DOING WELL BY DOING GOOD:

A COMPARATIVE ANALYSIS OF
ESG STANDARDS FOR
RESPONSIBLE INVESTMENT
Emily Barman

ABSTRACT
Over the last several decades, the question of the import of firms’ social and
environmental responsibilities has taken center stage. While once companies’
obligations to stakeholders and to sustainability were framed as normative
issues, these criteria are taking on instrumental worth. Most recently, advo-
cates of Responsible Investment have suggested that firms’ environmental,
social, and governance (ESG) performance possesses critical implications for
companies’ creation and capture of long-term economic value. Employing
textual analysis, this chapter analyzes the accounting, rating, and reporting
standards that have been developed by which companies are expected to mea-
sure, communicate, and be evaluated for their ESG performance. Drawing
from literature on organizational imprinting, this chapter finds significant dif-
ferences across these standards, in terms of the determination of materiality
and firms’ desired stakeholder relations. The divergence present in the mean-
ing and measure of Responsible Investment across these standards possesses
important strategic implications for managers in this field who must consider
the implications of each guideline for internal and external purposes.
Keywords: Responsible Investment; ESG; sustainability; stakeholder
governance; reporting standards; corporate social responsibility

Sustainability, Stakeholder Governance, and Corporate Social Responsibility

Advances in Strategic Management, Volume 38, 289
311
Copyright r 2018 by Emerald Publishing Limited
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ISSN: 0742-3322/doi:10.1108/S0742-332220180000038016
289
290 EMILY BARMAN

INTRODUCTION
Over the last several decades, attention to firms’ social and environmental
responsibilities has taken center stage. While companies’ obligations to stake-
holders and to sustainability were once framed as normative issues, these criteria
increasingly have taken on an instrumental worth. Most recently, advocates of
Responsible Investment (or what is also called “Sustainable Investment”)
a
growing field involving over US$10.37 trillion of assets (Global Sustainable
Investment Alliance, 2017)
have proposed that firms’ ESG (environmental,
social, and governance) performance possesses critical implications for compa-
nies’ creation and capture of long-term financial value (Barman, 2016; Business
for Social Responsibility, 2008; United Nations Principles of Responsible
Investment, 2006; United Nations Global Compact, 2004; World Business
Council for Sustainable Development, 2010). Employing textual analysis, this
chapter analyzes the content of the new and multiple main accounting, rating,
and reporting standards developed for use by companies to measure, communi-
cate, and be evaluated for their ESG performance.
Despite the coherence present in the discourse surrounding Responsible
Investment, this chapter finds significant differences across this new set of stan-
dards in terms of the measure of materiality and the specification of firms’
desired relationship with stakeholders. Reflecting the key tenets of Responsible
Investment, some standards limit firms’ ESG efforts to those business activities
that create and capture financial value. Unexpectedly, another group of
standards demonstrate instead a commitment to the principles of
sustainability
an attention to firms’ beneficial treatment of stakeholders and
the environment, without consideration of financial value. Given the amount
of resources devoted by firms to reporting on their financial and nonfinancial
performance, the chapter outlines how the presence of differences across ESG
guidelines possesses important implications for investors, managers, and other
stakeholders in the field of Impact Investing who must negotiate the presence
of multiple guidelines with competing and conflicting expectations for firms’
satisfactory ESG performance.
To explain divergence in the content of these accounting, rating, and report-
ing standards in the field of Responsible Investment, I engage and extend the
theoretical concept of organizational imprinting. Taken from institutional the-
ory, the concept of imprinting posits that organizations carry forward in their
form and behavior the economic, technical, and social understandings present
at their moment of creation (Johnson, 2007; Marquis & Tilcsik, 2013;
Stinchcombe, 1965). The concept of organizational imprinting helps to explain
why organizations located in the same field
and so subject to similar institu-
tional and resource constraints
can nonetheless demonstrate divergence in
their structure and/or behavior (Marquis & Huang, 2010; Tucker, Singh, &
Meinhard, 1990). I apply this framework to the field of Responsible Investment
by showing how standards organizations were formed at different historical
moments which then shape the content of their ESG guidelines. Some standards
organizations were formed an earlier historical moment, at a time when the
Doing Well by Doing Good 291

discourse of corporate social responsibility (CSR) and sustainability was domi-

nant in the private sector; I trace out how their ESG guidelines reflect the cogni-
tive schema of that time period. In contrast, other standards organizations in
this field recently were created, and so their guidelines enact the distinctive and
core principles of Responsible Investment.
The chapter is organized as follows. In the next section, I outline changes in
the conceptualization and justification of firms’ social and environmental
responsibilities over the last several decades, beginning with CSR, moving to
the sustainability movement, and now turning to Responsible Investment.
Having introduced the case of the standards organizations present in the field
of Responsible Investment, I then summarize scholarship on organizational
imprinting, which highlights how an organization is shaped by the characteris-
tics predominant in the environment at the time of its founding. Having out-
lined my data and methods, I next delineate differences across the standards in
regard to the definition and operationalization of materiality as well as the
specification of firms’ treatment of and engagement with stakeholders. The
chapter concludes by outlining its contributions to scholarship and by delineat-
ing its implications of these findings for managers and investors in the field of
Responsible Investment.

