Capital Sustainability Research Articles

The Agency Costs of Sustainable Capitalism: Responsible Activists, Index Investors, and the Big Three

The passive index investing revolution and the demand for bespoke environmental, social, and governance (“ESG”) investment products are the most monumental changes to shape the investor landscape for many years. These developments have been accompanied by an unprecedented concentration of power among BlackRock, Vanguard, and State Street (the “Big Three” asset managers). Inevitably, the Big Three are among the most powerful shareholders of the companies that have been identified as major contributors to the climate crisis. Due to the failure of governments to take effective action in the global effort to combat climate change, there has been intense pressure directed at the Big Three to provide investor driven solutions. The Big Three have increasingly purported to assume what I call the role of “sustainable capitalists”. In this Article, I build upon Gilson and Gordon’s “agency capitalism” framework to put forward a new agency costs theory of sustainable capitalism. In this “sustainable capitalism” framework, I show that the Big Three still exhibit some form of “rational reticence”, especially with respect to firm-specific sustainability activism. There is also a risk that the Big Three may engage in “rational hypocrisy”, similar to corporate greenwashing. The combination of “rational reticence” and “rational hypocrisy” could result in a dual-monitoring shortfall – the “agency costs of sustainable capitalism”. In the agency capitalism framework, the best solution that emerged was for specialist activist hedge funds to fill the monitoring shortfall by initiating firm-specific activism as “governance arbitrageurs”. In this context, activist hedge funds adapted their strategies to gain crucial support from longer-term institutional investors. Analogously, in the sustainable capitalism framework, ESG hedge funds have the potential to initiate firm-specific ESG activism as “ESG arbitrageurs” in a manner that appeals to, and mobilizes, the sustainable capitalism of the Big Three. Most prominently, ESG hedge funds can play a unique role in nominating specialist climate directors to corporate boards, with the Big Three lending their support to credible nominees. Activist hedge funds already have significant expertise in board representation campaigns and the Big Three have shown willingness to support board changes. Other “responsible activists”, focusing more on portfolio-wide ESG issues, are also candidates for the role of “ESG arbitrageurs”. However, implementing meaningful strategic changes or board reform using the shareholder proposal mechanism has proven to be much more challenging. Therefore, a valuable role that other responsible activists can play in the ESG investor ecosystem is to focus on the problem of rational hypocrisy and target their activism at the Big Three themselves.

A Sustainable and Inclusive Capitalist’s Epoch: A Modern Economic and Investment Theory for the Benefit of Our Common Future?

Re-allocation of capital in the economy is important to align the attention of the economic and investment environment from short-term profit generation at the cost of sustainable development to long-term value creation amidst the greatest social and environmental changes of our time. This article is set in the context of the growing awareness amongst economic actors, such as institutional investors who play an important role in the allocation of capital in the economy in the first place, on the need to encourage sustainable and inclusive capitalism using an Environmental, Social and Governance centric (ESG) investing approach to help achieve the goals of sustainable development. Nevertheless, a majority of institutional investors across the world consider ESG investing as a sheer moral obligation, which often creates a conflict with their fiduciary duties. This article seeks to analyse the conflict between the fiduciary duty (before and according to law) of loyalty and care owed to beneficiaries and a correlative duty (beyond and besides the law) of loyalty and care to promote sustainable development owed to future generations. An investor’s palpable dilemma: How does one draw a line between this duty and that duty? This article argues for application of the casuistry theory, an antiquated and uncredited art of moral reasoning, to reinterpret the modern prudent investor rule and bring the duty to promote sustainable development within the framework of the legally binding fiduciary duty owed to beneficiaries. This article will further scan the evolving legal jurisdiction of India, an important player in achieving the goals of sustainable development, on the adequacy of disclosures of ESG risks and performance indicators in the Indian capital markets compared to the developments in the UK, EU and USA, so as to disentangle the blurred lines between the causation and correlation of ESG performance with the financial performance of a company. environmental, social and governance centric investing approach (ESG investing), sustainable development, fiduciary duty of loyalty and care, correlative duty of loyalty and care, casuistry theory

Value Creation Principles: PowerPoint Presentation

This PowerPoint summarizes key ideas in my book, Value Creation Principles: The Pragmatic Theory of the Firm Begins with Purpose and Ends with Sustainable Capitalism. The primary focus is the pragmatic theory of the firm, which enables a comprehensive understanding of how a firm's long-term prosperity depends on its knowledge-building proficiency. A knowledge-building loop is discussed that emphasizes the components to building knowledge, and especially, the critical role of one's worldview, assumptions, and language. Attention to how we build knowledge offers insights into how we can improve business performance. Management's fundamental task is to nurture and sustain a knowledge-building culture in order to continually adapt to a changing world. When knowledge building becomes an integral part of every employee's job, both job satisfaction and retention of key employees improve. Such a culture unleashes creativity and motivates employees to solve problems (and create new opportunities) through discovering obsolete assumptions and unraveling root causes. The pragmatic theory treats the firm as a system of connected activities and uses a life-cycle framework that provides a visual and intuitive way to display track records which explain shareholder returns over time and help analyze intangible assets. Fourteen key points are reviewed, some of which provide new angles of thinking for empirical research in finance and accounting.

