Do the Socially Responsible Walk the Talk?

67 Pages Posted: 18 Jun 2020

See all articles by Aneesh Raghunandan

Aneesh Raghunandan

London School of Economics

Shivaram Rajgopal

Columbia Business School

Date Written: May 24, 2020


Several companies and funds claim to be socially responsible. We confront these high-minded ideals with the data in two settings. In the first setting, we examine the August 2019 declaration by the Business Roundtable (BRT) that a corporation’s purpose is to deliver value to all stakeholders, rather than to solely maximize shareholder value. Relative to within-industry peer firms, publicly listed signatories of the BRT statement (i) commit environmental and labor-related compliance violations more often (and pay more in compliance penalties); (ii) have higher market shares; (iii) spend more on lobbying policymakers; (iv) report lower stock returns alphas and worse operating margins. Investors can vote with their feet to enforce managers’ statements on corporate purpose. Hence, in the paper’s second setting, we study the largest ESG ETF and mutual fund, respectively: the KLD 400 Social ETF and the FTSE4Good US Select index. There is barely any correlation between the initial list of stocks in these funds and additions thereto with “fundamental” ESG data, which we measure using federal environmental and labor-related compliance violations. A key takeaway of our study is that investors ought to be vigilant when assessing claims of stakeholder-oriented practices by firms and ESG funds.

Keywords: social responsibility, ESG, Business Roundtable, environmental and labor laws, ETF, MSCI, KLD, FTSE Russell, Violation Tracker.

JEL Classification: M14, G23, G34

Suggested Citation

Raghunandan, Aneesh and Rajgopal, Shivaram, Do the Socially Responsible Walk the Talk? (May 24, 2020). Available at SSRN: or

Aneesh Raghunandan (Contact Author)

London School of Economics ( email )

United Kingdom

Shivaram Rajgopal

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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