Why owning responsible businesses is in your self-interest 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.
|Stock||News||Date||Share price drop on NSE|
|J&K Bank||Investigations 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) initiative||June-19||~20% in 1 day|
|Sun Pharma||A 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 Beverages||Deloitte 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 Gems||The company came under the scanner of various investigating agencies following PNB's Rs 11,400-crore fraud detection||18-Feb||~46% in 4 days|
|Vakrangee||Company came under the SEBI scanner for alleged price and volume manipulation of its own scrip on the BSE||18-Feb||~48% in 5 days|
|PNB Bank||Financial fraud by Nirav Modi to the tune of Rs 2.81 billion||18-Jan||~50% in 1 month|
|NDTV||Shares 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 bank||17-Jun||~7% in 1 day|
|Nestle||FSSAI accused Nestle of failing to comply with food safety laws||15-Jun||~18% in 1 week|
|DLF||SEBI 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 2007||14-Oct||~28% in 1 day|
|Vedanta||Government rejected Vedanta's bauxite mining plans in Niyamgiri||14-Jan||~66% in 2 years|
|Maruti Suzuki||The auto maker stopped production at its Manesar plant following violent clashes between workers and managers||12-Jul||~8.74% in 1 day|
|Ranbaxy||USFDA regulatory action||9-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.
|Name of the Scheme||This product is suitable for investors who are seeking*||Riskometer|
|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 andGovernance (ESG) Criteria
Investors understand that their principal will be at High Risk
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.
Mutual fund investments are subject to market risks read all scheme related documents carefully.
Please visit – www.QuantumMF.com to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.