Why owning responsible businesses is in your self-interest

Posted On Friday, Jun 21, 2019


We are not here to tell you that money isn’t everything. We don’t want to lose your attention, you see.

But if it IS everything to you, you’d be better off owning businesses that care, or businesses that equally prioritize profits, people and the planet.

We are going to give you compelling reason why.

Take the case of when a US court ordered Johnson & Johnson to pay $ 72 million in damages for an ovarian cancer death linked to the use of its baby powder or when Nike was accused of deploying child labor in the production of its soccer balls in Pakistan or when the local government revoked Coca-Cola India’s license to operate and ordered the company to shut down its $25 million plant due to the groundwater depletion it was causing or when India's biggest-ever corporate accounting scandal at Satyam came to light or when Benetton, Primark, Walmart faced severe criticism and protests for the Dhaka garment factory collapse or when the Obama administration billed BP $69 million for the clean- up of its oil spill.

Phew, the list can go on and on.

So we observe that when businesses fail to consider the long term, comprehensive impact of their actions on investors, communities and eco-systems, and focus only on short term profits, they increase the risk of severe incidents, regulatory actions and litigations. This in turn leads to major expenses to undo or compensate for the ensuing mess. They thus get distracted from concentrating on their core competency, and spend valuable resources to defend their actions.

This lack of foresight on risk and responsibility management eventually translates into lower profitability and valuation.

Let’s see how.

Over the years, India Inc. has had many instances of stock price reactions to negative developments, and you as investors have had to deal with the consequences.

StockNewsDateShare price drop on NSE
J&K BankInvestigations against the former chairman following allegations that he offered loans worth crores to people recommended by politicians, placed his relatives in plum positions, and for even diverting funds meant for the bank’s corporate social responsibility (CSR) initiativeJune-19~20% in 1 day
Sun PharmaA whistleblower email claimed Sun Pharma promoter Dilip Shanghvi and his brother-in-law engaged in financial irregularities with stock market scam accused Dharmesh Doshi 18-Dec~26% in 2 months
Manpasand BeveragesDeloitte resigned as statutory auditor before Q4 results saying in a letter to the board that the company didn't provide "significant information."18-May~40% in 2 days
Gitanjali GemsThe company came under the scanner of various investigating agencies following PNB's Rs 11,400-crore fraud detection18-Feb~46% in 4 days
VakrangeeCompany came under the SEBI scanner for alleged price and volume manipulation of its own scrip on the BSE18-Feb~48% in 5 days
PNB BankFinancial fraud by Nirav Modi to the tune of Rs 2.81 billion18-Jan~50% in 1 month
NDTVShares tanked in intra-day after the CBI carried out searches at the residence of its founder Prannoy Roy for allegedly concealing a share transaction from SEBI and causing loss to a private bank17-Jun~7% in 1 day
NestleFSSAI accused Nestle of failing to comply with food safety laws15-Jun~18% in 1 week
DLFSEBI barred it from selling shares for three years. The move came after seven years of investigation into the charges that the realtor didn't give complete information when it went public in 200714-Oct~28% in 1 day
VedantaGovernment rejected Vedanta's bauxite mining plans in Niyamgiri14-Jan~66% in 2 years
Maruti SuzukiThe auto maker stopped production at its Manesar plant following violent clashes between workers and managers12-Jul~8.74% in 1 day
RanbaxyUSFDA regulatory action9-Feb~30% in 1 month

Stocks referred above are illustrative and not recommendation of Quantum Mutual Fund/AMC. The Fund may or may not have any present or future positions in these Stocks. The above information of stocks which is already available in publically access media for information and illustrative purpose only and not an endorsement / views / opinion of Quantum Mutual Fund /AMC. The above information should not be constructed as research report or recommendation to buy or sell of any stocks.

Notice how all the above events ultimately have financial consequences, adversely affecting either earnings or share prices of the business in both, the immediate and the long term.

As a business owner/investor, this should definitely concern you.

At the end of the day, successful investments depend on a booming economy, which depends on healthy people, who are ultimately dependent on a sustainable planet. In the long-term, therefore, investors have a clear self-interest in encouraging businesses with ESG compliance to survive and thrive by choosing them over the irresponsible others.

As investors you could identify companies that have lower tail risks, are less likely to go bankrupt and less likely to have large price or earnings declines by understanding the company’s commitment to ESG factors.

It’s 2019; responsibility and profitability are no longer incompatible, but in fact wholly complementary.

Thus it’s time you give adequate attention to the non-financial activities of the businesses you own, and appreciate the upside in valuation that flows from them.

Product Labeling

Name of the Scheme & Primary BenchmarkThis product is suitable for investors who are seeking*Risk-o-meter of Scheme
Quantum India ESG Equity Fund

An Open ended equity scheme investing in companies following Environment, Social and Governance (ESG) theme
• Long term capital appreciation

• Invests in shares of companies that meet Quantum's Environment, Social, Governance (ESG) criteria.
Quantum India ESG Equity Fund
Investors understand that their principal will be at Very High Risk

* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. Please visit – www.quantumamc.com/disclaimer to read scheme specific risk factors.

Above article is authored by Quantum.

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