DSF Policy Paper Series
Triggering the Business Case for
Sustainability Management:
From Short-Term Profits to
Long-Term Value Creation
Timo Busch
November 2012
DSF Policy Paper, No. 32
1
Triggering the Business Case for Sustainability Management:
From Short-Term Profits to Long-Term Value Creation
Timo Busch*
Abstract
The world today is confronted with two central market failures: the tragedy of the commons and the
existence of negative externalities. Investigating the reason for these market failures, this paper
focuses on the tension between economic self-interest and societal-beneficial action. For this,
corporate sustainability management is investigated from an instrumental business case perspective.
The conclusion is that a shift from a short-term profit orientation towards a long-term value creating
strategy is still missing. Such a strategy unequivocally needs to respond to global challenges and
should consider sustainability management as a business imperative. What needs to be done in order
to trigger such a business case understanding? This paper discusses the preconditions for a
reorientation towards long-term value creation in three areas: corporate management, financial
markets, and management education.
.
*
Department of Management, Technology and Economics, ETH Zurich & Duisenberg school of finance
2
Introduction
Between 1970 and 2004, global Greenhouse Gas (GHG) emissions have increased by 70 percent
(IPCC, 2007). This increase has caused an atmospheric carbon dioxide concentration of about 387
parts per million by volume, which significantly exceeds the proposed planetary boundary of 350 parts
(Rockström et al., 2009). This trend is still continuous: Global CO2 emissions increased by 4.4 percent
between 2008 and 2010 (from 29.3 to 30.6 gigatons), while at the same time global GDP increased by
only 3.9 percent (from US $71.7 trillion to US $74.4 trillion).2 These numbers imply that carbon
intensity (defined as CO2 emissions/GDP) increased by 0.5 percent during these three years, a trend
that raises fundamental questions about the ecological sustainability of current business practices.
The ecological footprint of human activities also reflects this dangerous trend. In 2007, humanity used
the equivalent of 1.5 planets to support its activities; by 2030 humanity is projected to require the
capacity of two Earths (WWF, Zoological Society of London, & Global Footprint Network, 2010). All
this data has one thing in common: It illustrates that society already lives beyond or close to its
planetary boundaries (Rockström et al., 2009).
The main reasons for this situation can be seen in two market failures which occur in this world
through extensive utility-maximizing behavior, the tragedy of the commons and the existence of
negative externalities. The overarching question is: What can be done to solve the “point of tension”
(Margolis & Walsh, 2003: 271) between economic self-interest and societal-beneficial action? This is
an important question as Lazonick and O'Sullivan (2000: 33) highlight: “the pursuit of shareholder
value [by excessively focusing on short-term profit maximization] may be an appropriate strategy for
running down a company – and an economy“. In trying to offer a potential answer, this paper is
centered on an organizational science perspective and concludes that a drastic reorientation towards
creating long-term value is needed. Ten years ago, Michael Jensen claimed in a seminal article that
corporate management should focus on “long-term maximization or value seeking as the firm’s
objective” (2002: 235). First empirical evidence suggests that, in fact, such a long-term orientation has
a positive effect on firm performance (Busch, Stinchfield, & Wood, 2011; Wang & Bansal, 2012).
Notwithstanding this first piece of evidence, I propose that our current understanding of business
strategy and sustainable management practices have by far not integrated the objective of long-term
value creation. This may also be one central reason why current research on the business case
debate remains inconclusive. This paper’s contribution is to reemphasize the need for a reorientation
towards long-term value creation and to highlight the preconditions required.
The remainder of this paper is organized as follows: First, the importance of responding to the two
central market failures is emphasized. By putting the focus on firms, three forms of corporate
sustainability management as potential responses to the market failures are discussed. Afterwards, in
order to illustrate the consequences of sustainability management, the literature on the business case
debate is reviewed and the importance of more long-term considerations in both the academic and the
2
Sources: http://www.iea.org; http://data.worldbank.org
3
business world is highlighted. Finally, the preconditions required for a reorientation towards long-term
value creation are derived for corporate management, financial markets, and management education.
FROM MARKET FAILURES TO CORPORATE ACTION
Economic perspectives on market failures
Adam Smith (1776) coined the term invisible hand which refers to the self-regulating nature of the
marketplace. This logic is the basic foundation for the Chicago School’s interpretation of free market
capitalism: Everyone should just maximize its own, individual gains and thanks to the free market
paradigm society will benefit as a whole. Eventually this interpretation leads to Milton Friedman’s
(1970) famous saying: “The business of business is business”. This picture, however, neglects the
existence of market failures. Both the tragedy of the commons as well as the existence of negative
externalities are market failures that illustrate that extensive utility-maximizing behavior of individuals
will eventually not benefit society as a whole.
Ecologist Garrett Hardin (1968) most prominently pointed to the tragedy of the commons as a market
failure: Economic agents tend to consume common, free goods in a manner that endangers the
existence of the good in the long run. Without any interventions or restrictions, the over-consumption
will ultimately result in a situation where the goods (or resources) are depleted. This long-term
consequence of course is not in the interest of the economic agent or society as a whole. A typical
example for such a situation would be extensive fishery: After a certain threshold the fish stock cannot
regenerate and starts to decline until it is finally depleted. Given the current population growth, the
world's population is projected to grow to about 9.3 billion by 2050 (in 2011, it reached seven billion),
the risk of resource depletion rather increase than decrease. As a consequence, many ecologyoriented scholars warned of the long-term consequences: For example, Kenneth Boulding (1966)
urged that the earth of the future requires a shift in principles, considering the economy of the world no
longer as open but as a closed economy; Dennis Meadows and colleagues (1972) showed that
economic growth patterns of the past cannot be extended into the future due to resource constraints;
Herman Daly (1973) postulated the need for a steady-state economy with a constant stock of physical
wealth and a constant population.
Ever since the early days of welfare economics the existence of negative externalities has been
recognized as an important phenomenon within the economic discipline. Today, Nobel Prize winner
Joseph E. Stiglitz (1994) is probably one of the most prominent protagonists with the view that markets
are often not efficient and negative externalities demonstrate a central market failure. An externality is
defined as occurring when “the production or consumption decisions of one agent have an impact on
the utility or profit of another agent in an unintended way, and when no compensation/payment is
made by the generator of the impact to the affected party” (Perman, Ma, Mcgilvray, & Common, 2003:
134). An adverse impact is called a negative externality. Negative externalities are among the principal
reasons why many firms fail to act in a way beneficial to society as a whole when maximizing firm
value. In other words, a market failure occurs because individuals – also in their function as managers
4
of the firms they run – act in a profit-seeking manner while at the same time they do not have to pay
(in full) for the costs their activities cause. Instead, these externalities are borne by third parties or
society in general (Kapp, 1950).
What can be done to solve the point of tension between self-interest and societal-beneficial action?
Within the economic discipline, applying a Pigovian tax (Baumol, 1972) or assigning property rights
(Coase, 1960) would be obvious answers. There is a whole literature stream in environmental
economics focusing on the effects of environmental regulations and incentives (for a review see e.g.,
Requate, 2005).3 This paper takes a different standpoint by focusing on the firm-level of analysis in
order to investigate the aforementioned point of tension. At this level, the important difference is that
firms are considered to be heterogeneous actors who react differently to external changes (Dosi,
1997; Schumpeter, 1942). The role of corporate strategy and competitive dynamics is then “not merely
about incentives and pressures to keep prices in line with minimal feasible costs, and to keep firms
operating at low costs, but, much more important, [it is] about exploring new potentially better ways of
doing things” (Nelson, 1991: 72). Thus, potentially new regulations certainly are an important trigger
for overcoming the market failures. Going beyond such aspects this paper investigates the role of
corporate sustainability management from a business standpoint. This becomes increasingly important
in times where international public policy efforts seem to be at stalemate.
