Six questions for Svenja Dube

Assistant Professor of Accounting, Gabelli School of Business

Svenja Dube

How aware are today’s companies about the principles of responsible business?

Publicly listed companies are generally aware. For instance, as of July 2020, more than 90 percent of S&P 500 companies have issued standalone sustainability reports in which they disclose their ESG initiatives, performance, policies, and so on. However, just issuing sustainability reports does not mean that companies make sustainability and ESG activities their top priority. Rather, sustainability reports are prone to greenwashing and are often used as a marketing tool to promote firms’ ESG initiatives, sometimes falsely. Firms may exaggerate their ESG activities and initiatives to paint a greener image than warranted.

Does anything give you hope for greater awareness — and accuracy — in the future?

The ESG landscape has been changing over the last few years. To name some highlights: shareholders demand more ESG activities by companies, President Biden has made climate change one of his top priorities during his presidency, and individuals are more ESG-conscious — for example, through Fridays for Future.

What prompts a business to start investing in ESG principles?

I don’t believe companies suddenly become “good” for altruistic reasons. Rather, consistent with Milton Friedman, efficient companies maximize shareholder value because shareholders are the ultimate owners of the company. Therefore, to the extent that responsible or sustainable business activities decrease shareholders’ value, shareholders may neglect the idea of responsible or sustainable business.

Shareholder value maximization and sustainable business are not mutually exclusive, though. Considering different stakeholder groups may still be value-maximizing from a shareholder’s perspective. For instance, Alex Edmans finds that employee satisfaction relates positively to shareholders’ returns. Alternatively, if customers boycott a firm due to social or environmental scandals, the resulting decrease in the firm’s revenue can spur improvement.

What role does academic research play in this equation?

The first question academic research can answer is: To what extent can stakeholder pressure incentivize firms to improve their corporate social responsibility? To the extent that stakeholder pressure can foster responsible and sustainable business, the market will regulate itself.

We know there are limits to these market forces, though. And this is where, in my opinion, government comes into play. A government can design regulations to require sustainable and responsible activities by companies — even if these regulations decrease shareholder value. For instance, India passed a law in 2013 that requires firms to invest at least 2 percent of their net profits into CSR activities.

Based on the prospect of government intervention, the second question that academic research should answer is: How effective are various global CSR-related regulations in achieving the underlying goal? We also can explore regulations’ welfare implications and unintended consequences or costs. With respect to the Indian regulation, for example, Manchiraju and Rajgopal discovered that the CSR spending requirement decreased firms’ shareholder value, supporting the idea that the firms would likely not have spent the same amount on CSR activities if left to their own devices.

What are the main topics of your research?

My ESG-related research, so far, broadly falls under the umbrella of the first question: how stakeholder pressure can improve firms’ ESG activities. My work has shown, for example, that employees’ voice about their firms’ workplace practices disciplines firms to improve their workplace practices and the disclosures about these practices. In a current working paper, I examine how shareholders’ pressure to improve firms’ ESG disclosures ultimately improves firms’ ESG performance.

Are there any companies that impress you in this area?

I studied how the launch of the anonymous employee-review platform Glassdoor affected firms’ workplace practices and disclosures about these practices. Glassdoor’s debut in 2008 decreased the information asymmetry between companies and employees about firms’ workplace practices. As a result, company transparency increased. This helped current and prospective employees to better differentiate firms based on the quality of their workplace practices. Glassdoor has disciplined companies to improve their practices to stay competitive in the labor market.