Abstract
This paper analyzes the contemporary debate about ESG – Environment, Social, Governance – using economic insights from Austrian Economics; particularly, on entrepreneurship, agency, and information asymmetry. These insights are contrasted to similar concepts in “mainstream” economics suggesting that the Austrian insight goes beyond them, first by stressing effectiveness in addition to efficiency and institutions in addition to law-likeliness. When applied to ESG, the Austrian insight portraits ESG as a special case of the socialist, or economic calculation debate causing misalignments between inter- and intrafirm goals, exacerbates agency problems and suffers from serious flaws in its conceptualization as well as methodology. Relying on entrepreneurship, however, could make ESG work. This paper, thus, applies Austrian economics to contemporary debates claiming that its insights provide a unique perspective but at the same time updating its research program.
Highlights
ESG – Environment, Social, and Governance – is supposed to steer firms towards stewardship in the three systems in which they operate, the natural, the social, and their internal governance
From a perspective based on the Austrian School of Economics, it is an exciting topic, since it seems to pose a dilemma: on the one hand, it claims to empower individual actors; on the other, it aims to direct market processes to impose market outcomes
This paper suggests that ESG poses a special “calculation problem” case within the socialist calculation debate
Summary
ESG – Environment, Social, and Governance – is supposed to steer firms towards stewardship in the three systems in which they operate, the natural, the social, and their internal governance. This paper makes a twofold contribution to the contemporary economic and managerial discussion. It is an economic assessment of ESG, deepening the understanding of this still emergent area. It employs Austrian Economics in a new way, addressing contemporary issues. It shows its continuing relevance, roughly 150 years after its inception, in explaining and understanding economic phenomena. This paper expands the research program of Austrian Economics
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