THE CASE OF RESPONSIBLE INVESTMENT

Expectations concerning firms’ responsibilities have altered substantially over
the last three decades, moving beyond companies’ fiduciary duty to shareholders
to incorporate a concern for their stakeholders and the environment, with impli-
cations for the format and scope of corporate reporting practices. CSR focuses
on the responsibilities of firms to stakeholders, beyond the creation and capture
of economic value for shareholders (Aguilera, Rupp, Williams, & Ganapathi,
2007; Freeman, 1984). Stakeholders, including suppliers, customers, employees,
and the local community in which the company operates, are those affected by
the firm’s activities
the procurement of supplies, the production of goods, and
the sale of products (Carroll, 1996; Mitchell, Agle, & Wood, 1997; Phillips,
1997). The responsibility of firms to their stakeholders was codified in several
international norms, including the OECD’s Guidelines for Multinational
Enterprises, the ILO’s Tripartite Declaration of Principles Concerning
Multinational Enterprises, and the Global Reporting Initiative (GRI) (Vogel,
2006; Waddock, 2008). Those standards and codes require that firms implement
and report on policies ensuring human and labor rights for their employees, the
fair and just treatment of their suppliers, the economic and environmental well-
being of the local community, and customers’ consumer rights. Further, with
CSR, managers can best create value for all constituencies by engaging in stake-
holder governance
by dialoguing with stakeholders and involving them in cor-
porate decision making (GRI, 2002; Manetti, 2011).
In contrast, the sustainability movement of the 1980s and on drew attention
to the long-term and interconnected impact of firms’ CSR performance on eco-
nomic, social, and environmental outcomes. The United Nation’s World
292 EMILY BARMAN

Commission on Environment and Development’s (1987, p. 9) Brundtland

Commission defined sustainable development as meeting the “needs of the pres-
ent without compromising the ability to meet the future generation to meet their
own needs.” The sustainability movement requires that a company’s engage-
ment with its material surroundings is conditional upon and restricted by future
economic, social, and ecological well-being. Firms’ sustainability reporting,
guided by a number of reporting and ratings systems, has varied from a focus
solely on environmental impact to include disclosure of companies’ social
impact as well. As with CSR, it was expected that companies would report on
and be evaluated for their sustainability performance, alongside and distinct
from their financial performance (GRI, 2006; Jensen & Berg, 2012; Kolk, 2004).
The latest articulation of attention to the importance of firm’s nonfinancial
performance represents a substantive departure from the premises of CSR and
sustainability. With Responsible Investment (or what is also called “Sustainable
Investment”), a firm’s performance on ESG issues is discursively framed as
important, not only for normative reasons, but because of its financially material
for firms and for investors (Business for Social Responsibility, 2008; World
Business Council for Sustainable Development, 2010). ESG is an acronym for
“Environmental Social Governance”: how corporations minimize their environ-
mental impact (as with the sustainability movement), how they manage their
social relationships with employees, suppliers, customers, and local communities
(as with CSR), and whether and how companies implement policies to ensure
good governance (Eccles & Viviers, 2011; United Nations Global Compact,
2004; World Economic Forum, 2005).
Promoted initially by the United Nations’ Global Compact and the United
Nations’ Principles of Responsible Investment starting in the early 2000s,
Responsible Investment employs the tenets of finance theory to demonstrate
that a firm’s ESG performance, including stakeholder engagement, increases its
creation of financial value for shareholders (Henisz, Dorobantu, & Nartey,
2014; United Nations Global Compact, 2004; United Nations Principles for
Responsible Investment, 2006). ESG criteria are argued by proponents of
Responsible Investment to be salient for instrumental, rather than normative,
reasons: they are “material”
critical for the pursuit of financial return in the
eyes of a “reasonable investor” (Hebb, 2012). The financial materiality of each
ESG criteria is determined by whether it generates benefits or costs for a firm,
thus impinging on or facilitating its value creation. As shown in Fig. 1, firms
that manage their ESG challenges can minimize risks and lower costs (such as
increased carbon emissions, energy emissions, labor protests, corruption and
fraud, and accident rates) or maximize opportunities and produce economic
benefits (including the creation of new markets, the mitigation of stakeholder
critiques, and brand enhancement with consumers), so generating better long-
term financial results than their peers (Business for Social Responsibility, 2008;
United Nations Global Compact, 2004; World Economic Forum, 2005).
Responsible Investment is a new but growing field. Participants in the field of
Responsible Investment operate across the value chain of financial investment.
They include asset owners (holders of long-term retirement savings, insurance
Doing Well by Doing Good 293

Fig. 1. ESG Criteria and the Creation of Financial Value.

companies, and foundations, among others) and investment managers (those

entities that manage or control investment funds, either on its own account or
on behalf of others) who choose to invest all or
more likely
a portion of
their resources according to the principles of Responsible Investment. Globally,
it is estimated that US$10.37 trillion of assets is being professionally managed
using the criteria of firms’ ESG performance (Global Sustainable Investment
Alliance, 2017). As intermediaries, service providers offer ESG-related products
or services, including advising, consulting, reporting, research and data provi-
sion (including accounting, rating, and reporting standards), and stewardship
services, to asset owners, investment managers, and firms (United Nations
Principles of Responsible Investment, 2017). Companies belong to the field of
Responsible Investment when managers disclose and/or act on their ESG perfor-
mance. By 2015, for example, over three-quarters of S&P 500 companies issued
some form of report on their ESG-related nonfinancial performance, compared
to only 20% in 2011 (Governance & Accountability Institute, 2017).

ACCOUNTING, RATING, AND REPORTING STANDARDS

FOR RESPONSIBLE INVESTMENT
This chapter examines how the discourse of Responsible Investment is expressed
in the multiple standards that have been created for this field and which provide
guidance to firms on their gauging and reporting of their ESG performance. For
the first time, companies are expected to report on their nonfinancial perfor-
mance solely as it is material for their financial performance. Understanding the
content of these accounting, rating, and reporting standards for Responsible
294 EMILY BARMAN

