**4.1 CSR - environmental, social and governance criteria for investors**

Investors have become more intensively interested in knowing about sustainability, social responsibility or good corporate governance of their possible targeted investee. After investment, they need to obtain some background information on the business entities in which they have invested their capital. Environmental, social, and governance (ESG) criteria are methodological tools representing a set of standards for a company's operations that socially conscious investors use to screen potential investments. ESG reports inform about the analysis results of portfolios from different companies based on their sustainability criteria and social impact.

In recent years, the regulatory environment in the European Union has also required far-reaching obligations to disclose ESG-relevant data and to take them into account in investment decisions particularly in the case of institutional investors such as state pension funds and insurance companies [66, 67], so that financial market regulation – in addition to the self-interest of investors in reducing reputation risks, event risks, regulatory risks, technological and legal risks and saturating demand from private investors – provides additional incentives to include ESG criteria in the investment process [66].

Environmental, social, and governance criteria (ESG criteria) are increasingly in focus of companies as growing number of investments are being made based on such criteria [68–70]. Shares and bonds of companies that do good for the environment, society, and their own employees, suppliers, and customers in as many aspects as possible end up in special sustainability funds and receive more attention [71]. Thus, in the United States, for example, the total US-domiciled assets under management using sustainable strategies increased by 38% from USD 8,700bn (2016) to USD 12,000bn (2018) [69]. Thus, the consideration of ESG criteria and indicators is not only a question of ethics and morals because ESG criteria are considered relevant as filters for internal risks (e.g. event risks of assets) and external risks (e.g. climate change) [72, 73]. In the investment management framework, the pursuit of the highest possible risk/return ratio in capital investment may make it also necessary to minimize risk by taking ESG criteria into account [66]. Thus, ESG investing is not an irrational taste-of-assets decision (investor-taste decisions) but may have a performance-relevant effect so that ESG criteria should be considered as an instrument in rational decision-making [74].

Investment decisions today are largely made analytically in the framework of predefined processes analyzing continuously the same key figures more or less software-e-based resulting in the calculation of the risk/return ratios and the selected stocks and assets with the best ratios and indications [75, 76]. Such an approach quantitative investment results, on the one hand, from that globalization simply means that there are many more assets available as possible investment instruments, and it is no longer possible to evaluate them individually [77]. On the other hand, there is also a trend away from investment managers who base their investment decisions on gut instincts [78] or fundamental and technical analysis (discretionary asset management) and towards an automated, data-model-based investment decision process. So, what is required in general is standardized numerical data [79] such as ESG ratings provided from specialized rating agencies intending to assist in the selection and analysis of individual securities as well as funds and portfolios.

#### *Integrity of the Corporate Social Responsibility and Management of Financial Services… DOI: http://dx.doi.org/10.5772/intechopen.101057*

Therefore, the question arises on how ESG performance is measured [80], and to which extent such data is relevant in the investment process, particularly due to empirical results questioning the use for evaluating ESG risk exposure. Thus, Hübel and Scholz [70], for example, provide significant evidence by testing several different factor models finding that ESG ratings (in this case provided by EIKON) do not provide additional information useful in the management of ESG risks. Furthermore, they found no systematic ESG-related discount or risk premium [70] concluding that "investors can measure the ESG risk exposures of all firms in their portfolios using only stock returns, so that even stocks without qualitative ESG information can be easily considered in the management of ESG risks" [70]. From these results, they conclude that stock prices provide sufficient information also for the evaluation of ESG risk exposure [70]. Moreover, researchers [81, 82] find evidence that ESG ratings from different rating agencies show high positive correlations so that a data collection bias can be excluded as well, so that rating agency methodologies do not explain differences in research results from any form of selection bias.

Other recent studies have based their research on ESG indication effects on risk and performance by collecting primary data mainly from company reports such as [83] developing a carbon factor or using an individual methodology for calculating ESG ratings from company reports [84]. Both studies also provide evidence that ESG indications based on a larger number of indicators do not provide added value information. Nevertheless, selected data from company ESG reporting, particularly in the area of environmental criteria may provide information on ESG risks not included in stock price data [70, 84] recommending a different approach for future research and also risk management practitioners' alternative to the use of agency ESG ratings or only the agencies'sub-rating data.

