This blog post was contributed by Hannah Schneller and Mario Stich, both students in the MSc Leading Innovative Organizations at JKU Linz, based on class #8 of Course II, “CSR and Stakeholder Relations“.

Discussing the shareholder vs. stakeholder approach in CSR strategies in class was great, and we concluded that Friedman’s shareholder value approach from the 70s would actually harm shareholders in today’s business environments due to its short-term focus and missing out on essential stakeholders. Especially in a global business environment, where social and environmental tragedies and disasters are common, it is even more critical that corporations change their perspective.

In our discussion, it has become clear that long-term shareholder value can be created with a holistic CSR approach, including a corporate strategy that attends to all company stakeholders. The triple bottom line concept, for example does not value the profitability of societal or environmental impact but rather treats these dimensions as separate and competing (Miller, 2020). However, today companies can also financially benefit by committing to the triple bottom line with sustainable business practices since financial market instruments, green bonds, and sustainability indices have become popular on the financial market.

Hence, we want to extend our in-class discussion in this blog post and discuss if sustainability indices are about sustainability or are used as a market(ing) instrument.

For this reason, we will focus on the Dow Jones Sustainability Index. S&P Global’s Corporate Sustainability Assessment indicates that the Dow Jones Sustainability World Index contains the “world’s top sustainability leaders”. Based on long-term economic, environmental, and social criteria, it reflects the top 10% of the top 2,500 firms in the S&P Global BM (S&P Global, 2022). Therefore, the Dow Jones Sustainability Index is a perfect example that profit orientation and narrowed shareholder focus are no longer applicable in today’s business settings to be financially attractive as a company on the market.

Many companies, like big industry giants and oil companies, are known as the biggest CO₂ emitters in their country but are still included in the Dow Jones Sustainability Index. The question we want to discuss is if sustainability indices are actually contributing to more sustainable practices or if they are just attractive for financial institutions to list performant companies and sell them to shareholders in the end.

From the Austrian viewpoint, we criticize the inclusion of organizations such as the Austrian steel company voestalpine or the oil company OMV. These industry giants have been the highest and second-highest CO₂ emitters in Austria in the year 2020 (Dauer, 2021).

However, they are listed in the Dow Jones Sustainability Index ranking, and we argue that the corporation’s core motivation concerning CSR is to be financially attractive to shareholders and use its CSR additionally as a market(ing) measure. It can be seen as a marketing instrument because an organization’s commitment to CSR (proven by sustainability indices) can attract shareholders – since they value and invest in organizations that operate socially and environmentally responsible. That, in turn, will maximize the profits in the long-term, which allows a better position in the market. Nevertheless, these two mentioned companies show responsibility in their company plans by really targeting to lower CO₂ emissions in the future. (OMV, 2022; voestalpine, 2022).

Another example can be seen in the Higg Material Sustainability Index (MSI). The recent development of companies ranked in this index shows that it could also be of risk for investors to invest in companies that are not 100 % transparent. Major fashion brands such as H&M were misleading customers by stating incorrect manufacturing data regarding their environmental impact (e. g. saved water, global warming impact, etc.). To go into more detail, brands could manipulate the numbers by adding data from a small best practice example while they will not disclose data from their mass production (Britten, 2022). Misrepresentation of a company’s CSR KPIs is a target for investigation. Greenwashing or other types of falsification for marketing purposes have the opposite effect and rob authenticity and trust in companies.

Even though the stakeholder approach fails to minimize the complexity of the business-society relationship (Barnett, 2019), we support the shift from the shareholder to the stakeholder perspective. For this purpose, it is crucial to promote those companies that are sincerely committed to their CSR. Thus, we request, first, stronger audits before and after including a company in a sustainability index. Second, transparency of the organization’s figures must be a new standard for sustainability indices. Finally, it can also be a threat for investors who truly believe in investing in sustainable companies if financial institutions promote sustainability bonds and “green” indices.

After our argumentation and outlined examples, we are interested in your opinion and insights. Please let us know in the comments what you think about the question: Are sustainability indices sustainable, or are they just a marketing instrument? And what measures may be possible to promote the CSR of companies? Can you find other questionable members in the mentioned indices?

Additional references

Barnett, M. L. (2019). The business case for corporate social responsibility: A critique and an indirect path forward. Business & Society, 58(1), 167-190.

Friedman, M. (1970.) The social responsibility of business is to increase its profits. New York Times Magazine, 13, September 1970.