Three forms of corporate sustainability management
For deriving a definition of corporate sustainability management, the Brundtland Report can serve as a
starting point. In the context of global ecological and social systems, the challenge is a societal
“development that meets the needs of the present without compromising the ability of future
generations to meet their own needs” (WCED, 1987: 43). Several publications transfer the generic
definition of sustainable development to the firm-level of analysis (e.g., Gladwin, Kennelly, & Krause,
1995; Lubin & Esty, 2010; Schaltegger & Burritt, 2005). For firms to contribute to the sustainable
development of society, their corporate strategy should encompass sustainability practices that reflect
the three basic dimensions: economic well-being, environmental stewardship, and social responsibility
(Bansal, 2005; Starik & Rands, 1995). This understanding is also reflected by the so-called “triplebottom-line” definition which claims that all three dimensions of sustainability management have to be
satisfied simultaneously for businesses to become more sustainable (Dyllick & Hockerts, 2002;
Elkington, 1997).
Why do firms address sustainability? Drawing on Carroll’s (1979) social responsibility categories,
Donaldson and Preston’s (1995) taxonomy of stakeholder theory, and Bansal and Roth’s (2000)
model of ecological responsiveness, this paper distinguishes three forms of corporate sustainability
management: coercive, normative, and instrumental. First, as a key stakeholder, governments enact
new laws in order to address market failures and firms need to respond to this changing regulatory
environment (Christainsen & Haveman, 1981; Darnall, 2009). In this sense, the “purpose of business
3
Throughout this paper the term environment is used to refer to the natural environment.
5
is to maximize internal returns […]. Government, not business, has the responsibility of correcting
problems caused by externalities” (Berchicci & King, 2007: 514). In case governments decide to
release new regulations that are meant to internalize negative externalities or reduce the sources of
the tragedy of the commons, the result will trigger a coercive form of sustainability management: Firms
need to adjust to the new regulations and by that reduce their negative ecological or social impact.
Second, according to many studies in the domain of organizations and the natural environment and in
the literature on social issues in management, responding to regulations is not the only reason why
firms implement a sustainability management (e.g., Delmas & Montes-Sancho, 2010; Hoffman, 2005;
Rivera & de Leon, 2004; Sharma, 2000). Instead, firms may voluntarily go beyond what is required by
law. Management may decide to do so on the basis of philanthropic and ethical reasons and do so
independently of any financial considerations (Banerjee, 2007; Donaldson & Dunfee, 1999; Frederick,
1995; Stanwick & Stanwick, 2009). Such an approach, often also referred to as corporate citizenship,
reflects the normative form of sustainability management. This form claims that management should
voluntarily engage in profit-sacrificing activities, provided such activities have a positive impact on
society (e.g., Aguilera, Rupp, Williams, & Ganapathi, 2007; Davis, 1973).
Third, firms can create business opportunities by addressing sustainability issues beyond what is
required by law (Darnall, 2009). Presuming creating economic benefits is the main reasons for
management to address ecological or social challenges, such a strategy corresponds to the
instrumental form of sustainability management. The economic motivation is the main difference in
comparison to the normative form, which is primarily driven by ethical and philanthropic reasons. With
respect to environmental stewardship, firms can increase their internal efficiencies, which in turn can
reduce their environmental impact and operational costs (Hart & Ahuja, 1996; King & Lenox, 2002;
Russo & Fouts, 1997). Additionally, firms can explore new technological opportunities (Shrivastava,
1995) and differentiate from competitors based on ecologically improved products (Orsato, 2006). With
respect to their social responsibility, a good corporate image and the effective management of
relationships with key stakeholders contributes to marketplace success (Brammer & Millington, 2008;
Buysse & Verbeke, 2003; Funk, 2003). The reasons for this success can be attributed to an increased
productivity through attracting and retaining employees (Rowley & Berman, 2000), enhanced revenues
through attaining socially conscious consumers (Trudel & Cotte, 2009), and better access to certain
markets (Ambec & Lanoie, 2008).
Based on the three forms the different motivations for firms to engage in sustainability management
can be explained. These motivations and their effectiveness are widely debated from different angles
and theoretical backgrounds in the literature (e.g., Darnall, 2009; Hoffman, 2005; King & Lenox, 2000;
Lenox & Nash, 2003; Marcus & Fremeth, 2009; Marechal & Lazaric, 2010; Porter & van der Linde,
1995; Rugman & Verbeke, 1998; Siegel, 2009; Vogel, 2005). Now, the focus of this paper is
specifically on the instrumental form of sustainably management. Thus, the question is what the
economic consequences are for engaging in sustainability management.
6
THE BUSINESS CASE DEBATE
Empirical evidence for sustainability-related pay-offs
Willford King (1916) recognized a phenomenon that is still with us today – how should society
reconcile the dilemma of maximizing satisfaction today without placing an undue burden upon
ourselves in the future? In the strategy literature, a related question remains fiercely debated: Does it
pay to address ecological and social issues? Starting from very fundamental investigations (Bowman
& Haire, 1975; Bragdon & Marlin, 1972) Spicer (1978) was one of the first authors to conduct an
econometric study that investigates the economic consequences of ecological and social efforts. Ever
since then, a substantial body of more recent management research seeks to address this question
and investigates the relationship between corporate sustainability performance (CSP)4 and corporate
financial performance (CFP) from different angles. However, there continues to be much confusion
within this debate. At the 2010 Academy of Management conference in Montreal, papers presented in
a session entitled “examining the corporate social performance-corporate financial performance
relationship” offered various different results: no relationship, a positive, or even a curvilinear
relationship. These results are reflected by scholar’s attempts to detect an outperformance of mutual
funds or specialized indexes that invest in firms with enhanced CSP: Empirical studies suggest that
sustainable investments may either outperform the market (e.g., Derwall, Guenster, Bauer, & Koedijk,
2005), underperform the market (e.g., Chong, Her, & Phillips, 2006), or make no difference in terms of
their risk-adjusted financial returns (e.g., Bauer, Derwall, & Otten, 2007).
As a result of these mixed findings, some scholars suggest that since the investigations of Ullmann
(1985) and McGuire et al. (1988) the situation has remained the same: there is no clear relationship
between CSP and CFP (Griffin & Mahon, 1997; Murphy, 2002; Salzmann, Ionescu-Somers, & Steger,
2005). Other scholars conducted meta-analyses (Margolis & Walsh, 2003; Orlitzky, Schmidt, & Rynes,
2003) and indicate – albeit highlighting epistemological and methodological concerns – that CSP
practices are likely to pay off. At least there seems to be no clear indication for a negative relationship
between CSP and CFP (Kurtz, 1997; Kurtz, 2008; Orlitzky et al., 2003).
