Inaugural ECGI Responsible Capitalism Summit

21 October 2022
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Brussels, Belgium

Watch all the presentation here: https://www.youtube.com/summit

This event was attended by academics, business leaders, investors, fund managers, lawyers, economists and students.

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Inaugural Responsible Capitalism Summit

21 October 2022 | 09:00 - 18:15 CEST

Hosted by:

BNP Paribas Fortis
Montagne du Parc 3 - Warandeberg 3
1000 Brussels

Supported by

ABOUT THE EVENT

This event was organised by the European Corporate Governance Institute (ECGI) as part of a multi-year project on Responsible Capitalism.

Capitalism is the system we live in and there is almost no country today that has not organized its economy around market exchange and private property. Capitalism has spurred innovation, raised life expectancy, and lifted millions out of poverty. Yet there has been a loss of trust in the system with unbridled market forces blamed for several society’s ills including climate change, biodiversity loss, worker mistreatment, and expanding inequality. Companies and investors are under pressure to demonstrate that they are part of the solution rather than part of the problem. But how can market forces be redirected towards a sustainable business model? How can we ensure that prosperity and welfare are distributed equitably? And how can these demands be reconciled with the fiduciary duty of companies to their shareholders and of those shareholders to their end investors?

The ECGI’s Responsible Capitalism project brings together the best thinking from academics, companies, investors, and policymakers to provide fresh and meaningful perspectives on these questions. In this inaugural event, the speakers discussed the role of companies, investors, and policymakers in supporting responsible capitalism through the lens of the most systemic issue facing society: climate change.

Using high-quality academic evidence and deep practitioner insight, we discussed various topics including: How can board leadership and governance enable a positive contribution from the corporate sector? To what extent are markets pricing systemic risks and so directing capital flows towards solutions? What role can regulators play? What are the opportunities for investors to drive change through recognition of their clients’ non-financial as well as financial goals? How can policymakers mitigate transition risk?

Confirmed Sessions:

OPENING REMARKS

Baron Herman Daems, Chair of the Board, BNP Paribas Fortis and ECGI

RESPONSIBLE CAPITALISM: A NEW PARADIGM?

Marco Becht, Professor of Finance, Solvay Brussels School, Université libre de Bruxelles, Executive Director, ECGI

Colin Mayer, Emeritus Professor of Management Studies, Blavatnik School of Government and Saïd Business School, University of Oxford

MITIGATING CLIMATE RISK: HOW MARKETS AND COMPANIES CONTRIBUTE

Markets are increasingly taking notice of climate change. How and to what extent is climate risk priced and does this vary across markets and sectors? What does this mean for the role market forces will play in companies becoming net positive? How should banks and insurance companies respond and what is their role in mitigating climate risk?

Academic Briefing: The Financial Cost of Carbon

Patrick Bolton, Professor of Finance and Economic, Imperial College Business School, ECGI Fellow

Discussion: Hans De Cuyper, Group CEO, Ageas

Moderator: Sahar Shamsi, Partner, Oxera

REGULATORY LEADERSHIP: THE US PERSPECTIVE

What are the vision and priorities of US regulators when it comes to climate change and other major systemic issues? How can regulators enable responsible capitalism? What are the expectations from the transatlantic relationship?

Policy Keynote:

Caroline A. Crenshaw, Commissioner, U.S. Securities and Exchange Commission

Moderator: Eilis Ferran, Professor of Company and Securities Law, University of Cambridge, ECGI Fellow

CAN SHAREHOLDERS RESCUE CAPITALISM? PART 1

The ultimate shareholders in companies are citizens and do not want financial returns at any cost. Where companies are externalizing costs onto these same citizens, they will want to be enabled to step in and use their power as shareholders to bring about change. The result: a transformed corporate governance based on shareholder welfare rather than shareholder value.

Academic Keynote: The New Corporate Governance

Oliver Hart, Nobel Laureate 2016, Lewis P. and Linda L. Geyser University Professor, Harvard University, ECGI Fellow

Moderator: Sophie L’Helias, Chair, Suez, Founder & President, LeaderXXchange, Member of the Board, ECGI

CAN SHAREHOLDERS RESCUE CAPITALISM? PART 2

If shareholder welfare is to be a guiding principle of governance, we can ask to what extent asset management intermediaries currently reflect the views of their end clients. What are the practical challenges that need to be resolved in order for shareholder welfare to become a guiding principle? Is there an inexorable trend to more client control over voting and what would this mean for engagement and the market in general?

Academic Briefing: Do Mutual Funds Represent Individual Investors?

Jonathon Zytnick, Professor of Law, Georgetown University

Panel discussion with:

Bart De Smet, Chair, Federation of Belgian Enterprises

Lieve Mostrey, CEO, Euroclear Group

Carine Smith Ihenacho, Chief Governance and Compliance Officer, Norges Bank Investment Management

Moderator: Tom Gosling, Executive Fellow, ECGI and LBS

CAN SHAREHOLDERS RESCUE CAPITALISM? PART 3

Shareholder welfare oriented investors will seek to change company behaviour in ways to prevent harm, but might have a negative impact on the company’s stock price. Recent examples include campaigns that aim to stop fossil fuel exploration or reduce sugar content in food and drink. How can shareholder welfare oriented investors ensure they get sufficient support for their proposals? What will stop shareholder value oriented investors from reversing the decisions?