Investment is critical for several reasons. As with standards more broadly, these
guidelines for firms’ corporate reporting are created by intermediaries to foster
transparency and to generate comparable data on the salient aspects of firms’
performance for evaluative use by its audiences. For managers, corporate
reporting provides several strategic benefits. It allows companies to communi-
cate their performance to external stakeholders, including investors, employees,
and consumers. Corporate reporting also facilitates entails the implementation
of measurement and monitor systems that generate data for managers’ own
internal decision making and to improve risk management (Chatterji, Durand,
Levine, & Touboul, 2016).
Given the novel tenets of Responsible Investment, second, it is important to
specify how the principles of this new approach to firms’ financial performance
is expressed in these new accounting, rating, and reporting standards. It would
be expected that these guidelines would call for firms to measure, communicate,
and be evaluated on only those ESG criteria determined to be material for inves-
tors, without incorporating stakeholder engagement into that process. In other
words, reflecting the distinctive principles of Responsible Investment, these stan-
dards should depart in their content from the goals and processes inherent to
CSR and sustainability. To test this proposition, I investigate the content of the
four principal accounting, ratings, and reporting standards that have emerged in
the field
standards created by the Global Initiative for Sustainability Ratings
(GISR), the GRI (its G4 standards), the International Integrated Reporting
Council (IIRC), and the Sustainability Accounting Standards Board (SASB), as
shown in Table 1 (Eccles & Krzus, 2010; Gilman & Schulschenk, 2014; KPMG,
2014).

ORGANIZATIONAL IMPRINTING
All of these standards are intended to provide guidance to firms as to how they
should capture, communicate, and be evaluated for their ESG performance, as
opposed to the prior emphasis on companies’ side-by-side reporting of their
financial performance and their CSR or sustainability performance. However,
this study finds divergence in the content of these standards present in the field
of Responsible Investment. As expected, some standards prescribe accounting,
rating, and reporting guidelines that gauge firms’ ESG performance based on
the criteria of financial materiality
its capacity to create and capture financial
value, in alignment with the defining discourse of Responsible Investment. In
contrast, other standards prescribe accounting, rating, and reporting systems
that transpose the assumptions of CSR and the sustainability movements to the
standards they have generated for this new field. In this latter case, the standards
prescribe firms’ accounting, rating, and reporting based on the criteria of CSR
and sustainability, rather than the criteria of Responsible Investment.
To make sense of this divergence, I draw from the concept of organizational
imprinting. Through an “imprinting process,” organizations are posited to carry
forward in their form and behavior the economic, technical, and social under-
standings present at their moment of formation (Johnson, 2007; Marquis &
 Table 1.

Doing Well by Doing Good

Dimensions of ESG Standards.
Founding Founders Intended User Intended Definition of Determination of Stakeholder Stakeholder
Date Audience Materiality Materiality Treatment Engagement

Global 2011 CERES and the Rating Investors Whether exclusion of Impact of business’s Attention to impact Rating
Initiative for Tellus Institute agencies in motivated issue significantly core activities on of company’s agency must
Sustainability field of by financial alters decisions of human, intellectual, activities on engage
Ratings Responsible and/or ratings user (investors natural, and social intellectual, human, stakeholders
Investment ethical and consumers) capitals that are most social, and in generation
concerns, likely to impinge on environmental of rating
but also stakeholder decision capitals system
consumers making, as
determined by
ratings user
Global 1997 CERES and the All types of Firm’s Economic, Stakeholder influence Firms must report Must report
Reporting Tellus Institute organizations, stakeholders environmental and and materiality on only those on quality of
Initiative across all social impacts that (economic, social, aspects of social firm’s
sectors cross a threshold in and environmental dimension of stakeholder
affecting ability to impacts) as present in sustainability as engagement
meet needs of present sector guidance, as sustainably relevant and consult
without determined by for industry and/or stakeholders
compromising needs stakeholders, firm in creation of
of future generations including employees, report
shareholders,
suppliers, vulnerable
groups, local
communities, and
NGOs, among others
International 2009 Prince of Wales, Private Providers of A matter is material Organization’s value Firms’ treatment of Must report
Integrated representatives companies financial if it could creation process, stakeholder on quality of
Reporting from accounting capital substantively affect influenced by conceptualized as stakeholder
Council bodies, organization’s ability organization’s use human and social engagement

295
sustainability to create value in and effect of multiple capital; required for
 296
Table 1. (Continued )
Founding Founders Intended User Intended Definition of Determination of Stakeholder Stakeholder
Date Audience Materiality Materiality Treatment Engagement

organizations, short, medium or capitals (financial, disclosure only if

investors, and long-term manufactured, financially material
companies intellectual, human,
interested in social and
sustainability relationship, and
reporting natural capitals) and
generation of risks
and opportunities
and favorable and
unfavorable
performance or
prospects, as
determined by the
financial provider
Sustainability 2011 Academic affiliates Companies Financial Substantial likelihood Evidence of investor Firms’ treatment of Solicits
Accounting of Harvard that engage in investors that reasonable interest and financial stakeholder stakeholder
Standards University public offering investor would view impact, as conceptualized as input in
Board of securities its omission or determined a human and social developing its
misstatement as reasonable investor capital; required for standards

EMILY BARMAN
having significantly disclosure only if
altered total mix of financially material
information based on industry
location
Doing Well by Doing Good 297

Tilcsik, 2013; Stinchcombe, 1965). The composition of the environment at the

time of founding can influence the organization not only its structure but also
by imbuing it with a particular cognitive model, where organizations “incorpo-
rate prevailing social and political arrangements” into their organizational
design (Carroll & Hannan, 2004, pp. 446
447; Johnson, 2007). As with an
institutional logic, a cognitive model specifies the optimal goals for actors to
pursue and the legitimate range of methods by which to achieve those objec-
tives (Friedland & Alford, 1991; Thornton, Ocasio, & Lounsbury, 2012).
Organizations’ initial characteristics persist past the founding phase despite
facing environmental challenges and changes. The concept of organizational
imprinting helps to explain why organizations located in the same field
and
so subject to similar institutional and resource constraints
can nonetheless
demonstrate divergence in their structure and/or behavior (Marquis & Huang,
2010; Tucker et al., 1990).
In the case of Responsible Investment, I posit that the concept of organiza-
tional imprinting is theoretically salient for explaining divergence in the content
of the ESG guidelines published by standards organizations. Some standards
were created by organizations who were formed at an earlier historical moment,
at time when the discourse of CSR and sustainability were dominant. This theo-
retical framework predicts that these organizations carry with them the cognitive
schema of that time period: attention to companies’ treatment of stakeholders
and sustainability as an end in itself, distinct from and regardless of its financial
ramifications for firms and investors. In contrast, other standards organizations
in this field were created more recently, and so their structure and practices
should reflect the tenets of Responsible Investment, with its attention to the
financial materiality of firms’ ESG practices.