One common notion that has recently emerged in the literature emphasizing that there is no
unequivocal, final answer to the CSP-CFP debate (Barnett, 2007; Berchicci & King, 2007; Peloza &
Papania, 2008; Rowley & Berman, 2000). As a consequence, focusing further on the “does it pay?”
question defeats its purpose as it “reinforces, rather than relieves, the tension surrounding corporate
responses to social misery“ (Margolis & Walsh, 2003: 278). As a call for extending this debate,
scholars have suggested that instead of seeking to answer the “does it pay?” question future research
should address the more important one of “when does it pay?” (King & Lenox, 2001; Orsato, 2006;
4
This paper uses the abbreviation CSP for corporate sustainability performance. Many studies use CSP for
corporate social performance. There are two reasons why this paper deliberately refers to corporate
sustainability performance: First, there is often confusion if corporate social performance also covers ecological
aspects. To overcome this confusion, the broader term sustainability is used which comprises both, social as
well as ecological aspects. Second, a main construct of this paper is sustainability management of firms.
Enhancements of sustainability management result in an improved sustainability performance. In order to be
consistent it is referred to this construct throughout this text.
7
Rowley & Berman, 2000). This line of thought is consistent with Rivoli & Waddock’s (2011) argument
that there is a clear business case for sustainability management, but it shifts over time. What is and
what is not responsible corporate practice is time- and context-dependent; the same holds for the
profitability of CSP practices (Bird, Hall, Momente, & Reggiani, 2007). In sum, Berchicci & King (2007:
525) conclude that CSP practices “may pay only for some firms, or in certain cases, or in certain time
frames”.
Extending the business case debate
I propose that one reason for the inconclusiveness of the business case debate can be ascribed to the
lack of long-term considerations. To illustrate this in more detail, it is important to distinguish between
three generic positions within this business case debate. First, there is the only profits matter
argument: Rooted in neo-classical economic theory this argument considers firms to be efficiencydriven anyway and thus no special emphasis on sustainability management is needed. The
managerial advice would be to incorporate sustainability management only to the extent as it is
covered by business as usual processes. Any further efforts to increase CSP unnecessarily constrain
the firms’ actions through increased costs (Christainsen & Haveman, 1981; Filbeck & Gorman, 2004;
Walley & Whitehead, 1994). Following this line of thought, management should only focus on
maximizing profits and creating shareholder value (Friedman, 1970). It is obvious that under these
assumptions there is not much room for sustainable business practices, especially if the interest is laid
on the long-term consequences of such practices.
Second, there is the short-term pay-off argument: This argument is rooted in the assumption that
because of information asymmetries companies may not always follow efficiency-driven goals and
make optimal decisions (Darnall, 2009; Scott, 2001). Based on this assumption, environmental
strategy research suggests green management efforts can detect previously overlooked efficiency
potentials. Increasing operational efficiencies then in turn contributes to the firms’ profitability and
competiveness (Barnett, 2007; King & Lenox, 2002; Klassen & Whybark, 1999; Russo & Fouts, 1997).
Hillman & Keim (2001) present similar arguments in the stakeholder context: If CSP practices are
directly related to primary stakeholder concerns, they may not only serve to improve stakeholder
relations, but also improve shareholder value. Following this line of thought, it has been argued that
there is no linear relationship between CSP and CFP. The managerial advice would be to make use of
cost-benefit analyses to determine when the optimal amount of investments for enhancing CSP is
reached (McWilliams & Siegel, 2001; Siegel, 2009).
Third, there is the long-term value creation argument: This school of thought proposes that
management should care about environmental degradation and social responsibility as this is
expected by society (Marcus & Fremeth, 2009). According to this line of thought, in the short run it is
possible that firms face a negative effect of CSP practices on CFP, as such activities do not
necessarily result in immediate returns (Wang & Bansal, 2012). However, in the long-term they benefit
from such a strategy as their stakeholders value more socially acceptable business practices
8
(Devinney, 2009), which in turn contributes to long-term business success (Jensen, 2002). The
managerial advice would be to investigate when and how global sustainability trends and challenges
are going to change the business environment and implement a sustainability management that
responds to these changes.
Most of the empirical research on the business case considers rather short-term effects, e.g., the
return developments in the following next year or the evaluations in financial markets within a short
time frame after an event. However, in practical terms it may often be difficult to precisely determine
the optimal amount of CSP investments, especially when purely looking at the short-term financial
benefits. Some investments may immediately be profitable, others not. Thus, limiting CSP-CFP
evaluations only to short-term considerations can be seen as an important reason for the
inconclusiveness of the business case debate. Moreover, in most of the cases the fundamental
negative consequences of unsustainable business practices are likely to become visible in the long
run. This in turn implies that efforts to become more sustainable may also require some time to
become tangible – or in business language to materialize. First empirical evidence suggests that, in
fact, a long-term orientation has a positive effect on CFP: Wang & Bansal (2012) find that for firms with
a high level of long-term orientation; their relationship between corporate social responsibility and CFP
is stronger compared to firms with a low level of long-term orientation. Busch, Stinchfield, & Wood
(2011) find a positive effect of CSP on CFP in the long run while there is no support for this effect in
the short run. As such, it may be important to actually answer the “when does it pay?” question by
considering the long-term effects and implications of CSP.
The need for more long-term orientation
Does business practice put enough emphasis on the long-term effects of sustainability management?
Looking at reality of the planet today the answer is obvious: clearly not, both emissions and resource
consumption are continuously increasing. This is not only a global trend, but also holds for the majority
of firms.
From anecdotal evidence it is apparent that achieving sustainable development requires a long
journey. As for the initial step on this journey, it was important that the international community
acknowledged in Rio in 1992 that sustainability management matters and mankind has to change its
production and consumption patterns. Departing from this general commitment, it became clear that
the only profits matter argument would only reinforce the point of tension between economic selfinterest and societal-beneficial action. Companies realized the potential of green management to
increase operational efficiencies – in line with the short-term profit argument. But looking at the
increase of emissions obviously this is not enough effort. The most important step on the entire
journey is to reorient our business practices towards embedding the long-term value creation
argument. Based on such a reorientation the majority of firms would decrease their emissions. Firms
would realize that in the long run effective climate change mitigation goes along with cost savings (as
fossil fuel prices rise and carbon taxes are introduced) and superior corporate reputation (as
9
stakeholders expect this). For this required reorientation, the key areas for change are corporate
management, financial markets, and management education.
THE PATH TOWARDS LONG-TERM VALUE CREATION
Corporate management: what is the matter?
There is much evidence that managers focus too much on three basic strategies: compliance, ecoefficiency, and green-washing. Too much emphasis is laid on the coercive form of sustainability
management – efforts that are required for complying with laws are highlighted as important steps
towards enhanced sustainability management. Similarly, a clear focus is on the instrumental form of
sustainability management that yields short-term pay offs through enhanced eco-efficiency. When
digging deeper into corporate efforts directed at going beyond what is required by law and what
immediately pays off, many efforts turn out to be in fact part of a green-washing campaign, which puts
more emphasize on symbolic rather than on substantial action. Other, rather long-term oriented
challenges within the sustainable development debate are beyond these basic strategies and are not
sufficiently addressed.
Especially in light of the global economic downturn and crisis, caring for environmental degradation
and addressing social inequalities may not be the first priority for managers, as is economic survival.
Of course, such an order of priorities is understandable – from a short-term perspective. From a longterm perspective, however, it is and will increasingly become essential that managers realize that
sustainability management and economic survival are intertwined. A long-term value creating strategy
needs to reflect the planetary boundaries (Rockström et al., 2009) and corresponding social change
and stakeholder expectations (Dawkins & Lewis, 2003). A good example illustrating the relevance of a
long-term perspective is the photovoltaic industry. Cumulative installed photovoltaic capacity increased
more than tenfold between 2000 and 2008 (EPIA, 2009). Although the industry has been hit hard by
the economic downturn, cumulative installed capacity has been forecasted to increase by 13-20
percent p.a. over the coming years (EPIA, 2009), mainly triggered by subsidies and feed-in tariffs.
