Greenwashing versus sincere CSR strategy – recognizing the differences.

At a time when activist fund campaigns are gaining in popularity, it is worthwhile asking a few questions about the goals of this new kind of shareholder.

At a time when activist fund campaigns are gaining in popularity, it is worthwhile asking a few questions about the goals of this new kind of shareholder. Stigmatised by their search for short-term financial gains, some of them now seem to have more altruistic motivations. However, there is certainly one thing the activists of yesterday and today have in common: the belief that quality governance has the power to change a company’s destiny! At La Financière de l’Echiquier, we have always shared this belief. The conversation we are having with corporations, including those with market caps in the tens of billions, proves that investors have something to bring to the table: by exercising our voting rights at general meetings we contributed to quality corporate governance.

An investment philosophy.

Seeking performance by investing in companies where quality governance and excellent management practices drive social and environmental initiatives that create value for all stakeholders: this is our credo! To be certain of achieving this balance, the task of responsible investors is to ensure that governance, which underpins any responsible corporate vision, is sufficiently strong and healthy. A top-quality management team, supported by an independent and talented Board, is part of this chemistry.

Governance is central to any responsible corporate vision.

Against a backdrop marked by the urgency of climate change where public opinion will no longer tolerate greenwashing, how can we be certain about the reliability of a company’s CSR effort? The answer often lies in a body of evidence, including the existence of extra-financial indicators in management compensation schemes, the presence of experts on Boards and management bodies, and the integration of extra-financial risks into corporate risk management. A critical analysis of governance provides a way to interpret these signals and to be confident about the reliability and quality of the resulting environmental and social policies.

Striking the right balance.

Over the past few weeks, the news flow has thrust the relationship between a company’s financial success and the smooth pursuit of its social and/or environmental purpose into the spotlight. For La Financière de l’Echiquier (LFDE), the quality of earnings is a key factor in promoting the longterm roll-out of a responsible corporate vision. As ambitious as this vision may be, it should not be seen as overshadowing the economic imperative essential for the company to run smoothly.
Striking the right balance is an issue of strategic importance with the power to mobilise directors and officers and the Board. A cornerstone of corporate governance, the existence of effective checks and balances can be relied upon to strike this balance and deliver value to all stakeholders.

For 30 years now, the analysis of governance quality has been at the heart of LFDE’s responsible investment effort and a reason why this research continues to be wholly embraced by LFDE.

The recent findings of the ISR & Performance by LFDE report have reinforced our conviction: in 2020, it is again the portfolio of companies with the lowest governance quality scores that turned in the poorest stock market performance . This encourages us to continually deepen our analysis of this fascinating subject.

(1) “SRI and Performance by LFDE” report, 31/12/2020.
The stock market performance of this portfolio is comparable to other simulation portfolios comprised of companies with the highest and lowest scores for each ESG pillar.

25 March 2021

Climate Action