DATA AND METHODS

This chapter employs textual analysis of the guidelines disseminated by the four
standards organizations present in the field of Responsible Investment. The
selection of these organizations was based on a systematic review of publications
by scholars and practitioners on the state of Responsible Investment. These
documents displayed a universal and consistent identification of four account-
ing, rating, and reporting standards organizations: the GISR, the GRI, the
IIRC, and the SASB (Eccles & Krzus, 2010; Gilman & Schulschenk, 2014;
KPMG, 2014). For each organization, I examined the content of the documents
containing the formal ESG guidelines of the standard as well as draft versions of
the guidelines, supplementary methodology and discussion papers, and public
relations materials as well as the organization’s website. I also drew from sec-
ondary publications on these organizations, their guidelines, and the fields of
CSR, sustainability, and Responsible Investment, including reports, papers, and
the websites of auditing organizations, investment firms, and other intermediar-
ies as well as academic articles.
To analyze the content of the guidelines of the standard for each of the
four organizations, I engaged in rigorous textual analysis, employing coding
298 EMILY BARMAN

techniques from discourse analysis (Phillips & Hardy, 2002), which involved the
use of Atlas.ti coding software to identify recurrent themes in the texts. I then
supplemented the textual analysis by qualitative analysis of the remaining pri-
mary and secondary documents, employing the “abductive method,” which has
been defined as the cultivation of anomalous and surprising empirical findings
against a background of existing scholarship and through systematic methodo-
logical analysis (Timmermans & Tavory, 2012). As I gathered and analyzed
relevant sources, I drew from and returned to theoretical expectations and ana-
lytical concepts gathered from related literatures in the study of CSR, sustain-
ability, and stakeholder governance as well as literature on organizational
imprinting, in order to derive and test propositions from these scholarships. As
common issues and themes emerged, I employed an iterative methodology,
returning to past empirical sources and theoretical claims, and comparing ana-
lytical concepts and categories across the units of analysis.

FINDINGS
Specifying the Standards Organizations
Standards organizations in the field of Responsible Investment have emerged in
order to develop an accounting, rating, and reporting infrastructure that reflect
the distinctive principles of this new field. Currently, as shown in Table 1, four
standards organizations exist in the space of Responsible Investment: the GISR,
the GRI, the IIRC, and the SASB. These organizations differ in their timing of
their founding, so imprinting them with different understandings of the rationale
for attention to firms’ ESG performance and the intended audience for their
standards. Formed in 1997, the GRI was founded at the time of the sustain-
ability movement, prior to the emergence of Responsible Investment. It was
launched and first funded by two founding nonprofits, CERES (an acronym for
the Coalition for Environmentally Responsible Companies) and the Tellus
Institute, a research and policy nonprofit oriented toward promoting sustainable
development. Reflecting the mission of its founders, the GRI was created to gen-
erate a standard for firms’ reporting only on their environmental performance;
however, the organization’s first comprehensive reporting guidelines, published
in 2002, included standards for the reporting of the social, environmental and
economic (excluding financial reporting intended to communicate firms’ creation
of financial value for shareholders) dimensions of sustainability (Willis, 2003).
In 2013, the GRI launched its G4 standards (which were then revised in format
in 2016): for the first time, this set of standards incorporated guidelines for
reporting on organizations’ ESG performance and employed the language of
materiality. The goal of the GRI consistently has been the dissemination of a
single, universal set of guidelines for sustainability reporting by businesses, gov-
ernments and NGOs. Reflecting the timing of the founding of GRI, the targeted
user audience of GRI reports is intended to be the full range of a firm’s stake-
holders, without a primary focus on investors (Gilman & Schulschenk, 2014;
GRI, 2000, 2016, 2017a, 2017b).
Doing Well by Doing Good 299

