Cynthia A. Williams
This chapter reviews developments relating to CSR and ESG (environmental, social and governance) issues. It explores the increasing emphasis of institutional investors, including index funds, on ESG data. Part of the reason that institutional investors are emphasizing ESG data is because of younger investors’ increasing interest in topics such as climate change and economic inequality, and because the connection between companies’ better management of ESG issues and better financial performance is becoming well-established. Regarding CSR, the increasing importance can be seen in the activities of multi-stakeholder collaborations establishing voluntary standards for CSR in many industries, and in the actions of international organizations such as the United Nations establishing standards for companies’ international human rights obligations or goals for Sustainable Development. As to differences between countries in the importance given to CSR or the voluntary versus mandatory nature of the field, the chapter surveys a number of explanations, including the possibility that countries with less developed social welfare systems may require a greater degree of voluntary CSR to maintain the legitimacy of the corporate governance system. However, countries with a strong stakeholder orientation in corporate law tend to score better on sustainability indices, showing the potential importance of current discussions of shifts in the United States from shareholder primacy to stakeholder governance. Ownership structures and the predominant types of investors appear to have an impact on sustainability outcomes as well. In addition, CSR-oriented disclosure requirements create incentives for firms to pursue and highlight socially responsible corporate activities.