On Oct.14, the Hopkins Business of Health Initiative hosted a panel discussing if and how companies should consider the health implications of their products. The panel featured Steve Downs and Thomas Goetz of public health non-profit Building H, Professor Sara Singer of Stanford University, Luigi Zingales of the University of Chicago, and Mario Macis of John Hopkins University.
Should there be a role for corporations to address health costs from consumption? Should we extend the concept of corporate social responsibility (CSR) to include health impact? If so, how could we measure the health footprint of business? These were some of the questions that began a recent webinar, “Whose Business Is Health? Corporate Social Responsibility and the Health of Americans.” The Oct. 14 panel, hosted by John Hopkins University’s Hopkins Business of Health Initiative, included co-founders Steve Downs and Thomas Goetz of the public health non-profit Building H, Professor Sara Singer of Stanford University’s School of Medicine and School of Business, and Professor Luigi Zingales of the University of Chicago Booth School of Business and the Stigler Center’s director. Professor Mario Macis of John Hopkins Carey Business School moderated the panel.
Downs and Goetz began the conversation by introducing their Building H Index, which ranks 37 American companies across four industries–entertainment, food, housing, and transportation– based on the health consequences of their products and services. The health consequences of these products and services are based on their impact on five behaviors: eating, sleeping, physical activity, social engagement, and spending time outdoors. For example, the top ranked company, Culdesac, is constructing a neighborhood in Temple, Arizona, that will encourage cycling and public transportation over driving personal vehicles.
“We would really love to see investors in this area look at this as perhaps a leading indicator of where CSR or ESG might be going, so that in addition to thinking about issues like climate change, they’re going to have to start thinking about health impact,” Downs said about his and Goetz’s index.
However, Singer was not so sure companies would begin to adopt metrics on CSR practices such as those articulated in the Building H Index. “The incentives companies have are modest at best,” she said. There are tensions between the short-term versus long-term interests of stakeholders and shareholders that hamper adoption of CSR practices. However, things are moving in a good direction, Singer continued. Employees are caring more about the ethical considerations of where they work, and that pushes companies to do better. Singer stated that transparency encourages more behavior change by consumers and companies, and that measurement is a great way to move that process along for both the private sector and policymakers.
Zingales also noted later in the panel that ESG or CSR and profit are not always a trade-off. Sometimes it can be a win-win. But it is when it is a tradeoff that investor involvement becomes pivotal.
Downs stated that there are three categories of changes that companies can make: win-win decisions, sacrificing short-term profit in exchange for long-term reputation benefits, and not changing practices and products because the profits far outweigh the negative health impacts. The hope is that there are enough of the first two decisions to make progress, and that third category comes down to incentives and policy when companies are profitable but cause significant negative health impacts.
For now, though, many companies still perceive CSR to be in conflict with profit maximization. Zingales said this standard view, best articulated and attributed to economist Milton Friedman, has not changed much but agreed with Singer that there has been some progress toward CSR. Perhaps ironically, Friedman’s body of thought on free and competitive markets and efficient firm and consumer behavior also suggests that consumers will impose demands of corporate positions on CSR through where they take business. If certain goods and services are not salubrious, consumers will purchase other products. An acolyte of Friedman might suggest, then, that existing corporate positions on CSR already reflect the desires of consumers.
Zingales said this view is naive in today’s economy because companies are equipped with a massive amount of consumer data that allows them to prey on consumers. In addition, it can be hard to create health measures for certain factors such as pollution from car exhaust, especially when there are multiple considerations in play and the time horizon of the health impacts is long.
However, having a good if flawed measure, such as the Building H Index, is better than having none, Singer said.
“It is really difficult to do what Building H is trying to do, because they are trying to, on the one hand, both be rigorous, but on the other hand, at the same time they’re trying to be simple and transparent, while also engaging businesses in a productive, constructive conversation about how to change,” Singer said.
Macis then put to the panel the question of what investors should do if they disapprove of a company’s practices and products based on their health impacts. Should they engage in divestment or shareholder activism? Zingales responded that if a practice or product is morally repugnant to an investor, then they should divest. For other products, where there is not total moral opposition, there is plenty of opportunity to improve company performance by engaging with the company through shareholder proposals that will improve the company’s health impacts. Additionally, Zingales noted that the advantage of indices like Building H is that they “provide guidance or a benchmark that helps investors see their impact,” providing hope for change.
The panel also considered the concern that companies may simply use CSR or ESG index constructions as greenwashing or empty virtue signaling. Zingales replied that there are two ways to create indices. One is to show which companies are better on average and the other is to show which companies are worse. The second, through shaming, is more effective. Companies are extremely sensitive to a bad image and they do not want to be at the top of a shame list. However, these types of indices are not popular. Zingales said indices that show how companies can improve, rather than shame the worst offenders, allows these companies to distort measurements by advertising what they do well. The Building H Index does a little bit of both, Downs said.
Macis concluded the webinar with a question asking if there is evidence that connects consumers’ loyalty to a better Building H Index score. Goetz responded that the net promoter score, which surveys consumers on if they would recommend a company, product or service to someone else, has ancillary values that can be connected to the Building H Index. “Consumers are increasingly aware that the products and services they use have health impacts,” Goetz said. He added, “One of things that we’re trying to do is to tether that back to a way that the companies can take action.”