The GISR is another standards organization in the field of Responsible

Investment. It is a nonprofit organization launched in 2011 but by the same two
nonprofits
CERES and the Tellus Institute
that earlier founded the GRI
during an era of sustainability. Reflecting the process of organizational imprint-
ing, GISR’s primary commitment is shaped by the orientation of its founders in
that it promotes the diffusion of sustainability. GISR is “aimed at making finan-
cial markets agents of, rather than impediments to, achieving the Sustainable
Development Goals and broader global sustainability agenda” (Global
Initiative for Sustainability Ratings, 2017a, 2017b). To that end, GISR devel-
oped a standard for other organizations’ rating of firms’ ESG performance
through the accreditation of those rating entities, which would exist alongside
separate ratings, rankings, and indices of firms’ financial performance (Global
Initiative for Sustainability Ratings, 2013a, 2013b, 2013c). The creation of
GISR was driven by a perceived need to create commensurability across the
over 100 ESG and sustainability ratings systems that were currently in existence
by the late 2000s. According to GISR (2013a, 2013b, 2013c, 2017a, 2017b), the
targeted user audience for accredited ESG rating systems is not only investors
motivated by financial and/or ethical concerns, but also consumers who can use
the ratings to gauge the relevant performance of firms.
In contrast, two standards organizations recently were created, after the field
of Responsible Investment had already been established. In result, their rationale
for attention to firms’ ESG performance and the intended audience for their
standards reflect the discourse of Responsible Investment. The IIRC was begun
in 2009 by the Prince of Wales, who convened representatives from accounting
bodies, sustainability organizations, investors, and companies interested in sus-
tainability reporting. Over time, the governing council of the IIRC has become
dominated by members of the financial accounting profession and by representa-
tives of multinational enterprises, who are embedded in and committed to the
discourse of Responsible Investment (Flower, 2015; IIRC, 2017). The goal of
the IIRC is to create standards for firms’ use of the integrated report as a single
reporting vehicle, so replacing the prior tendency of firms to report separately
on their financial and sustainability performance. The integrated report is
intended to present the material interconnections between firms’ ESG and finan-
cial performance. Written for use by for-profit companies, the IIRC’s integrated
reporting standard
published in 2013
can also be employed by public sector
and not-for-profit organizations. The primary intended user audience of the inte-
grated report is providers of financial capital, although the IIRC (2017) notes in
publications that it may also be of interest to other stakeholders.
The SASB aims to generate comprehensive and comparable accounting stan-
dards for firms’ reporting on their sustainability performance, akin to the stan-
dards for firm’s reporting on their financial performance as produced by the
Financial Accounting Standards Board and the International Accounting
Standards Board. SASB was created as a nonprofit in 2011 by three academic
affiliates of Harvard University with professional backgrounds in Socially
Responsible Investing and sustainability. Over time, however, as with the IIRC,
the leadership of SASB has changed to individuals with financial accounting
300 EMILY BARMAN

and financial services backgrounds (Lydenberg, Rogers, & Wood, 2010; SASB,
2017a, 2017b, 2017d). SASB’s standards, first disseminated in 2013, are intended
for use by companies engage in public offerings of securities and so are required to
file with the U.S. Security and Exchange Commission. The intent of SASB is that
firms will be able to communicate their sustainability performance in SEC filings
for consideration by the targeted audience of financial investors (Gilman &
Schulschenk, 2014; Schooley & English, 2015; SASB, 2013, 2017a, 2017b, 2017d).

COMPARING THE STANDARDS

In the following, I examine the content of these Responsible Investment stan-
dards. As predicted by the tenets of organizational imprinting, I find significant
points of divergence across these guidelines that align with the time of founding
of the organizations in question. As expected, some standards, including those
of the IIRC and SASB (the most recently formed standards organizations), evi-
dence the discourse of Responsible Investment by emphasizing the financial
materiality of ESG performance and delimiting firms’ expected stakeholder rela-
tions based on that principle. Other standards, however, while employing
the language of materiality, ESG, and Responsible Investment, maintain a com-
mitment to the principles of CSR and the sustainability movement. These
standards, including those of the GRI and GISR (which were created by organi-
zations formed during the sustainability era), emphasize firms’ social and envi-
ronmental responsibilities, including firms’ required engagement with and
treatment of all stakeholders, regardless of their economic value. In these cases,
despite prominently utilizing the discourse of ESG and Responsible Investment
in their publications, these guidelines fail to include a consideration of the finan-
cial materiality of ESG criteria.

Defining Materiality
As articulated by its proponents (Business for Social Responsibility, 2008;
United Nations Principles for Responsible Investment, 2006; World Business
Council for Sustainable Development, 2010), the premise of Responsible
Investment is that firms’ ESG performance should be deemed salient only if it
meets the criteria of “materiality.” These actors have taken the definition of
materiality that governs financial accounting and extended it to the new field
of Responsible Investment. In the United States, the Generally Accepted
Accounting Principles
the foremost guidelines for financial accounting

mandates that companies must disclose only those events or information that
are germane to its financial well-being, according to the perspective of the
“reasonable investor” (Securities and Exchange Council, 1999). In result,
this concept of materiality requires that companies must determine and dis-
close in their corporate reporting on only those ESG aspects that are deemed
to be salient for a “reasonable” investor interested in the pursuit of financial
value. All other ESG criteria
regardless of their normative relevance or
Doing Well by Doing Good 301

sustainability impact
must be omitted from a corporation’s reporting on its

nonfinancial performance.
Yet, despite the consistent emphasis on the financial salience of companies’
ESG performance as the distinguishing tenet of Responsible Investment, the
standards developed for this new space vary in the definition and operationaliza-
tion of the term. Three distinct meanings of materiality can be found, including
materiality based on financial value, sustainable value, and stakeholders’ subjec-
tive value. The first group of standards, including the SASB and IIRC, as pre-
dicted by organizational imprinting theory, employ the expected financial
conception of materiality. SASB (2013), for example, explicitly notes it employs
the definition of “materiality” that is applied under the US federal securities
laws but extended to the nonfinancial case of companies’ sustainability perfor-
mance. Similarly, in the introduction to its statement of principles, the IIRC
(2013a, 2013b) states that a sustainability “matter is material if it could substan-
tively affect the organization’s ability to create value in the short, medium or
long term,” based on its effect on the organization’s strategy, governance, per-
formance or prospects.
In contrast, the GRI and GISR depart from the tenets of Responsible
Investment; these standards incorporate a concern for firms’ sustainability
impact into their definition of materiality but in two distinct ways. As predicted
by organizational imprinting theory, the GRI
the oldest of the four standards
organizations
defines materiality to emphasize the objective impact of firms’
ESG performance for the pursuit of sustainability, rather than financial return
for investors. On one of its webpages, the GRI (2017a, 2017b) outlines that the
concept of materiality involves “considering economic, environmental, and
social impacts that cross a threshold in affecting the ability to meet the needs of
the present without compromising the needs of future generations.” In contrast,
the GISR posits that the concept of materiality is subjective based on the percep-
tions of stakeholders. In this standard, materiality depends on the decision of
the ratings user, including consumers, and investors, whose notion of materiality
could vary from the criteria of financial value to a normative concern for the
environment or stakeholders. So, even in the case of investors, who could consist
of pension funds, private equity firms, and impact investors, the GISR recog-
nizes that each type of investor may hold a purely financial or a more tradi-
tional, sustainability-based view of materiality.