Panel discussion with:

Catherine Howarth, Chief Executive, ShareAction

Cas Sydorowitz, Global CEO, Georgeson

Rupini Deepa Rajagopalan, Head of ESG Office, Berenberg

Moderator, Philipp Krüger, Professor of Responsible Finance, University of Geneva (GSEM, GFRI) and ECGI Research Member

POLICY CONCLUSIONS

Vassiliki Lazarakou, Chair, Hellenic Capital Market Commission (HCMC)

Carmine Di Noia, Director, OECD Directorate for Financial and Enterprise Affairs

Moderator: Ernst Ludwig von Thadden, Professor of Microeconomics and Finance, University of Mannheim, Chair, European Corporate Governance Research Foundation (ECGRF)

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Concluding Remarks

Marco Becht, Executive Director, ECGI and Professor of Finance, Solvay Brussels School

Information

Address:

Montagne du Parc 3, 1000 Brussels, Belgium

Contact:

Elaine McPartlan

ECGI

admin@ecgi.org

FRIDAY, 21 OCTOBER 2022 | 09:00 CEST

08:45

Registration

09:15

Opening Remarks

Speakers:

Baron Daems

09:30

Responsible Capitalism: A New Paradigm?

Speakers:

Marco Becht

Discussant:

Colin Mayer

Responsible Capitalism: A New Paradigm?

Time:

09:30h

Speakers

Marco Becht

Fellow Research Member Board Member

Discussants

Colin Mayer

Fellow Research Member

Conference Documents

Presentation: Marco Becht.pptx

10:00

Mitigating climate risk: How markets and companies contribute

Academic Briefing | The Financial Cost of Carbon

Speakers:

Patrick Bolton

Academic Briefing | The Financial Cost of Carbon

Time:

00:50h

Climate finance is first and foremost a risk-management problem, which means three things for investors. First, prudent investors will seek to hedge climate change risk by reducing their exposure to this risk. Second, investors will demand compensation for holding this risk. Third, investors will engage with companies to urge them to reduce this risk if they are not adequately compensated for it.

For companies, the main implication of climate-risk management by investors is that the companies with greater carbon emissions will have to pay a higher financial cost of carbon (FCC). In their new study described in this article, the authors undertake a comprehensive analysis of the risk compensation implications of exposing investors to carbon transition risk. They explore how corporate GHG emissions have affected the price-to-earnings (P/E) ratios of listed companies in Europe and the U.S. over the period 2016 to 2020. Their main finding is that financial markets are beginning to broadly discount companies whose high carbon emissions are viewed as subjecting them to higher levels of political and regulatory risk, and providing them with what amounts to a higher cost of capital.

Although price-earnings ratios are generally lower for companies with higher emissions, the discount varies significantly by sector and across firm size, with larger companies experiencing the larger discounts. Although the carbon discount is similar in the U.S. and in Europe, the authors find significantly higher discounts in industries in Europe that are directly covered by carbon pricing through the EU ETS. They even find a small price discount on corporate debt for smaller issuers. Overall, what emerges is a clear pattern of investors' growing concern over climate risk, which translates into an increasingly material FCC for companies with high GHG emissions. This growing valuation discount for companies with high emissions should encourage them to progress further along their decarbonization path, which our results suggest have large financial as well as other social benefits.

Speakers

Patrick Bolton

Fellow Research Member

Conference Documents

Paper: The Financial Cost of Carbon.pdf

Presentation: Patrick Bolton.pdf

Panel discussion

Moderator:

Sahar Shamsi

Panelists:

Patrick Bolton

Hans De Cuyper

11:15

Break

11:30

Regulatory Leadership: The US Perspective

Moderator:

Eilis Ferran

Keynote address

Speakers:

Caroline A. Crenshaw

Keynote address

Time:

00:50h

Speakers

Caroline A. Crenshaw

12:30

Lunch

13:30

Can Shareholders Rescue Capitalism? Part 1

Moderator:

Sophie L'Helias

Academic Keynote | The New Corporate Governance

Speakers:

Oliver Hart

Academic Keynote | The New Corporate Governance

Time:

00:50h

Speakers

Oliver Hart

Fellow Research Member

Conference Documents

Paper: The New Corporate Governance.pdf

Presentation: Oliver Hart.pdf

14:30

Break

14:45

Can Shareholders Rescue Capitalism? Part 2

Academic Briefing | Do Mutual Funds Represent Individual Investors?

Speakers:

Jonathon Zytnick

Academic Briefing | Do Mutual Funds Represent Individual Investors?

Time:

00:50h

In recent decades, mutual fund families have wielded their voting power to influence the direction of corporate policy. Although mutual funds have widely varying voting patterns and predictable ideological disagreements, little is known about whether their underlying investors have similar preferences. I provide the first systematic documentation comparing the voting preferences of individual investors in the United States to those of the mutual funds they invest in. I find that individual investors are highly ideological in their voting but there is generally no relationship between how a fund votes and the preferences of its individual investors. I explore the sources of this divergence, providing evidence for limited attention of individual investors and market power by mutual funds. I conclude that mutual funds’ exercises of power do not derive from a free and competitive marketplace for ideology.