The Role of Stakeholder E-Engagement on the Relation between Board Independence and Environmental Disclosure. Toward a Cohesive Corporate Governance. Evidence from Italian Listed Companies

Companies worldwide increasingly engaged in corporate social responsibility disclosure, particularly corporate environmental disclosure (CED) has gained increasing importance since the 1980s. Reporting environmental performance has become a fundamental corporate governance mechanism to improve relationship with stakeholders, enhancing companies’ image, consensus, trust and social legitimacy, particularly in a period of great change like this, where people are demonstrating a very high attention to environmental issues, due to different phenomena, like the pandemic emergency of COVID-19, the sustainable capitalism, etc.. The importance of CED has been enormously amplified in the last decades since the development of the Internet and social media (SM) as universal interaction tools useful for stakeholder engagement. Through SM stakeholder can easily ask for information, express and share requests, organize and coordinate interventions. Indeed, SM have become an important source of institutional pressure for firms and board of directors. They acts as a resonance chamber for stakeholder opinions, in which institutional pressure grows and is continuously transmitted from society to firm, influencing the firm legitimacy and the directors’ reputation. The aim of this paper is to investigate the relationship between board independence and CED, deepening the moderating role of stakeholder e-engagement through Facebook, LinkedIn and Twitter. The effectiveness of the board of directors as a monitoring mechanism is crucial to corporate transparency, especially in an institutional environment where other corporate governance mechanisms fail to guarantee stakeholder rights. We analyse a sample of 218 firm-year observations related to Italian non-financial listed companies for the period 2017-2018 and found that board independence and stakeholder e-engagement positively influence CED, whereas institutional pressure due to stakeholder e-engagement through SM play an important role on independent directors’ preferences and imply that external directors better consider the interest of external stakeholders, stimulating the company’s environmental disclosure.

The role of school partnerships in promoting education for sustainability and social capital

State, civil society and private sector partnerships play a crucial role in fostering a sustainable society. This case study explores the role of school-state-community-civil society-business partnerships in promoting environmental citizenship as a major component of education for sustainability (EfS), and social capital as a new outcome, from a school’s perspective. The findings indicate that the school succeeded in establishing and maintaining long-term connections with diverse actors. Both the connections and the actors promoted EfS and social capital within the school and community. School-state-community partnerships cultivated the students’ and community’s environmental citizenship, and school-business partnerships improved the physical infrastructure of the School, and also assisted the promotion of EfS in the school. Additionally, school-business partnerships were hard to sustain in long term.

Sustainable Economic Development and Human Capital

In this theoretical paper the key role of human capital for a sustainable economic development is introduced into a simplified version of the green Solow model. The main result of this integration is the derivation of a kind of environmental Kuznets curve.

The Correlation between Education Level and Understanding of Financial Literacy and its Effect on Investment Decisions in Capital Markets

This study aims to describe how the educational level of investors influences their understanding of financial literacy and its effect on investment decision making in capital markets. The method used in this research is quantitative descriptive. Data collection was conducted from 7 January to 7 February 2020, by distributing questionnaires to investors who were members of PT Bursa Efek Indonesia. The sample in this study amounted to 108 investors. The research findings show that the level of investor knowledge regarding financial literacy is high. There is a significant correlation between the investor education level and their understanding of financial literacy, thus influencing investors in the financial decisions they make. It can be concluded that, for investment decision making in capital markets, knowledge of financial literacy is necessary. Therefore, to increase investor understanding of various levels of education on financial literacy in the capital market, education, and training on financial literacy as sustainable capital is required.

