Senior Lecturer in Finance, Cambridge Judge Business School, University of Cambridge
Oğuzhan Karakaş is a senior lecturer in finance at Cambridge Judge Business School, University of Cambridge. He is also the co-director of an institute called Center for Endowment Asset Management and he is a scholarship member of research centers called J M Keynes Fellowship in Financial Economics and Cambridge Endowment for Research in Finance.
Before joining Cambridge University, Oğuzhan was an assistant professor at Caroll School of Management, Baston College. He completed his PhD in London Business School, his master degree in Princeton University and his bachelor degree in Middle East Technical University.
Oğuzhan’s research focuses on Corporate Governance (especially Ownership and Control), Corporate Social Responsibility and Private Equity. His articles have been published in leading academic journals.
Oğuzhan’s corporate social responsibility researches have been awarded with Brandes Institute Award, Hakan Orbay Research Award (Young Researcher Award), ICPM Research Award, Cambridge University Rectorship Impact Award, FIR-PRI Finance and Sustainability Europe Research Award (the Best Published Research Paper), IRRC Research Award (Honorable Mention) and Moskowitz Award (the Best Article on Socially Responsible Investments).
Presentation Summary
I think one of the most important reflections of Covid-19 pandemic on economy has been a better understanding of ongoing transformation of Environment, Social and Governance (ESG) in the world. Global warming, sustainability, employee rights, corporate governance standards and etc. can be given as examples for ESG.
Responsible investment is becoming a main stream in the whole world. In a notice in 2019 of an association called “Business Roundtable” whose members are chief executive officers of major United States companies, it is stated that the chief executive officers make a commitment that the companies that they manage will not only make a profit, but also create value for their customers, invest in their employees and do fair business with their suppliers, support people and the environment in their region and engage in practices that create long-termed value for their shareholders. This notice and similar notices and initiatives are indications that ESG principles have become a common value in the world.
So how did we come to this point? While markets produce and grow efficiently, states have difficulty generally in keeping up with the pace of the markets and therefore they cannot adequately cope with the negative externals (e.g. pollution, income inequality etc.). As a solution, the experiment that we are currently doing worldwide can be summarized as markets taking some of the burden of the state by taking responsibility.
In my article titled “Active Ownership”, we analyze a British investment company which leads the initiatives of EGS (e.g. reducing carbon emissions, not employing child worker, to have gender equality in company management) of the USA companies that it invests. In our example, a typical initiative of ESG takes 1 to 1.5 years. As a result of these initiatives, it is observed that an average initiative leads to an equity share increase of 2%. Many mechanisms are effective in the increase of the value of the initiative of EGS: in the companies which give importance to ESG principles, their employees become more productive. While the customers and the sales of these companies increase, the costs of their raising capitals decreases. The companies, which apply EGS principles, reduce the risks of regulation or lawsuits that may arise in the future and lower their costs. In successful EGS initiatives, the reputation of the company and the collaborations between the investors and the shareholders play a positive role.
In my article titled “Coordinate Engagements”, we analyze the coordinated EGS initiatives of the companies that are invested by the gathering of many international companies in many countries. In this article, we discuss how these collaborations are effectively created. For our study, we got the data from an institution called “Principles for Responsible” (PRI). As of 2021, the PRI includes 3,684 investors representing an asset on $100 trillion from 80 countries. In our study, we have found that for an average initiative of EGS, 26 investors have come and acted together. In this consortium, 2 investors are local (it means that they operate in the same country where the company that intiates is located), the remaining 24 investors are foreign. In the structure of the consortium, a local leader investor and effective co-investors increase the success and impact rate of initiatives of EGS. As they have a common language and common value judgments, local and leader investors become more effective in their communication with the local companies as they are on the same boat. What we mean by the effective investors is the investors who have resources, who have already own a large share in the companies which they undertake an enterprise and who internalize ESG principles.
Regarding the reflection of the Covid-19 pandemic on economy and its relationship with the ESG, the article titled “Resiliency of Environmental and Social Stocks” that has been written by Albuquerque and his friends shows that the negative effects of the pandemic on the markets are not the same for all the companies. The companies that comply with ESG principles are more resilient to economic/financial shocks and are less affected by the crisis.
References
• Dimson, Karakaş, and Li (2015): “Active Ownership,” Review of Financial Studies, 28(2):
3225-3268 – https://doi.org/10.1093/rfs/hhv044
• Dimson, Karakaş, and Li (2021): “Coordinated Engagements,” ECGI Working Paper No.
721/2021 – https://ssrn.com/abstract=3209072
• Albuquerque, Koskinen, Yang, and Zhang (2020): “Resiliency of Environmental and Social
Stocks: An Analysis of the Exogenous COVID-19 Market Crash,” Review of Corporate
Finance Studies, 9(3): 593-621 – https://doi.org/10.1093/rcfs/cfaa011
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