustainability development. Such positioning makes it easier for organizations and their stakeholders to access to information for decision making about sustainable management. The positioning, for example, would allow organisations to evaluate their own polices and processes linked to sustainability, but also to benchmarking their results with those from other organisations having similar characteristics (size, sector, etc.).
From financial market perspective, this thesis will enable improving the investment decisions making of social responsibility investors. Moreover, this thesis offers some guidelines that could be used by Spanish institutions, managers and investors and moreover by foreign managers -when approaching the Spanish market- in order to promote the growth of socially responsible financial products.
From a global perspective, this thesis will enable the reader to have a better understanding of the interaction between corporate social responsibility and financial performance.
References:
Graafland, J.J.; Eijffinger S.C.W.; Smid, H. (2004): ¿Benchmarking of Corporate Social Responsibility: Methodological Problems and Robustness¿, Journal of Business Ethics, 53(1-2), 137-52.
Singh, R.K.; Murty, H.R.; Gupta, S.K.; Dikshit, A.K. (2009): ¿An overview of sustainability assessment methodologies¿, Ecological Economics, 9 (2009), 189-212.
Woods, C.; Urwin, R. (2010): ¿Putting Sustainable Investing into Practice: A Governance Framework for Pension Funds¿, Journal of Business Ethics, 92 (1), 1-19.