Determining Materiality
According to the principles of Responsible Investment, the financial materiality
of each aspect of ESG can be determined by identifying if it generates risks or
creates opportunities for a firm, thus impinging on or facilitating its value crea-
tion. To do so, actors should engage in valuation analysis to assign a monetary
value to firms’ ESG performance. The resulting data are prioritized for its
salience based on the perspective of the reasonable investor
an actor moti-
vated solely by the pursuit of financial gain (Business for Social Responsibility,
2008; United Nations Principles for Responsible Investment, 2006; World
302 EMILY BARMAN

Business Council for Sustainable Development, 2010). Yet, in the case of the
standards organizations under study here, variation can be found in the
guidelines for the determination of materiality. As a whole, and not unex-
pectedly, the definition of materiality used by each organization guides their
determination of the materiality of ESG criteria.
The IIRC proposes that the assessment of the materiality of ESG criteria
should be based on the company’s employment of its “capitals”
“financial,
manufactured, intellectual, human, social and relationship, and natural capital”

as it matters for its “value creation process.” According to the IIRC, those types
of capital generated by a firm’s ESG performance should be gauged for both
negative and positive impacts on its financial performance, including generating
risks and opportunities and so favorable and unfavorable performance or pro-
spects. Only those aspects determined to be material for “value creation” from
the perspective of a “financial provider” should be included in the integrated
report. The IIRC specifies that the reporting boundary for materiality extend
not only to the financial reporting entity, but also should include consideration
of any entities and stakeholders beyond the firm that involve risks and opportu-
nities that affect the capacity of the firm to create financial value. While provid-
ing these principles of integrated reporting, the IIRC (2013a, 2013b) leaves the
actual determination of materiality to individual firms.
Similarly, SASB prioritizes sustainability issues on behalf of the “reasonable
investor.” Using its “Materiality Map,” ESG criterion is evaluated for its mate-
riality first according to investor interest (including financial disclosure, legal dri-
vers, industry norms, stakeholder concerns, and innovation opportunity) and
then according to evidence of financial impact. Thus, in its initial identification
of potentially material issues, SASB includes potentially nonfinancial concerns
that are identified
at least in part
based on stakeholder engagement.
However, SASB (2017a, 2017b, 2017d) then prioritizes those items and identifies
those that are material only if they affect the “financial condition” or “operating
performance” of a company through the use of valuation analysis. Unlike the
IIRC, SASB does not leave the determination of the materiality of ESG criteria
to a reporting firm but instead has applied its “Materiality Map” to 88 industries
across 10 sectors, identifying the financially material ESG criteria for each
industry (SASB, 2013, 2017a, 2017b, 2017d). Firms can employ those sectoral
guidelines to incorporate the relevant material data in their SEC reporting, with
the SASB recommending that managers limit such disclosure to the boundaries
of the firm itself, thus following the same scope and timing as is present for
financial reporting.
While both the IIRC and SASB’s standards view CSR criteria as material
only in regard to their financial value, the GRI and GISR standards instead
emphasize that ESG issues are material in regard to their social and environ-
mental consequence. Both of these standards organizations frame materiality
in regard to the expectations of stakeholders, rather than financial investors.
Nonetheless, the two standards organizations
reflecting their origins

employ different conceptual language to capture the value of companies’ ESG
performance. As with the IIRC, the GISR frames the materiality of ESG issues
Doing Well by Doing Good 303

as involving “capitals.” But, the GISR operationalizes materiality to mean

those ESG criteria that impact human, social, intellectual, and environmental
capitals, regardless of their ability to create financial capital. Materiality can
be determined by identifying a business’s core activities, listing the sustainabil-
ity issues in the focal industry, determining their social and environmental rele-
vance using secondary sources (including academic literature, company
reports, the media, and shareholder actions) and then prioritizing those that
are most likely to impinge on rating users’ decision making, who the GISR
presumes will vary in their conception of materiality. However, while the
GISR states that some investors will be interested in ESG criteria largely for
their financial implications, the organization’s guidelines do not provide guide-
lines on how that process would occur.
Similarly, the GRI provides a guide to the determination of materiality that
draws from the tenets of CSR and the sustainability movement. The GRI
(2013b, p. 5) emphasizes the economic, social, and environmental consequences
of firms’ behavior, regardless of their implications for the “financial condition of
the organization,” alongside the criteria of stakeholder inclusiveness (whether
the data will influence the decisions of stakeholders). With the use of its “materi-
ality matrix,” ESG aspects should be prioritized as material if they possess a
strong economic, social, and/or environmental impact, and if they are deemed to
be salient from the perspective of all stakeholders, who are specified to be custo-
mers, suppliers, investors, or civil society
with investors strikingly absent from
the list (GRI, 2013b). GRI posits that a judgment of materiality must be made
of not only the firm’s own business activities, but also those entities with whom
it possesses business relations, following a long-standing tradition in the CSR
and sustainability movements.