Currently, the necessity and cost-effectiveness of such governmental programs is debated on the
policy level, for example in Germany. In the long-term, however, the growth prospects of the industry
are very positive given that photovoltaic electricity could become fully cost competitive around 2020
(Bagnall & Boreland, 2008). As this example illustrates, in the current situation firms in photovoltaic
industry face some uncertainties, but in the long run a lucrative industry and striving market can be
expected. It may now be the right time to build up the required competences and skills and to gather
the technological know-how for a long-term successful positioning in this market. Laggards might
experience difficulties in entering the market at a later stage or might have to pay high fees for the
required knowledge transfer.
Why is long-term value creation not yet a business imperative? The literature on organizations and the
natural environment usually argues that changing biophysical conditions may impose constraints and
offer opportunities, and that firms need to adequately respond to ecological issues (e.g., Bansal &
10
Roth, 2000; Hart, 1995; Russo & Fouts, 1997; Shrivastava, 1995). For many ecological issues, many
people would agree that humanity is living beyond the carrying capacity of the planet and that the
ecological impact needs to be reduced. However, management usually does not see an urgency to
respond to these issues (cf. Hulme, 2009). The main reason for this lack of urgency can be seen in the
circumstance that many managers perceive the effects on their business still to be uncertain. While
this uncertainty argument holds for many issues stemming from the natural environment (Chichilnisky
& Heal, 1998; Gulledge, 2008), firms also face uncertainties how stakeholders incorporate and
respond to such issues, for example in terms of new governmental regulation (Engau & Hoffmann,
2009; Hoffmann, Trautmann, & Hamprecht, 2009). These uncertainties pertain to areas that are of
business relevance for firms, that means once the uncertainty dissolves there will be a clear effect on
business. In reality however, these uncertainties can be seen as an important reason for in-action and
reactive responses. In doing so, managers not only seem to overlook the long-term consequences,
they also neglect the fact that many uncertainties are actually dissolving. As science becomes more
precise and recognized, there is no simultaneous corporate action to the same extent. For example,
the public almost did not discuss the first and second IPPC report and the report itself was not very
explicit about concrete likelihoods and probabilities. This uncertainty left managers with the question, if
any strategies towards addressing climate change were needed. But with the release of the third and
fourth IPPC report it has become much clearer that climate change is happening and urgent action, as
well from the business organizations, is needed. This certainty, in turn, triggered public debates and
new regulations such as the European Union emission-trading scheme. However, increasing
emissions illustrate there is no substantial action on the corporate side towards climate change
mitigation.
To conclude, there is much evidence that sustainability management efforts targeting at short-term
pay-offs represent an advantageous corporate strategy. Beyond such short-term benefits there are
many other sustainability-related aspects that are also business relevant – long before necessitated by
cost reasons or eventually becoming a compliance matter. Addressing these aspects is important from
a risk and opportunity perspective. However, this is not a widely established business imperative, yet.
What needs to be done? The way ahead is that the short-term efficiency driven objectives need to be
aligned with a long-term value creating strategy. In a first step, for example, Unilever moved its
reporting practices towards this direction.5 As from 2011 the firm releases a quarterly trading
statement for very second quarter instead of publishing full financial results. The purpose behind this
change is to enhance communication about corporate performance by moving from a short- to a
longer-term focus which better reflects the way the firm manages its business. This is a good starting
point. Next important steps are then to understand the firms’ ecological embeddedness (Whiteman &
Cooper, 2000) and social responsibility (Banerjee, 2007) as key determinants for long-term successful
organizations. Based this understanding, new questions need to be asked when entering markets,
developing products, and evaluating investment opportunities: How resource-dependent are the
production processes? To which extent do we explore low-carbon opportunities? Are there any
5
See http://www.unilever.com/mediacentre/pressreleases (released 26/11/2010)
11
potentially controversial business practices, notably in the supply chain? Essentially, a long-term
oriented strategy does not use the prevailing uncertainties within the business environment as reasons
for in-action. Instead, the principle of responsible leadership (George, 2003; Yukl, 2006) can serve as
the foundation for a proactive business strategy. As a precondition for firms implementing such a
strategy, the self-image of organizations is important. It has to shift from that of a taken-for-granted
attitude to that of a responsible leader who acknowledges the relevance and necessity of taking new,
uncommon, and sometimes even inconvenient pathways that reflect the firm’s ecological
embeddedness and social responsibility. As Amory Lovins puts it: such leaders who want to get it
done need „guts, creativity, and perseverance“ (Lovins, 2011: 158). Responsible leaders can
fundamentally change corporate strategy and influence “others to understand and agree about what
needs to be done and how to do it, and the process of facilitating individual and collective efforts to
accomplish shared objectives” (Yukl, 2006: 8). Thus, business leaders can become an important driver
of (structural) changes (Giddens, 1984). From this point of view, the primarily instrumental motivation
of a long-term value creating strategy finally merges with the normative form of sustainability
management. In order to get there, two levers are important: financial markets and management
education.
Financial markets: what is the matter?
Financial markets could be an immense trigger towards an enhanced long-term orientation of
businesses. Research on financialization highlights the important role of fund managers and financial
market’s expectations for the priorities and objectives of corporate managers (Froud, Haslam, Johal, &
Williams, 2000; Williams, 2000). Could financial markets yet be considered as levers for sustainability
management and long-term value creation? Two main observations can be made. First, financial
markets seem to be generally interested in corporate sustainability practices, e.g., many investor
initiatives addressing climate change have been founded. Empirical market observations show that in
recent years sustainable investment practices have increasingly gained importance in financial
markets (Bauer, Koedijk, & Otten, 2005; Galema, Plantinga, & Scholtens, 2008). Stock market data for
Europe show that sustainable investments have reached EUR 6.8 trillion in 2011; between 2009 and
2011 the compound annual growth rate for all different types of sustainable investments outpaced the
general European market, investments using norms-based screening even increased by 54 percent
(Eurosif, 2012). In addition, according to some industry surveys (e.g., Allianz, 2010), the market is
expected to grow further. The signatories of the Principles for Responsible Investment increased from
557 organizations, worth US $18.5 trillion, in 2009 to over 900, worth US $30 trillion, in 2011 (PRI,
2010, 2011). As such, there is empirical evidence that sustainability topics become more and more
visible in financial markets.
Second, as a consequence of the first observation, one would expect that financial markets
increasingly trigger firms and shape the business world towards putting more emphasis on
sustainability management. Here the central message is, however, that much progress is needed. In
spite of increasing reflection on environmental and closely related social and governance criteria,
12
financial markets have not yet triggered a significant global shift towards greater sustainability
management in the business world. If there is in fact an increasing interest of financial markets in
sustainability topics: Why is it that we don’t see the urgently required change in the business world?
Are the applied environmental, social, and governance criteria actually measuring what they are
intended to measure? Does integrating such criteria actually yield any real improvements? Eventually,
one circumstance is obvious when looking at the reality of financial markets: The prevailing logic is on
short-term profit-maximization. Usually, equity investors base their decisions on ex post performance
data and their investment horizon is rather short-term oriented. For analysts and bankers quarterly or
annual returns matter mainly as these are the foundation for their own bonuses. One may speculate
that unless the investment horizon and the incentive systems are expanded towards more long-term
oriented goals, efforts towards integrating sustainability management are nice to have but are
definitely not a major component within investment decisions.