It is thus not surprising that a recent Deutsche Bank Research study finds that although nine of ten of the world's largest fund managers claim to have a responsible investing mandate, just two-fifths actually use ESG factors in the stock analysis. The study concludes that obviously, investment analysts have trouble translating non-financial information in terms of ESG data into investment decisions [79]. This leads to a follow-up question, how portfolio management practitioners in the area institutional investment use overall ESG performance ratings, or only parts of them or even completely different metrics to assess and manage ESG risks, because it seems to be obvious that agency ESG ratings have their limits in providing additional information on ESG risk exposure not included in market data. Yet, the research results on the integration of ESG information in the investment process of professional investors are rare in contrast to the more extensive research, including performance data and ESG ratings of funds or stocks. Besides the fact, that such research – as discussed above – provides only ambiguous findings on the performance effect of ESG ratings, the question remains unanswered how ESG data are included in the risk management process [71].

#### **4.2 CRS concept cases in accounting and finance services environment**

Digital and blockchain technology offers variety of utilization opportunities in many economic areas, such as accounting, finance, telecommunications, supply chain management, etc.. It requires understanding how new digital tools based on the progressive digital technology function and operate. A blockchain as a digital record of transactions, consists of records labeled as "blocks", which are then linked together in a chain-like formation with a great deal of use. It is a financial domain with many applications. The following **Table 7** summarizes benefits of blockchain implementation into daily management activities (**Table 8**).



#### **Table 7.**

*Source: Elaborated by the authors based on [66].*


#### **Table 8.**

*CSR and blockchain elaborated by authors based on [85–89].*

Supply chain example:

A knowledgeable purchase manager designs an economic plan to eliminate waste and ongoing use of resources. Companies can act dishonestly, continue taking part in harmful activities very often while pretending environmental and social sustainability. Blockchain's decentralized structure ensures that each participant oversees their processes and has access to appropriate data. "Procurement Blockchain" guarantees transparency, and acting on manager's behalf when making purchases, negotiating different terms with suppliers, a procurement deal is based on total ecosystem volume (i.e. purchase data from purchaser and their partners). A blockchain-based database is capable of storing relevant data from all business partners, summarizing total volume of purchases, regardless of who managed the purchase activity. It enables calculating the exact volume discount based on the total purchase, in addition mathematical proof of a correct computation is provided. For instance, 25% reduction of costs of invoice factoring can be achieved as blockchain lowers the risk of selling multiple invoices. With blockchain technology operational data are constantly shared, no need for data-crosschecking – it enables audits to be conducted automatically, price verification process will be eliminated. With this detailed tracking and verification process, linking and sharing can be done synchronously. During the supply chain process, the details of every transaction are recorded and made accessible via a permanent history – once the data is created, it cannot be deleted or altered [86].

The following diagram illustrates how blockchain technology impact at nearly every element of the complex Procure-to-Pay (PTP) process (see the diagram) (**Figure 4**).

Managers can benefit from blockchain technology in the management process, for instance, cost-savings, achieving increased operational efficiency or forming

*Integrity of the Corporate Social Responsibility and Management of Financial Services… DOI: http://dx.doi.org/10.5772/intechopen.101057*

#### **Figure 4.**

*Blockchain Technology for Procure-to-pay process – Accenture source: [87].*

new operational models within management of working capital cycle, specifically in the following areas of supply chain management: procurement, provenance, product authenticity and traceability, digital payments and contracts, logistics and manufacturing.

#### A.**Blockchain and CSR in Working Capital Cycle management Advantages**

	- Smart contracts can help reduce data redundancy across trading partners and eliminate costly mistakes. Can automate the invoicing process and "patch" the expensive procure-to-pay gaps.

"The smart contract: the brain of the blockchain It is a computer protocol designed to automate the execution of the terms of a contract. Once coded and deployed on the blockchain, the smart contract is tamper-proof, autonomous in its execution, verifiable by all parties of the network because it is distributed [91]".

	- detailed tracking and verification process
	- linking and sharing done synchronously
	- eliminating human errors, reducing costs, minimizing time delays associated with performing transactions.