Stakeholder Relations
One of the defining characteristics of CSR is the view that managers should
expand their obligations beyond shareholders to all stakeholders, including
employees, communities, and customers, to create value for all (Campbell,
2006). Further, by dialoguing with and incorporating stakeholders into organi-
zational decision making, managers are better able to identify, create, and com-
municate value to a diverse assortment of stakeholders (Donaldson & Preston,
1995; Freeman, 1984). In contrast, the premise of Responsible Investment is
that companies’ ESG performance is only salient
and so requires reporting
on
if it creates financial value. It would be expected that the same principle of
financial materiality should govern firms’ stakeholder relations, both in terms of
their treatment of and engagement with stakeholders.
Yet, the standards for the field of Responsible Investment exhibit marked
divergence in terms of how they characterize firms’ desired relationships with
stakeholders. As expected, the standards developed by the IIRC and the SASB
reflect the principles of Responsible Investment. Their guidelines emphasize that
firms should report on only those ESG criteria that are financially material,
including their treatment of different stakeholders. Yet, these organizations
304 EMILY BARMAN

vary in the extent to which they specify precisely what are firms’ obligations to
their employees, suppliers, customers, and the local community in which they
operate.
As with its operationalization of materiality, the IIRC views different stake-
holders as different types of capital. Workers, as internal stakeholders, are cate-
gorized as one dimension of a company’s stock of “human capital.” The
amount of human capital possessed by a firm is shaped by not only its provision
of human and labor rights to workers (what IIRC (2016, p. 7) calls “desired eth-
ical standards”), as in the case of CSR, but also by an assortment of other
instrumental factors, including recruitment, motivation, and advancement poli-
cies. A company’s relationship to external stakeholders, including customers,
civil society actors, and the local community, is a type of “social and relation-
ship capital” (2013). Yet, while firms’ treatment of stakeholders
in the form of
human or social capital
is recognized as one potential source of value crea-
tion, the IIRC (2013, p. 12) clearly states that firms need not report on
and so
be accountable
to stakeholders if a firm’s effect on a specific type of capital
does not affect its financial capital. The IIRC leaves it to the discretion of a
firm’s managers to determine which of the company’s different stakeholder
relations
in the form of human or social capital
are financially material.
The SASB’s view of firms’ relations with stakeholders similarly reflects the
tenets of Responsible Investment in that its treatment of each stakeholder group
only need to be reported if it is financially material. Further, unlike the IIRC,
SASB provides explicit guidance to firms on which aspects of their treatment of
stakeholders are material, based on industry location. The SASB (2013) has
applied its “materiality map” to 88 industries in 10 sectors. For each industry, it
draws from the field of sustainability to identify 43 “general sustainability
issues,” which includes firms’ treatment of employees, customers, and the local
community. For a focal industry, the SASB then determines if each ESG issue
will be material for its member companies, so requiring corporate reporting on
the firm’s performance in that regard. The consequence of this materiality pro-
cess is that the expectations governing treatment of specific stakeholders varies
widely across industries. Take the case of the ten industries that constitute the
healthcare sector: in none of them are companies required by SASB (2017c) to
report on the quality of their labor relations, and only in three of the industries
are companies required to report on their policies governing employee health,
safety and well-being.
In contrast, the GRI concludes that firms’ disclosure of their environmental,
social, and environmental impacts will be based on industry location, yet its
specification of companies’ relationship to stakeholders reflect a commitment to
the normative premises of CSR and the sustainability movement. The GRI pro-
vides standards for firms’ possible reporting of each aspect of ESG by industry.
In the case of stakeholders, the GRI standards for Social Issues includes a com-
prehensive list governing firms’ desired treatment of stakeholders, including
workers’ human rights, labor rights, health, and safety, the well-being of local
communities and society, and product responsibility, as drawn from the stan-
dards of CSR (GRI, 2013b). GRI then specifies the specific economic, social,
Doing Well by Doing Good 305

environmental, and governance issues that are found to be material from a sus-
tainability perspective by the GRI for the sector in question. The result is that
firms’ industry location determines which aspects of a firm’s stakeholder treat-
ment must be measured and disclosed by a firm, regardless of its financial
consequence.
Finally, as with the SASB and the IIRC, the GISR does frame companies’
relationship with stakeholders as a matter of the firm’s possession of human and
social capital. But, the GISR
the most recently formed standards organiza-
tions in this field
does not specify in its guidelines whether and how rating
agencies should assess firms’ treatment of their stakeholders according to the cri-
teria of materiality, likely because it employs a subjective view of materiality
based on stakeholders’ perceptions (GRI, 2013b). However, the organization
has proposed that it will develop at some point a list of issues and indicators by
which rating agencies should evaluate the material impact of firms’ ESG perfor-
mance, akin to and harmonized with the GRI and SASB guides (GRI, 2013a).

Stakeholder Engagement
Within the field of Responsible Investment, the criterion of financial value is val-
orized over all else, suggesting that the voice of stakeholders
with their range
of disparate needs and interests
should not be prioritized in the determination
of firms’ desired ESG performance, in contrast to the emphasis in CSR on the
salience of stakeholder engagement for managers. Yet, unexpectedly, and in
contrast to the tenets of organizational imprinting, all of the standards created
for this field demonstrate a concern for the inclusion of stakeholder engagement,
albeit in a multitude of ways. On the one end, some standards organizations,
including the SASB and the GISR, require a reporting or rating agency to
engage with stakeholders in the generation of its guidelines. But they do not
require companies themselves to interact with stakeholders. On the other end,
other standards, as is the case in the field of CSR and sustainability, require the
firm to report on the nature and scope of its relationships with stakeholders, so
embodying the centrality of stakeholder governance that characterizes the field
of CSR. These organizations include both the GRI, which is expected given the
organization’s consistent embrace of the normative principles of CSR and the
sustainability movement and
surprisingly, given its commitment to the dis-
course of Responsible Investment
the IIRC. The latter states that
an integrated report should provide insight into the nature and quality of the
organization’s relationships with its key stakeholders, including how and to
what extent the organization understands, takes into account and responds to
their legitimate needs and interests (IIRC, 2013, p. 17).
Contrary to the tenets of Responsible Investment, the IIRC requires firms
not only to report on their ESG performance based on a financial definition of
materiality but also to include data on the quality of their stakeholder relations,
irrespective of its impact on value creation.
306 EMILY BARMAN