To conclude, there is much happening today, but by far the full leverage potential of financial markets
is not utilized to pave the way forward towards more sustainable business practices. Financial markets
increasingly reflect on environmental, social, and governance criteria and seek to detect their
materiality for investments (Mercer, 2009; Mercer & UNEP FI, 2007). However, for many other global
sustainability trends and challenges, the answer to the materiality question is still unclear; notably,
there was no such effect in the past. Accordingly, these trends and challenges are not well reflected in
the majority of investment decisions today.
What needs to be done? The way ahead is that financial markets move away from primarily being
rooted in ex-post evaluations towards a new ex-ante perspective. In cases where new constraints and
opportunities are likely to emerge for businesses, it is in the very own interest of financial markets to
anticipate such constraints and opportunities in their evaluations and investment decisions. Especially
in times when investors are increasingly concerned about the security of their assets, changes within
wider ecological and human-social systems are of importance. These changes will be financially
material for assets, but the materiality develops over time and with a relatively slow pace.
Nevertheless, a change in these systems eventually alters the way in which firms do business, which
in turn affects the risk exposure of firms. Thus, financial markets need to analyze global trends that
emerge through changes in wider ecological and human-social systems and, based on this, develop a
new understanding of sustainable investments. The result could be investments that actually reflect all
three dimensions of a sustainable development and achieve both in the long run: low risks and
adequate returns. The investment group Generation6 founded by Al Gore is a prime example showing
that the integration of sustainability research into a long term investment strategy is actually possible.
The reorientation towards such a long-term understanding of value creation cannot be established
overnight and requires some fundamental changes throughout the entire investment process. The
investment “value chain” consists of three main steps: analysts and raters assess an investment
opportunity; financial intermediaries incorporate the resulting information and construct investment
6
See http://www.generationim.com
13
products; and based on these assessments, asset owners decide about their portfolio composition. At
this point in time, each of these steps seems to be rather isolated when it comes to sustainability
aspects. For example, analysts are not (fully) aware of the sustainability preferences of asset owners;
client managers do not offer sustainability funds as a default option; and asset owners are not aware
of potential sustainability-related risks. It is important that this investment “value chain” becomes more
transparent regarding the role of sustainability criteria and the individual actors improve their
communication about these criteria and their relevance for long-term value creation and risk mitigation.
As a consequence, a competition can be initiated amongst firms towards meeting this criteria; and the
new understanding of sustainable investments can foster financial markets’ appreciation of what
Jensen (2002) calls “enlightened value maximization”.
Management education: what is the matter?
This paper argues for a reorientation within firms and in financial markets towards emphasizing longterm value creation. For this shift, decision makers need to be aware of the consequences of their
decisions in the short and long run and acknowledge that sustainability management becomes
increasingly important for long-term business success. As research on the concept of performativity
(Callon, 1998; MacKenzie & Millo, 2003) shows, the core principles of what is taught in economics
“shape management practices, tools, norms and language, and subsequently frame the business
world” (Cabantous, Gond, & Johnson-Cramer, 2010: 1534). Looking at the management education in
business schools today, courses on business ethics and sustainability management are an elective
component of some MBA and strategy curriculums. However, the majority of the mandatory strategy
and management courses taught focus on theories that are rooted in the assumption of self-interest
and utility maximizing behavior, neglecting the role of sustainability management and ethics. Why is
there this focus and how can the current situation be changed? In the following the ideas of Rakesh
Khurana and Sumantra Ghoshal are visited to answer these important questions.
Khurana (2007) describes in his book “From Higher Aims to Hired Hands” the institutionalization of
business schools in North America over time. He emphasizes that the initial purpose of management
education was to teach accountants, workers, and production managers how to run factories,
especially as the factories in times of industrial progress became larger and more complex over time.
The first significant change was after World War II when many people and institutions in the US saw
the “effective training of managers as one of the primary means by which America would meet its
postwar challenges” and believed that to “address the threat of communism […] a new, more rational
conception of management” would be required (Khurana, 2007: 203). As result, a new phase of
management education was born, termed the postwar “American managerialism”.
In light of intense economic distress in the early 1970s, the role of management and many of the
applied management techniques were blamed for being the source for the economic troubles (Hayes
& Abernathy, 1980). These critiques finally resulted in the establishment of the efficient-market
hypothesis and shareholder value maximization as new business paradigms (Lazonick & O'Sullivan,
14
2000). The “logic of the all-encompassing market […] had become so broadly diffused in the course of
the 1980s and 1990s as to be part of the American zeitgeist” (Khurana, 2007: 334), a development
that still today builds the foundation of many strategy courses. At the same time, more and more
economists entered the field of business schools. Ever since then, two perspectives from new
institutional economics are dominant in management education: transaction cost economics
(Williamson, 1975, 1985) and agency theory (Jensen & Meckling, 1976). While the former calls for
monitoring and control in order to prevent business agents to behave opportunistically, the latter
emphasizes the that managers cannot be fully trusted because of their own interests. The message
here for generations of business students has been: Based on such pessimistic assumptions about
individuals, the primary purpose has to be to solve negative problems so that the overall objective of
shareholder value maximization can be fulfilled (Ghoshal, 2005).
These trust denying and self-centered behavior logics are the dominant lines of thought in
management education today. At the same time normative aspects are not a major part of the
education system. As highlighted by Ghoshal (2005:79), “a precondition for making business studies a
science as well as a consequence of the resulting belief in determinism has been the explicit denial of
any role of moral or ethical considerations in the practice of management.” The outcomes are
management theories rooted in negative assumptions about individual behavior being the dominant
foundation of business education. These underlying assumptions explain why there is this focus on
immediate control mechanisms and short-term performance outcomes. Normative considerations of
business practices and their potential long-term consequences are not of major interest. Theories that
are founded on more positive notions and include aspects such as intrinsic motivations and fairness,
for example stewardship theory (Davis, Schoorman, & Donaldson, 1997), are less investigated and
taught in today’s business school practice.
To conclude, the challenges society faces in the 21st century suggest that a new school of thought
needs to be developed and taught. This school is based on a new blueprint for the foundation of
business and corporate leadership; a blueprint that equally considers ecological limitations and the
interests of other members of society and does not only emphasize the role of shareholders and the
maximization of profits. At the forefront for such a reorientation, managerial education has to shift
away from promoting the “ruthlessly hard-driving, strictly top-down, command-and-control focused,
shareholder-value-obsessed, win-at-any-cost business leader” (Ghoshal, 2005: 85) towards
developing “informed, reflective, integrated individuals fully able to engage with ultimate questions
about the meaning and purpose of their lives and their work” (Khurana, 2007: 366).
What needs to be done? The way ahead is that teachers in business schools, all other academics
involved in management education, and most importantly the deans of these schools and institutions
acknowledge one important condition: The reorientation discussed above will not happen without a
fundamental reorientation of what is taught. When the curricula remain unchanged, the business
practices will not change either. Offering a business ethics course is fine, but it should become an
15
obligatory course for each business student. This is a necessary condition for promoting informed,
reflective, integrated individuals. Even more importantly, the models and theories need to be extended
to an important dimension: the natural environment. As any other change of the business environment
needs to be addressed by business, changes of the natural environment need to be incorporated
equally across business. For example, students need to understand that ecological conditions
constitute a sixth force, that natural resources can also be valuable, rare, inimitable, and nonsubstitutable, and that natural degradation can be another reason for institutional isomorphism.
