On October 14, the Hopkins Business of Health Initiative hosted a panel to discuss whether and how companies should consider the health impacts of their products. The panel discussion included Steve Downs and Thomas Goetz from the Building H public health nonprofit, Professor Sara Singer from Stanford University, Luigi Zingales from the University of Chicago and Mario Macis from Johns Hopkins University.
Should companies play a role in addressing consumption-related healthcare costs? Should we extend the concept of Corporate Social Responsibility (CSR) to health impacts? If so, how could we measure the health footprint of companies? These were some of the questions raised in a recent webinar, Whose Business Is Health? Corporate Social Responsibility and the Health of Americans.” The Oct. 14 panel, hosted by Johns Hopkins University’s Hopkins Business of Health Initiative, included co-founders Steve Downs and Thomas Goetz of the public health nonprofit Building H , Professor Sara Singer of the Stanford University School of Medicine and School of Business, and Professor Luigi Zingales of the University of Chicago Booth School of Business and Director of the Stigler Center. Professor Mario Macis from the Johns Hopkins Carey Business School moderated the panel.
Downs and Goetz began the conversation by presenting their Building H Index, which ranks 37 American companies across four industries — entertainment, food, housing and transportation — based on the health impacts of their products and services. The health outcomes 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 highest-ranking company, Culdesac, is building a neighborhood in Temple, Arizona that will promote cycling and public transportation over private vehicle driving.
“We’d really like it if investors in this space might look at this as a leading indicator of where CSR or ESG might be going, so they don’t just have to think about issues like climate change, they also have to think about health implications,” he said Downs on his and Goetz’ index.
However, Singer was not so sure that companies would start adopting metrics on CSR practices as articulated in the Building H Index. “The incentives that companies have are modest at best,” she said. There are tensions between the short-term and long-term interests of stakeholders and shareholders that impede the uptake of CSR practices. However, things are going in a good direction, Singer said. Employees are more concerned about the ethical aspects of their jobs and this is pushing companies to do better. Singer explained that transparency drives more behavioral change among consumers and businesses, and that measurement is a great way to drive this process for both the private sector and policymakers.
Zingales also noted later in the panel that ESG or CSR and profit are not always a compromise. Sometimes it can be a win-win situation. But when it comes to a compromise, investor involvement becomes crucial.
Downs explained that there are three categories of change companies can make: win-win decisions, sacrificing short-term gains in exchange for long-term reputational benefits, and not changing practices and products because the gains far outweigh the negative health impacts . The hope is that there are enough of the first two decisions to make progress, and that the third category boils down to incentives and policies when companies are profitable but have significant negative health impacts.
However, many companies still see CSR as contradicting profit maximization. Zingales said this standard view, best articulated and credited to economist Milton Friedman, has not changed significantly, but agreed with Singer that there had been some progress towards CSR. Ironically, Friedman’s thinking on free and competitive markets and efficient corporate and consumer behavior also suggests that consumers will make demands on corporate positions on CSR by doing business. If certain goods and services are not healthy, consumers will buy other products. A Friedman follower might therefore suggest that existing corporate positions on CSR already reflect what consumers want.
Zingales said that view is naïve in today’s economy, where companies are armed with a vast amount of consumer data that allows them to exploit consumers. In addition, it can be difficult to design health measures for specific factors such as car pollution, especially when multiple considerations are involved and the time horizon of health effects is long.
However, having a good, albeit flawed, measure like the building H-index is better than none at all, Singer said.
“It’s really difficult to do what Building H is trying to do because on the one hand they’re trying to be strict, but on the other hand they’re trying to be simple and transparent, while also engaging businesses in a productive, constructive conversation about how.” you can change,” said Singer.
Macis then asked the panel what investors should do if they disapprove of a company’s practices and products because of their health effects. Should they engage in divestitures or shareholder activism? Zingales responded that if a practice or product is morally repugnant to an investor, they should divest. For other products where there is not total moral resistance, there is ample opportunity to improve company performance by engaging with the company on shareholder proposals that improve the company’s health impact. Additionally, Zingales noted that the benefit of indices like Building H is that they “provide a guide or benchmark that helps investors see their impact” and offer hope for change.
The panel also considered fears that companies could simply use CSR or ESG index constructions as greenwashing or empty virtue signals. Zingales replied that there are two ways to create indexes. On the one hand, it should be shown which companies are better on average, and on the other hand, which companies are worse. The second, through shame, is more effective. Companies are extremely sensitive to a bad image and don’t want to be at the top of a shame list. However, these types of indexes are not popular. Zingales said indices that show how companies can improve rather than shaming the worst offenders allow those companies to skew measurements by promoting what they do well. The Building H Index does a little bit of both, Downs said.
Macis ended the webinar by asking if there is evidence that consumer loyalty is associated with a better building H-Index score. Goetz responded that the Net Promoter Score, which asks consumers whether they would recommend a company, product or service to others, has sub-scores that can be associated with the Building H-Index. “Consumers are increasingly aware that the products and services they use have health implications,” Goetz said. He added, “One of the things we’re trying to do is tie this to a possibility so companies can take action.”