CSR: Harvard Business Review Over-Simplifies The Point

CSR Harvard Business Review posts The Daily Stat. I recommend subscribing. Here's today's post - it's problematic:

Investors May React Emotionally to Corporate Responsibility (CSR)

In an experiment, graduate business students who studied a fictional retailer’s finances valued the company at $25.92 per share if they were told it had an above-average record on such corporate-responsibility issues as labor and the environment, and just $19.14 per share if its performance on those measures was said to be below average, according to a team led by Mark E. Peecher of the University of Illinois at Urbana-Champaign. But the valuation gap disappeared when the participants were encouraged to think carefully about the company’s CSR, suggesting that the high valuations in the above-average case were “unintentional” and based on emotions. “One wants to avoid being overly swayed by” CSR, the researchers say.

Here's my response: 

Oh boy. Context is everything, and this factoid about CSR might benefit from a bit more.

Where to begin? How about with a question: What is valuation? If I remember properly, a stock is priced based on its market value, a numerical summation of all the moving parts therein.

CSR often bends valuation to include the costs of externalities. I’ll pay more to not invest in polluting the air or water. I think carbon should be taxed. I’m not alone; many people prioritize CSR, even to the point of taking a lower return. Meaning: they pay for what they value.

The trend in CSR (and moral imperative, as some might wisely argue) is to give historical externalities value, causing them to no longer be 'external to the market.' Climate science is making a pretty compelling argument that it’s time we all pay the real price of burning coal.

A second bit of context: Let’s not pretend that decision-making is anything but emotional. Ask any neuroscientist. All decisions are valuations, and emotional centers in the brain largely call the shots.

I get the basic point of the HBR factoid: a bunch of idealistic students inflated the value of a CSR policy they all felt good about.

But let’s not lose sight of something critical. While over-inflated valuation is a real risk, internalizing market externalities is a good idea.