CONCLUSION
There is wide consensus that a growing emphasis is being placed on the strategic
importance of nonfinancial issues, such as companies’ social and environmental
impact, for firms’ creation of long-term financial value. New standards for social
and environmental accounting, rating, and reporting are being developed for
this growing field of Responsible Investment. Drawing from textual analysis of
these guidelines, I find that, despite their shared location in and use of the dis-
course characterizing the field of Responsible Investment, the standards pro-
duced for members of this new arena, including firms, investors, and other
stakeholders, vary widely in their content, both in terms of the measure of mate-
riality and in terms of firms’ expected relationship with stakeholders.
This study of the standards present in Responsible Investment provides sev-
eral contributions to scholarship on sustainability and stakeholder governance.
First, at an empirical level, it extends our knowledge of the different conceptua-
lizations of firm’s nonfinancial responsibilities which are present in the contem-
porary economy. While much of this scholarship has focused on the cases of
CSR or the sustainability movement (Aguilera, Williams, Conley, & Rupp,
2006; Berthelot, Coulmont, & Serret, 2012; Campbell, 2006; Kolk, 2004), this
chapter is among the first to provide an overview of the principles of
Responsible Investment and its implications for firms’ responsibilities regarding
sustainability and stakeholder governance. It traces out how the appeal of
Responsible Investment is premised on the use of finance theory to assign a
long-term monetary value to firms’ nonfinancial performance, by framing them
as potential risks and opportunities. In this way, firms’ consideration of its sus-
tainability and stakeholder responsibilities are of import not as normative obli-
gations, but as financially material for managers and for investors.
Relatedly, this study joins literature that examines the content of the stan-
dards governing accounting, rating, and reporting for firms. By finding diver-
gence in the measure of materiality and the treatment of stakeholders across
the ESG guidelines developed for Responsible Investment, this essay contri-
butes to an on-going debate as to whether the standards present in a field of
study should exhibit convergence or divergence in their content (Chatterji
et al., 2016; DiMaggio & Powell, 1983). Scholars who emphasize difference
across standards have then sought to empirically explain such variation. For
example, the presence of divergence is often attributed to a “standards market,”
whereby standards organizations must differentiate themselves from rivals
in order to compete for users (Reinecke et al., 2012). Drawing from literature
on organizational imprinting (Johnson, 2007; Marquis & Tilcsik, 2013;
Stinchcombe, 1965) this essay explains the existence of difference in a field’s
standards by emphasizing the import of historical context. It shows how those
standard organizations are fundamentally shaped in their institutional
orientation
their rational for attention to firms’ ESG performance and the
intended audience of their standards
by the composition of the environment
at the time of their founding.
Doing Well by Doing Good 307

Finally, drawing from scholarship and secondary data, this chapter is able to
illuminate the implications of divergence in these ESG guidelines for members
of the field of Responsible Investment. Given how recently many of these stan-
dards were created, the consequences of the multiplicity of standards are not yet
clear. Yet, some tentative claims can be made. First, managers must be cautious
to grasp and to assess the content of these different guidelines so as to imple-
ment reporting that aligns with their own understanding of Responsible
Investment and those of their targeted audience/s. Second, scholars have noted
the complexities that arise for both users and audiences when a plethora of
diverse standards exist in a space (Chatterji et al., 2016; Reinecke, Manning, &
Von Hagen, 2012). Managers may be required to measure and communicate on
multiple dimensions of their performance to accord with the indicators of each
standard, which entails the greater allocation of time and resources than when a
single standard predominates in a field (Chatterji & Levine, 2006; Giamporcaro,
2011). While some scholarship suggests the reactive effects of standards for
shaping actors’ policies and practices, the presence of multiple standards also
allows managers’ greater discretion and autonomy, as they may select from the
available options based on best fit with their own existing practices (Espeland &
Sauder, 2007). Faced with divergent standards, investors in the field of
Responsible Investment likely will find it difficult to comparatively evaluate the
ESG performance of firms, so potentially minimizing the salience of these
reports for informing investors’ decisions. The multiplicity of standards
and
the resulting lack of commensurability
may prevent potential investors from
entering into this new field, as has happened in other fields where investors are
promised social and financial impact (Barman, 2015). Yet, perhaps the lack of a
single standard for investors may be of little consequence, as it is unclear from
past scholarship the extent to which investors employ firms’ reports and ratings
in their investment decision making, even when such standards generate compa-
rable data (Berthelot et al., 2012).
Finally, it remains unclear as to whether the field of Responsible Investment
will continue to be characterized by multiple and diverse standards moving for-
ward. On the one hand, one strand of scholarship, drawing from institutional
theory (DiMaggio & Powell, 1983), would posit that one standard will come to
predominate as the field of Responsible Investment becomes institutionalized.
The pressures of isomorphism will result in a single ESG guideline becoming
established as the common standard for all firms and investors. Yet, a small
body of data on Responsible Investment suggests that this predicted move
toward convergence around a single standard is not yet happening. Certainly, as
the oldest reporting standard in the field, the GRI predominates: over 3,500
organizations issued a GRI G4 report in 2016 (GRI, 2017c). However, the
GRI’s share of the market is declining as a growing number of firms are employ-
ing the guidelines of either SASB or IIRC. Further, the field is becoming seg-
mented around how firms employ the different standards. Companies employ
the GRI reporting standard in their sustainability reporting, as they communi-
cate their ESG performance to stakeholders, but they employ the IIRC or SASB
standards in their financial reporting to communicate their ESG performance to
308 EMILY BARMAN

investors (Calace, 2016). The question of whether the field of Responsible

Investment will become increasingly demarcated around different accounting,
rating, and reporting standards for investors versus stakeholders, and the impli-
cations of such a trajectory for managers in regard to the extent and type of
their engagement in Responsible Investment, provides one fruitful avenue for
further research.

ACKNOWLEDGMENTS
I am grateful to the anonymous reviewers of this chapter and for the thoughtful
guidance of the editors of this issue: Sinziana Dorobantu, Ruth Aguilera, Jiao
Luo and Frances Milliken.

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