CONCLUSIONS
If there was clear and unequivocal evidence for the business case for sustainability management,
society would be well off. Therefore, sustainability management would be a business imperative.
Unfortunately, corporate sustainability practices may pay off only for some firms or under certain
conditions – at least from a short-term perspective. Thus the main conclusion is: corporate
management, financial markets, and management education need to change gears towards
understanding the conditions for creating long-term value. Business schools have a very important
double function: New curricula can lay out the foundation for this understanding; and future research
can empirically demonstrate the business case of long-term oriented sustainability management.
On the corporate side, future research should enhance the transparency of business practices, i.e.
how firms do or do not improve their sustainability management over time. In this context, the notion of
”green-washing” becomes important. While some firms substantially enhance their sustainability
practices and maybe even do not communicate their success, other firms redirect their resources just
towards improving their reporting practices and creating a better corporate reputation. Through which
actions can firms sustain long-term success in their sustainability practices and why do some firms
deliberately not go in this direction? What is the role of external stakeholder is this regard? How do
they coordinate and collaborate with each other, governments, and firms to influence sustainable
management practices? What are the potential mechanisms and instruments that can detect symbolic
corporate actions toward sustainability management more easily?
With regards to the investment side, future research should seek to trigger the leverage effect of
financial markets for sustainability management. Several research contexts and questions appear to
be important: What are effective (or ineffective) corporate strategies to attract capital from long-term,
sustainability oriented investors? What is the role of new investment logics and styles for seeking to
foster sustainable business practices? For example, “impact investments” is an investment style that
primarily reflects on the outcomes (e.g., ecological improvements) of an investment strategy before
financial considerations are made (Bugg-Levine & Emerson, 2011). Likewise, large institutional
investors can be considered as “universal owners” which naturally should be keen on addressing
negative externalities due to the widespread assets they hold (Kurtz, 2008). How can impact
investments and the logic of universal owners become more popular and how can both support longterm value creation?
16
References
Aguilera, R. V., Rupp, D. E., Williams, C. A., & Ganapathi, I. 2007. Putting the S back in corporate social
responsibility: A multilevel theory of social change in organizations. Academy of Management
Review, 32(3): 836-863.
Allianz. 2010. Doing Good by Investing Well? Pension Funds and Socially Responsible Investment:
Results of an Expert Survey. Munich: Allianz AG.
Ambec, S., & Lanoie, P. 2008. Does it pay to be green? A systematic overview. Academy of
Management Perspectives, 22(4): 45-62.
Bagnall, D. M., & Boreland, M. 2008. Photovoltaic technologies. Energy Policy, 36(12): 4390-4396.
Banerjee, S. B. 2007. Corporate Social Responsibility: The Good, the Bad and the Ugly.
Cheltenham: Edward Elgar.
Bansal, P. 2005. Evolving sustainably: A longitudinal study of corporate sustainable development.
Strategic Management Journal, 26(3): 197-218.
Bansal, P., & Roth, K. 2000. Why companies go green: A model of ecological responsiveness.
Academy of Management Journal, 43(4): 717-736.
Barnett, M. L. 2007. Stakeholder influence capacity and the variability of financial returns to corporate
social responsibility. Academy of Management Review, 32(3): 794-816.
Bauer, R., Derwall, J., & Otten, R. 2007. The ethical mutual fund performance debate: New evidence
from Canada. Journal of Business Ethics, 70(2): 111-124.
Bauer, R., Koedijk, K., & Otten, R. 2005. International evidence on ethical mutual fund performance and
investment style. Journal of Banking & Finance, 29(7): 1751-1767.
Baumol, W. J. 1972. On taxation and the control of externalities. American Economic Review, 62(3):
307-322.
Berchicci, L., & King, A. 2007. Chapter 11: Postcards from the edge. The Academy of Management
Annals, 1(1): 513-547.
Bird, R., Hall, A. D., Momente, F., & Reggiani, F. 2007. What corporate social responsibility activities are
valued by the market? Journal of Business Ethics, 76(2): 189-206.
Boulding, K. E. 1966. The economics of the coming spaceship earth. In H. Jarrett (Ed.), Environmental
Quality in a Growing Economy: 3-14. Baltimore: Johns Hopkins University Press.
Bowman, E. H., & Haire, M. 1975. A strategic posture toward corporate social responsibility. California
Management Review, 18(2): 49-58.
Bragdon, J. H., & Marlin, J. A. T. 1972. Is pollution profitable? Risk Management, 19(4): 9-18.
Brammer, S., & Millington, A. 2008. Does it pay to be different? An analysis of the relationship between
corporate social and financial performance. Strategic Management Journal, 29: 1325–1343.
Bugg-Levine, A., & Emerson, J. 2011. Impact investing: Transforming how we make money while
making a difference. Innovations: Technology, Governance, Globalization, 6(3): 9-18.
Busch, T., Stinchfield, B. T., & Wood, M. S. 2011. Rethinking sustainability, innovation, and financial
performance. In A. Marcus, P. Shrivastava, S. Sharma, & S. Pogutz (Eds.), Cross-Sector
Leadership for the Green Economy - Integrating Research and Practice on Sustainable
Enterprise: 81-105. New York: Palgrave Publishing.
17
Buysse, K., & Verbeke, A. 2003. Proactive environmental strategies: A stakeholder management
perspective. Strategic Management Journal, 24(5): 453-470.
Cabantous, L., Gond, J. P., & Johnson-Cramer, M. 2010. Decision theory as practice: Crafting rationality
in organizations. Organization Studies, 31(11): 1531-1566.
Callon, M. 1998. The Laws of the Markets. Oxford: Blackwell.
Carroll, A. B. 1979. A three-dimensional conceptual model of corporate social performance. Academy
of Management Review, 4(4): 497-505.
Chichilnisky, G., & Heal, G. 1998. Global environmental risks. In G. Chichilnisky, G. Heal, & A. Vercelli
(Eds.), Sustainability: Dynamics and Uncertainty. Dordrecht: Kluwer Academic Publishers.
Chong, J., Her, M., & Phillips, G. M. 2006. To sin or not to sin? Now that’s the question. Journal of
Asset Management, 6(6): 406-417.
Christainsen, G. B., & Haveman, R. H. 1981. The contribution of environmental regulations to the
slowdown in productivity growth. Journal of Environmental Economics and Management,
8(4): 381-390.
Coase, R. 1960. The Problem of Social Cost. Journal of Law and Economics, 3: 1-44.
Daly, H. E. 1973. Toward a Steady-state Economy. San Francisco: Freeman.
Darnall, N. 2009. Regulatory stringency, green production off sets, and organizations’ financial
performance. Public Administration Review, 69(3): 418-434.
Davis, J. H., Schoorman, F. D., & Donaldson, L. 1997. Toward a stewardship theory of management.
Academy of Management Review, 22(1): 20-47.
Davis, K. 1973. Case for and against business assumption of social responsibilities. Academy of
Management Journal, 16(2): 312-322.
Dawkins, J., & Lewis, S. 2003. CSR in stakeholder expectations: And their implication for company
strategy. Journal of Business Ethics, 44(2): 185-193.
