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Ethics and Leadership News

September 28, 2006

Professor Geoffrey Heal: Ethics Pays

Professor Heal is interviewed by Peter Wolfgang '08, Bernstein Student Board member.



Professor Geoffrey Heal

What’s on your desk right now in terms of current research?

Well, I’ve just finished writing a book called Capitalism and Conscience. It’s about the social and environmental obligations firms have, or feel they have. Specifically, the issue the book explores is whether it helps or hinders firms to assume obligations not imposed on them by outside the company.

How can assuming these responsibilities help or hinder a company?

Reputation is a big issue when companies do only the minimum required of them – consumers are especially sensitive to that. This is why companies rated most highly for CSR almost always spend the most on advertising. Take the cosmetics industry, or companies like Starbucks. When Nike’s reputation was tarnished because of their association with sweatshops, market share dropped, revenues dropped, etc. Sweatshops just aren’t cool.

Another mechanism is legal liability. Stock markets actually mark down the prices of companies who don’t perform on these issues. The EPA publishes every year a report called the Toxic Release Inventory, which tracks the amount of chemicals companies handle to buy, sell, dispose of, etc. These aren’t illegal toxins, by the way – the idea is more to name and shame than to bring actual legal action. The interesting thing is that companies’ stock prices drop proportionately according to the amount of chemicals they produce. The hypothesis is that there is a general sense in the investment community that a firm must eventually pay for their pollution in one way or the other, whether through legal action or other means. So even if legal action isn’t taken right away, there is still a strong connection between share price performance and these issues through the threat of it.

The bottom line to my approach is to see whether CSR pays or not, and the answer is yes, ethics pays.

How did you get into this specific field from having studied general economics?

I’ve always been interested in the environment in particular. When I was a small kid, I went bird watching quite often. I also studied physics in addition to economics, and energy is something both fields have in common.

How long have you been at Columbia? What did you do before then?

I’ve been at Columbia since 1983, with a few years unpaid leave to start a company called FiTel (Financial Telecommunications). It was primarily a software and telecom company. Before that, I was one of several people in the 1970s in London who started a consulting group called the Economists Advisory Group, which we sold to The Economist group, the owners of the magazine The Economist. It’s since become the Economist Intelligence Unit, which is still in operation and is the consulting arm of the magazine. Also, in the early 1980s I was the economic advisor to the secretary-general of OPEC.

Another thing I’d like to mention is that I run a secretariat called The Coalition for Rainforest Nations. It started back two and half years ago when Kevin Conrad, a Columbia EMBA student from Papua New Guinea, had the idea to stop deforestation in his home country by finding a way to make money out of the forest without cutting it down. We discussed this with the Prime Minister to see whether we could edit the Kyoto protocol to do so, and we put together this coalition, which now contains all the countries in the world who have rain forests.

The idea is that if a country cuts back de-forestation, they are given an allowance for carbon emission via Kyoto, which they can then trade on the carbon emissions market. In essence, the coalition links deforestation to climate change and to Kyoto in a way that rainforest nations benefits by being able to sell emissions credits to European companies. There’s plenty of money to be made doing it too – over $8 billion a year from cutting back deforestation just for Indonesia. The Clinton Global Initiative is on board, as are several heads of state. The EU has been very supportive. We can always use good help from students, so feel free to email me if you’re interested.