Topic 5&6: Fiduciary Duty, Universal Ownership, CSR Flashcards
What is Zimbabwe’s Top 10 SDG priorities
SDG Goal 8 – Promoting sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all
SDG 7 – Ensuring access to affordable, reliable, sustainable and modern energy for all
SDG 2 – Ending hunger, achieve food security and improved nutrition and promote sustainable agriculture
SDG 9 – Building resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation
SDG 6 – Ensuring availability and sustainable management of water and sanitation for all
SDG 13 – Take urgent action to combat climate change and its impact
SDG 17 – building effective, accountable and inclusive institutions at all levels and Strengthening the means of implementation and revitalize the global partnership for sustainable development
SDG 3 – Ensuring healthy lives and promote well-being for all at all ages
SDG 4 – Ensuring inclusive and equitable quality education and promote lifelong learning opportunities for all
SDG 5 – Achieving gender equality and empowering all women and girls
In 1967 Adolf A Bearle and Gardiner C Menz saw the rise of the fiduciary duty due to Managerial Capitalism. What does this mean?
When business owners hire professionals to run their business
What is the name of the largest institutional investor in Africa, and how large is their active member base?
Government Employees Pension Fund (GEPF) with 1.2m active members
What are the two key elements of Fiduciary Duty? What do they practically mean?
A standard of Loyalty and Care
Loyalty - acting in the best interest and for the exclusive benefit of the beneficiaries
Care - acting like a prudent person
In 2005 UNEP-FI had a study completed by the law firm, Freshfield Bruckhaus Deringer to determine whether the legal definition of Fiduciary Duty binds firms to exclude ESG factors from investment decisions. What did the firm find?
The incorporation of ESG factors to predict financial performance is permissable, and arguably required (better risk management)
There is no reason in law that prohibits morals & social criteria to be incorporated in the investment decisions
What is meant by the term: Universal Owners
Large institutional investors grow to such a size that they own the economy, because they end up owning a small portion of almost every company with marketable equity.
Therefore the beneficiary benefit is extended to the health of the overall economy, not just individual companies.
Explain the alternative investment approach that is suggested according to the Universal Ownership Theory
The traditional investment approach of maximising profit without regarding externalities is no longer appropriate, because ultimately the impact of the negative externalities will be passed down to another company in the portfolio.
Therefore the ultimate benefit from positive externalities will likely outweigh the costs on a portfolio level. Due to holding a large portion of marketable equities, the universal owner is exposed to a larger monetary impact of externalities.
What are the two obstacles to incorporating externalities into the investment decision
- Investors only consider the economic effects of externalities that materially affects returns.
- The benefit of internalization has to outweigh the cost of internalization.
What are the 9 components of the CDC toolkit?
- Step-by-step guide to incorporate ESG in the investment cycle in Private Equity investments
- Tools for ESG management systems
- Guidance of CDC’s standards
- 5 key areas of governance
- The business case behind ESG
- Sector profiles: key ES issues & business case per sector
- Detailed guidance on specific issues
- Case Studies
- Resources: checklists & action plans
What are the 5 key areas of Governance in the CDC toolkit?
- Anti-money laundering
- Anti-corruption
- Whistleblowing
- Corporate Governance
- Economic Sanctions
What is the European Development Finance Institutions (EDFI)’s policy on ESG?
- Each project should assess ES and financial consequences
- High risk business should be excluded
- Policy for formally managing ESG
- Post-investment ESG reporting
- Annual reporting to European Bank for Reconstruction & Development (EBRD)
The Equator principles form a global standard for ESG in project finance (including project finance advisory). What are the 10 principles?
- Review & Categorisation of ESG factors
- ES assessment
- ES Standards
- ES management systems
- Stakeholder engagement
- Grievance mechanism
- Independent review
- Covenant
- Independent Monitoring
- Reporting & Transparency
There are three key historic views on CSR, what are they and who proposed these views?
- Bowen (1953) stated that the separation of ownership & control created favourable conditions for CSR
- Friedman (1962, 1970) stated that business only has the responsibility of doing business, and making profit while playing the rules of the game (ie. not breaking the law)
- Mintzberg (2003) argued that business might not exist to serve social needs, but it cannot exist if it ignores them. In the real world, economic and social factors get tangled up.
What is Carrol’s definition of CSR?
CSR encompasses philanthropy, ethics, legal requirements and economic returns. and the expectation on each of these elements placed on an organisation by society at any given time.
What are the advantages and limitations of Carrol’s pyramid?
Advantages:
- Simple & Consensual
- Structured Responsibilities
Limitations:
- Doesn’t address conflicting responsibilities
- Entrenched in US culture