Delmas, M. A., & Montes-Sancho, M. J. 2010. Voluntary agreements to improve environmental quality:
symbolic and substantive cooperation. Strategic Management Journal, 31(6): 575-601.
Derwall, J., Guenster, N., Bauer, R., & Koedijk, K. 2005. The eco-efficiency premium puzzle. Financial
Analysts Journal, 61(2): 51-63.
Devinney, T. M. 2009. Is the socially responsible corporation a myth? The good, the bad, and the ugly of
corporate social responsibility. Academy of Management Perspectives, 23(2): 44-56.
Donaldson, T., & Dunfee, T. W. 1999. Ties that Bind: A Social Contracts Approach to Business
Ethics. Boston: Harvard Business School Press.
Donaldson, T., & Preston, L. E. 1995. The stakeholder theory of the corporation - concepts, evidence,
and implications. Academy of Management Review, 20(1): 65-91.
Dosi, G. 1997. Opportunities, incentives and the collective patterns of technological change. The
Economic Journal 107(444): 1530-1547.
Dyllick, T., & Hockerts, K. 2002. Beyond the business case for corporate sustainability. Business
Strategy and the Environment, 11(2): 130-141.
Elkington, J. 1997. Cannibals with Forks: the Triple Bottom Line of 21st Century Business. Oxford:
Capstone Publishing.
18
Engau, C., & Hoffmann, V. H. 2009. Effects of regulatory uncertainty on corporate strategy - an analysis
of firm responses to uncertainty about post-kyoto policy. Environmental Science & Policy, 12:
766-777.
EPIA. 2009. Global Market Outlook for Photovoltaics until 2013. Brussels: European Photovoltaic
Industry Association.
Eurosif. 2012. European SRI Study 2012. Brussels: Eurosif A.I.S.B.L.
Filbeck, G., & Gorman, R. F. 2004. The relationship between the environmental and financial
performance of public utilities. Environmental & Resource Economics, 29(2): 137-157.
Frederick, W. C. 1995. Values, Nature, and Culture in the American Corporation. New York, Oxford:
Oxford University Press.
Friedman, M. 1970. The social responsibility of business is to increase its profits, New York Times
Magazine: 122-126.
Froud, J., Haslam, C., Johal, S., & Williams, K. 2000. Shareholder value and financialization:
consultancy promises, management moves. Economy and Society, 29(1): 80-110.
Funk, K. 2003. Sustainability and performance. Mit Sloan Management Review, 44(2): 65-70.
Galema, R., Plantinga, A., & Scholtens, B. 2008. The stocks at stake: Return and risk in socially
responsible investment. Journal of Banking & Finance, 32(12): 2646-2654.
George, W. W. 2003. Authentic Leadership: Rediscovering the Secrets to Creating Lasting Value.
San Francisco, CA: Jossey-Bass.
Ghoshal, S. 2005. Bad management theories are destroying good management practices. Academy of
Management Learning & Education, 4(1): 75-91.
Giddens, A. 1984. The constitution of societ. Oxford: Polity Press.
Gladwin, T. N., Kennelly, J. J., & Krause, T. S. 1995. Shifting paradigms for sustainable development implications for management theory and research. Academy of Management Review, 20(4):
874-907.
Griffin, J. J., & Mahon, J. F. 1997. The corporate social performance and corporate financial
performance debate: Twenty-five years of incomparable research. Business & Society, 36(1):
5-31.
Gulledge, J. 2008. Climate change risks in the context of scientific uncertainty. In K. M. Campbell, & J.
Price (Eds.), The Global Politics of Energy: 115-132. Washington, DC: The Aspen Institute.
Hardin, G. 1968. Tradegy of the commons. Science, 162(3859): 1243-1248.
Hart, S. L. 1995. A natural-resource-based view of the firm. Academy of Management Review, 20(4):
986-1014.
Hart, S. L., & Ahuja, G. 1996. Does it pay to be green? An empirical examination of the relationship
between emission reduction and firm performance. Business Strategy and the Environment,
5(1): 30-37.
Hayes, R. H., & Abernathy, W. J. 1980. Managing our way to economic decline. Harvard Business
Review, 58(4): 67-77.
Hillman, A. J., & Keim, G. D. 2001. Shareholder value, stakeholder management, and social issues:
What's the bottom line? Strategic Management Journal, 22(2): 125-139.
19
Hoffman, A. J. 2005. Climate change strategy: The business logic behind voluntary greenhouse gas
reductions. California Management Review, 47(3): 21-46.
Hoffmann, V. H., Trautmann, T., & Hamprecht, J. 2009. Regulatory uncertainty - a reason to postpone
investments? Not necessarily. Journal of Management Studies, 46(7): 1227-1253.
Hulme, M. 2009. Why We Disagree About Climate Change: Understanding Controversy, Inaction
and Opportunity. Cambridge: Cambridge University Press.
IPCC. 2007. Climate change 2007: The physical science basis – Contribution of working group I
to the fourth assessment report of the IPCC. Cambridge: Cambridge University Press.
Jensen, M. C. 2002. Value maximization, stakeholder theory, and the corporate objective function.
Business Ethics Quarterly, 12(2): 235-256.
Jensen, M. C., & Meckling, W. H. 1976. Theory of the firm - managerial behavior, agency costs and
ownership structure. Journal of Financial Economics, 3(4): 305-360.
Kapp, W. 1950. The Social Costs of Private Entrerprise. Cambridge, MA: Harvard University Press.
Khurana, R. 2007. From Higher Aims to Hired Hands. Princeton, Oxford: Princeton University Press
King, A. A., & Lenox, M. J. 2000. Industry self-regulation without sanctions: The chemical industry's
Responsible Care Program. Academy of Management Journal, 43(4): 698-716.
King, A. A., & Lenox, M. J. 2001. Does it really pay to be green? An empirical study of firm
environmental and financial performance. Journal of Industrial Ecology, 5(1): 105-115.
King, A. A., & Lenox, M. J. 2002. Exploring the locus of profitable pollution reduction. Management
Science, 48(2): 289-299.
King, W. 1916. Does conservation involve cost? Quarterly Journal of Economics, 30(3): 595-600.
Klassen, R. D., & Whybark, D. C. 1999. The impact of environmental technologies on manufacturing
performance. Academy of Management Journal, 42(6): 599-615.
Kurtz, L. 1997. No effect, or no net effect? Studies on socially responsible investing. Journal of
Investing, 6(4): 37-49.
Kurtz, L. 2008. Socially responsible investment and shareholder activism. In A. Crane, A. McWilliams,
D. Matten, J. Moon, & D. S. Siegel (Eds.), The Oxford Handbook of corporate social
responsibility: 249-280. Oxford: Oxford University Press.
Lazonick, W., & O'Sullivan, M. 2000. Maximizing shareholder value: a new ideology for corporate
governance. Economy and Society, 29(1): 13-35.
Lenox, M. J., & Nash, J. 2003. Industry self-regulation and adverse selection: a comparison across four
trade association programs. Business Strategy and the Environment, 12(6): 343–356.
Lovins, A. B. 2011. Reinventing Fire - Bold Business Solutions for the New Energy Era. White
River Junction, VT: Chelsea Green Publishing.
Lubin, D. A., & Esty, D. C. 2010. The sustainability imperative Harvard Business Review, 88(5): 42-50.
MacKenzie, D., & Millo, Y. 2003. Constructing a market, performing theory: The historical sociology of a
financial derivatives exchange. American Journal of Sociology, 109(1): 107-145.
