CEO DailyCFO DailyBroadsheetData SheetTerm Sheet

Stanford’s ‘7 myths of ESG’

December 8, 2021, 11:36 AM UTC

Good morning, 

A group of researchers wants corporate America to work towards removing uncertainty around environmental, social, and corporate governance (ESG) practices and metrics.

I had a conversation with David Larcker, a professor emeritus of accounting at Stanford Graduate School of Business. Larcker and his colleagues recently published the report, Seven myths of ESG. He says the use of the word “myths” is academics attempting to be provocative to drive home a greater point.

“I’m really pro-diversity and really pro-climate,” he told me. But Larcker and others in the group think there are assumptions about ESG that “need to be made explicit,” he said.

He gives an example: “So you shut down coal [mines] because of the carbon issue. And that really improves the ‘E’ in ESG. But the ‘S’ part becomes really important. You’ve got a bunch of people that are in their 50s, they’ve been coal miners, what will they do? There are really serious tradeoffs.”

The seven myths stated: 

1-We agree on the purpose of ESG

2-ESG is value-increasing 

3-We can tell whether a claimed ESG activity is actually ESG

4-A company’s ESG agenda is well-defined and board-driven

5-G (Governance) belongs in ESG

6-ESG ratings actually measure ESG quality

7-Mandatory disclosure will solve the problem

Well, the myths researchers state basically cover all of the areas involving the execution of ESG practices and measures. Along with each myth, they provide examples to support their argument. For instance, myth #4: “A study by Willis Towers Watson finds that, while half of S&P 500 companies include ESG-related metrics in their annual bonus programs, only 4% tie the value of long-term awards, where the bulk of CEO wealth is generated, to the achievement of ESG objectives. Instead, most companies appear to develop ESG priorities and investment in reaction to internal and external pressure.”

During Fortune’s recent Modern Board virtual event, directors explained how rising demand for environmental and social standards is creating pressures in governance. “We have employees pushing so hard on any CEOs who are laggards in this space,” Amy Chang, a director at Disney, Procter & Gamble, Marqeta, SambaNova, and Pragma, said. The directors discussed best practices for measuring ESG. But what makes the standardization of ESG measures so challenging is an organization’s relationship with society and the environment can greatly differ depending on its industry, they noted.

I asked Larcker how companies can address the uncertainties of ESG over the next few years. “It starts with, at some point saying, is this data really, correct?” he said. There were a lot of DEI pledges made by companies after the killing of George Floyd, Larcker said. “What did companies actually do? And did it have a desired impact?” he said.

For best practices in ESG overall, “I think what’s going to happen is, it’s going to be some really sensible companies that come forward and set the tone,” Larcker says. “And then they’re rewarded by their shareholders and stakeholders.” And others will follow, he says. 

Share with me your thoughts on this topic.


See you tomorrow.

Sheryl Estrada
sheryl.estrada@fortune.com

Big deal

PwC's 2022 Global Digital Trust Insights report found that 69% of organizations surveyed expect they'll increase cyber spending in 2022, compared to 55% in 2021. And more than a quarter of respondents expect double-digit growth. The report highlights how simplifying business processes and operations can enhance security and privacy. The findings are based on a survey of 3,602 business, technology, and security executives, including CEOs, CFOs, CISOs, CIOs, and corporate directors. 

Courtesy of PwC

Going deeper

A McKinsey Global Survey released on Dec. 7, gauges the success of company transformations. The main differentiator between success and failure was how many actions an organization took throughout a transformation’s life cycle. For example, the success rate was 78% for completed transformations that implemented 24 actions. However, on average, respondents with successful transformation their companies have "realized only 67% of the maximum financial benefits that their transformations could have achieved," the report found. McKinsey recommends three actions for capturing the most value in transformations: fact-based assessment of the business to identify areas for improvement; adapting goals for employees at all levels; and allocating high performers to the highest-value initiatives. 

Leaderboard

Julie Cameron-Doe was named CFO at Wynn Resorts, Limited (NASDAQ: WYNN), effective in the second quarter of 2022. Cameron-Doe will succeed Craig Billings, who will become the company’s CEO early next year. She will join Wynn Resorts from Aristocrat Leisure Ltd where she has served as CFO since 2018. Cameron-Doe held senior finance roles at Aristocrat since 2013 as well as in global businesses, including Orbitz, The Walt Disney Company, and KPMG.

Brian Dong was named CFO at Greenlight Financial Technology, Inc., a fintech company that offers a money management platform for families. Other key executive hires include Sameera Rao as chief technology officer and Will Yu as chief operating officer. Dong joins Greenlight from Goldman Sachs where he served as managing director in the Investment Banking Division, advising technology companies such as Apple, eBay, Square and Qualcomm. As CFO, he will lead Greenlight's financial and capital markets strategies as the company has surpassed $100M in annual recurring revenue with more than 4.5 million parents and kids using the platform.

Overheard

"I own the decision to do the layoffs, but in communicating it I blundered the execution. In doing so, I embarrassed you."

—Better.com CEO Vishal Garg, who issued a companywide apology via email to remaining employees after receiving backlash for criticizing the 900 workers he laid off, as reported by Fortune

This is the web version of CFO Daily, a newsletter on the trends and individuals shaping corporate finance. Sign up to get it delivered free to your inbox.