‘Responsible investment’: ESG and the post-crisis ethical order

Abstract

This paper looks at recent forms of ‘responsible investment’. It follows the use of ESG within a large global bank. ESG is a valuation technique that takes into account environmental, social and governance issues. Drawing on ethnographic data, the paper explores how ESG has become an accepted concept among financial analysts, and looks at how they implement it in their everyday calculations. It argues that ESG enables financial analysts to understand factors related to corporate responsibility as market signals and to use them to support their investment narratives. It concludes that the application of ESG has transformed ‘responsible investment’ from a normative attempt to increase the morality of investing into a speculative practice of valuation. This creates profit from current social contention and crises of capitalism.

Keywords:

• ethnography
• ESG
• financial analysis
• responsible investment
• speculation
• valuation

Acknowledgements

I would like to thank Laura Bear, who encouraged me to write about ‘responsible investing’ and provided me with some of the analytical tools to do so. Also, I would like to thank Ellen Hertz, Emilio Marti and Gisa Weszkalnys for offering their insightful comments at various times during the writing phase of this paper. Earlier drafts of this paper have been presented at the Swiss Anthropological Society panel ‘Transnational Corporations, Large-Scale Capitalist Projects and Local Transformations’, organized by Bettina Beer, Tobias Schwörer and Doris Bacalzo, and at the LSE workshop ‘Speculation: New Vistas on Capitalism’, organized by Laura Bear and Gisa Weszkalnys. I am grateful to all the participants at these meetings for their helpful comments.

Disclosure statement

No potential conflict of interest was reported by the author.

ORCID

Stefan Leins http://orcid.org/0000-0002-3653-865X

Notes

1 I touch on this role of narratives in an earlier paper on the construction of market forecasts (Leins, 2013) and in my book (Leins, 2018).

2 Historically, the focus on investor preferences (which include companies’ ‘responsibility’) is closely linked to the emergence of the ‘shareholder value’ concept. As Lazonick and O’Sullivan (2000) explain, this concept dates back to the 1960s, when many companies based in the United States and the United Kingdom changed their strategy from retaining and reinvesting profits to distributing profits to shareholders in order stay competitive. New economic theories, regulatory changes and innovations in finance caused the question about what shareholders want to gain momentum. Until the end of the twentieth century, however, most economists and financial market actors seemed to feel that shareholders wanted a strictly financial maximization of value (Lazonick & O’Sullivan, 2000).

3 Alongside these explanatory approaches, ‘corporate social responsibility’ and ‘responsible investment’ have been the subject of a number of anthropological studies. These have shown that the broader trend towards ‘responsibility’ in markets should not simply be understood as a consequence of changing preferences or of scandals. Instead these approaches argue that it is a new mode of corporate self-regulation. It marks a new relationship between the market and the state, although authors disagree on whether it challenges the role of the state (Vogel, 2010), promotes partnership with the state (Gond et al., 2011) or economizes the political sphere (Shamir, 2008). Other authors have focussed on these measures in terms of their effect on communities seeing them as an ‘appeasing gift’ to compensate for suffering caused by a company’s activities (Gardner, 2015, p. 496; Rajak, 2011).

4 Maurice Bloch (1998, pp. 22–26) refers to this method as ‘introspection’.

5 In my academic writing, I refer to the bank as Swiss Bank for reasons of anonymity.

6 At banks, the rooms to which external parties have no access are often in a very poor condition. This is a direct outcome of the fact that long-term infrastructural investments are in conflict with short-term shareholder value and bonus payments. As a consequence, many banks do not adequately invest in infrastructure, which leads to the situation that very well-paid bank employees often work in very poor environments (cf. Ho, 2009).

7 Sell-side analysts are financial analysts working for investment banks. Sell-side analysts sell their analyses to other financial institutions and their in-house analysts (sometimes referred to as buy-side analysts). Buy-side analysts, such as the ones I studied at Swiss Bank, produce forecasts for the bank’s own client advisors and clients.

8 Fundamental analysis is a market practice that aims to value stocks, bonds and other financial market products on the basis of financial data (such as a company’s earnings, sales or cash flow) and macroeconomic data (such as interest rate development or growth estimates). Fundamental analysts build on the assumption that valuing this data makes it possible to estimate a company’s intrinsic value, which can then be compared to a company’s market value, i.e., to the actual price of a stock or bond. If a fundamental analyst estimates the intrinsic value to be higher than the current market value, he or she would recommend investors to buy, assuming that the market value will adjust to the intrinsic value over time. If the analyst feels that the market value is higher than the intrinsic value, he or she would advise investors to sell the stocks or bonds, expecting the market value to decrease over time (cf. Bodie et al., 2002; Copeland et al., 2000; Leins, 2018; Wansleben, 2012).

9 An analyst’s success is usually not measured by the accuracy of his or her forecasts, but by the number of clients requesting his or her reports. So, if analysts are described as successful, it means that many investors request or download their reports (cf. Leins, 2018).

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Stefan Leins

Stefan Leins is Assistant Professor in Anthropology at the Department of Sociology of the University of Konstanz, Germany. Leins works on commodity trading, supply chains, financial analysis, forecasting practices, Islamic finance, socially responsible investing, the history of economic knowledge and the narrative dimension of finance. His first book Stories of capitalism: Inside the role of financial analysts was published by the University of Chicago Press in 2018.