Marcus, A. A., & Fremeth, A. R. 2009. Green management matters regardless. Academy of
Management Perspectives, 23(3): 17-26.
20
Marechal, K., & Lazaric, N. 2010. Overcoming inertia: insights from evolutionary economics into
improved energy and climate policies. Climate Policy, 10: 103-119.
Margolis, J. D., & Walsh, J. P. 2003. Misery loves companies: Rethinking social initiatives by business.
Administrative Science Quarterly, 48(2): 268-305.
McGuire, J. B., Sundgren, A., & Schneeweis, T. 1988. Corporate social-responsibility and firm financial
performance. Academy of Management Journal, 31(4): 854-872.
McWilliams, A., & Siegel, D. 2001. Corporate social responsibility: A theory of the firm perspective.
Academy of Management Review, 26(1): 117-127.
Meadows, D. H., Meadows, D. L., Randers, J., & Behrens, W. W. 1972. The Limits to Growth. New
York: Universe Books.
Mercer. 2009. Shedding light on responsible investment: Approaches, return and impacts. London:
Mercer LLC.
Mercer, & UNEP FI. 2007. Demystifying Responsible Investment Performance. Geneva: Mercer, UNEP
Finance Initiative.
Murphy, C. J. 2002. The Profitable Correlation Between Environmental and Financial Performance: A
Review of the Research: Light Green Advisors.
Nelson, R. R. 1991. Why do firms differ, and how does it matter. Strategic Management Journal, 12:
61-74.
Orlitzky, M., Schmidt, F. L., & Rynes, S. L. 2003. Corporate social and financial performance: A metaanalysis. Organization Studies, 24(3): 403-441.
Orsato, R. 2006. Competitive environmental strategies: When does it pay to be green? California
Management Review, 48(2): 127-143.
Peloza, J., & Papania, L. 2008. The missing link between corporate social responsibility and financial
performance: Stakeholder salience and identification. Corporate Reputation Review, 11(2):
169–181.
Perman, R., Ma, Y., Mcgilvray, J., & Common, M. 2003. Natural Resource and Environmental
Economics. Essex: Pearson Education.
Porter, M. E., & van der Linde, C. 1995. Green and competitive - ending the stalemate. Harvard
Business Review, 73(5): 120-134.
PRI. 2010. Annual Report of the PRI Initiative 2010. London: Principles for Responsible Investment.
PRI. 2011. Annual Report of the PRI Initiative 2011. London: Principles for Responsible Investment.
Requate, T. 2005. Dynamic incentives by environmental policy instruments - a survey. Ecological
Economics, 54(2-3): 175-195.
Rivera, J., & de Leon, P. 2004. Is greener whiter? Voluntary environmental performance of western ski
areas. Policy Studies Journal, 32(3): 417-437.
Rivoli, P., & Waddock, S. A. 2011. The grand misapprehension. California Management Review,
53(2): 112-116.
Rockström, J., Steffen, W., Noone, K., Persson, A., Chapin, F. S., Lambin, E. F., Lenton, T. M.,
Scheffer, M., Folke, C., Schellnhuber, H. J., Nykvist, B., de Wit, C. A., Hughes, T., van der
Leeuw, S., Rodhe, H., Sorlin, S., Snyder, P. K., Costanza, R., Svedin, U., Falkenmark, M.,
21
Karlberg, L., Corell, R. W., Fabry, V. J., Hansen, J., Walker, B., Liverman, D., Richardson, K.,
Crutzen, P., & Foley, J. A. 2009. A safe operating space for humanity. Nature, 461(7263): 472475.
Rowley, T., & Berman, S. 2000. A brand new brand of corporate social performance. Business &
Society, 39(4): 397-418.
Rugman, A. M., & Verbeke, A. 1998. Corporate strategies and environmental regulations: an organizing
framework. Strategic Management Journal, 19(4): 363-375.
Russo, M. V., & Fouts, P. A. 1997. A resource-based perspective on corporate environmental
performance and profitability. Academy of Management Journal, 40(3): 534-559.
Salzmann, O., Ionescu-Somers, A., & Steger, U. 2005. The business case for corporate sustainability:
Literature review and research options. European Management Journal, 23(1): 27–36.
Schaltegger, S., & Burritt, R. 2005. Corporate sustainability. In H. Folmer, & T. Tietenberg (Eds.), The
International Yearbook of Environmental and Resources Economics 2005/2006. A Survey
of Current Issues: 185-222. Cheltenham: Edward Elgar.
Schumpeter, J. A. 1942. Capitalism, Socialism and Democracy. New York: Harper
Scott, W. R. 2001. Institutions and Organizations (2nd ed.). London: Sage Publications.
Sharma, S. 2000. Managerial interpretations and organizational context as predictors of corporate
choice of environmental strategy. Academy of Management Journal, 43(4): 681-697.
Shrivastava, P. 1995. Environmental technologies and competitive advantage. Strategic Management
Journal, 16: 183-200.
Siegel, D. S. 2009. Green management matters only if only if it yields more green: an
economic/strategic perspective. Academy of Management Perspectives, 23(3): 5-16.
Smith, A. 1776. An Inquiry into the Nature and Causes of the Wealth of Nations London: Methuen &
Co., Ltd.
Spicer, B. H. 1978. Investors, corporate social performance and information disclosure: an empirical
study. Accounting Review, 53(1): 94-111.
Stanwick, P. A., & Stanwick, S. D. 2009. Understanding Business Ethics. Upper Saddle River, NJ:
Pearson Prentice Hall.
Starik, M., & Rands, G. P. 1995. Weaving an integrated web - multilevel and multisystem perspectives
of ecologically sustainable organizations. Academy of Management Review, 20(4): 908-935.
Stiglitz, J. E. 1994. Whither Socialism? Cambridge, MA: MIT Press.
Trudel, R., & Cotte, J. 2009. Does it pay to be good? Mit Sloan Management Review, 50(2): 61-68.
Ullmann, A. A. 1985. Data in search of a theory: A critical examination of the relationships among social
performance, social disclosure, and economic performance of US firms. Academy of
Management Review, 10(3): 540-557.
Vogel, D. 2005. The Market for Virtue - The Potential and Limits of Corporate Social
Responsibility. Washington, DC: Brookings Institution Press.
Walley, N., & Whitehead, B. 1994. It's not easy being green. Harvard Business Review, 72(3): 46-52.
Wang, T. Y., & Bansal, P. 2012. Social responsibility in new ventures: profiting from a long-term
orientation. Strategic Management Journal, 33(10): 1135-1153.
22
WCED. 1987. Our Common Future. Oxford: World Commission on Environment and Development,
Oxford University Press.
Whiteman, G., & Cooper, W. H. 2000. Ecological embeddedness. Academy of Management Journal,
43(6): 1265-1282.
Williams, K. 2000. From shareholder value to present-day capitalism. Economy and Society, 29(1): 112.
Williamson, O. E. 1975. Markets and Hierarchies: Some Elementary Considerations. New York.
Williamson, O. E. 1985. The Economic Institutions of Capitalism. New York: Free Press.
WWF, Zoological Society of London, & Global Footprint Network. 2010. Living Planet Report 2010 Biodiversity, biocapacity and development. Gland, London, Oakland: World Wide Fund For
Nature.
Yukl, G. 2006. Leadership in Organizations. New Jersey: Pearson Prentice Hall.
23