Acquisition of human capital for organizational sustainability: A BASS-SIR forecasting approach

We investigated the probabilities of acquisition of requisite human capital by new entrants in the institutional network. Graph theories applied in complex social networks using multi-attribute decision models were employed for our study. We coupled the dynamical and complexities of social network analysis with BASS-SIR epidemiological model to ascertain sustainability in the light of internal and external forces in the human capital acquisition. The results show that a new entrant’s ability to acquire human capital within the network increases rapidly and reaches a steady state by the third month. The fractional analysis indicated that a combined effect of internal and external injection of knowledge into the network sees entrants acquiring the required knowledge and work world skills in a relatively shorter time. Finally, the discrete and continuous analyses revealed that relatively even and continuous patterns of information flow reduce the time of reaching a steady state in the industry. We recommend a strong policy on continuous and even rates of training, a high rate of information flow such as internal and external training with the emphasis on internal training systems to gain competitive advantage.

FDI inflows, energy consumption and sustainable economic growth for ECOWAS countries: the pollution haven hypothesis approach

This study examined the pollution haven hypothesis for CO2 emissions and ecological footprint with the role of sustainable economic growth, energy consumption, human capital and bio-capacity in six ECOWAS countries using data spanning over 1970 until 2017. Employing a Pooled Mean Group (PMG) technique, the empirical results support the pollution halo hypothesis for CO2 emissions and Pollution Haven Hypothesis (PHH) for ecological footprint. Furthermore, we found evidence of inverted U-shaped pattern of CO2 emissions, which validate the EKC hypothesis, but a U-shaped relationship was found for ecological footprint as indicators of environmental degradation. A unidirectional causal link exists between FDI and CO2 emissions, but a feedback hypothesis is validated between FDI and ecological footprint. The policy implications are that environmentally friendly FDI should be prioritised to achieve a sustainable environment via developing renewable energy.

The Safe Indonesian Capital from The Defense Geography Perspective (Study Case: Kutai Kartanegara & Penajam Paser Utara Regency, East Borneo Province)

Indonesia has been facing a very high urbanization that makes capacity of Jakarta can no be longer supporting all activities as capital city and also business hub. This condition made The President of Indonesia, Joko Widodo decided to relocate capital to Kutai Kartanegara (Kukar) and Penajam Paser Utara (PPU) Regency in East Borneo to support more sustainable capital for national government action. Moeldoko as a Chief of Presidential Staff also mentioned that this capital need to be protected by a strong three defense forces dimension which are land, sea, and air. So, is it safe for capital to be move to Borneo as a research question. To analyze it, the researcher viewed this case from the defense geography perspectives. The researcher will use literature study approach from various sources. The result of this research will explain that Kukar and PPU Regency is safe or not to be the new capital of Indonesia. This research, therefore, has opened a new scientific discussion among researchers, defense and planner practitioners to formulate the capital city of Indonesia that safe to settle in.

A Holistic Sustainable Finance Model for the Sustainable Capital Market

This paper, has systematized the literature review, and with its critical view towards international and especially European sustainable finance policy and methodologies, has marked three important problems that affect up until today the design and implementation of environmental, social and sustainable policies in the sustainable financial performance of capital market. Environmental, social and sustainable performance measures, as well as the taxonomy system, the evaluation and notification of information that are related to the consequences of sustainable policies, represent a modern challenge for creating a completer methodology in the field of sustainable finance. In a practical level the challenge still remains: 1) if the policies, methodologies and researches in this category, allow researchers and financial stakeholders, as well as firms managers to follow and to evaluate sustainable finance in a reliable manner, 2) if the sustainable policies of firms are successful and recognized by the capital market. As every new scientific field, so “Sustainable Finance” must be framed with theories that should define the efficient operation of “Sustainable Market Capital” and get new holistic “Sustainable Finance model” created. The purpose of this paper is to define the theory of Sustainable Capital Market and the Holistic Sustainable Finance Models.

Toward Fair and Sustainable Capitalism: A Comprehensive Proposal to Help American Workers, Restore Fair Gainsharing Between Employees and Shareholders, and Increase American Competitiveness by Reorienting Our Corporate Governance System Toward Sustainable Long-Term Growth and Encouraging Investments in America’s Future

To promote fair and sustainable capitalism and help business and labor work together to build an American economy that works for all, this paper presents a comprehensive proposal to reform the American corporate governance system by aligning the incentives of those who control large U.S. corporations with the interests of working Americans who must put their hard-earned savings in mutual funds in their 401(k) and 529 plans. The proposal would achieve this through a series of measured, coherent changes to current laws and regulations, including: requiring not just operating companies, but institutional investors, to give appropriate consideration to and make fair disclosure of their policies regarding EESG issues, emphasizing “Employees” and not just Environmental, Social, and Governance” factors; giving workers more leverage by requiring all societally-important companies to have board level committees charged with ensuring fair treatment of employees, authorizing companies to use European-style works’ councils to increase employee voice, and reforming labor laws to make it easier for workers to join a union and bargain for fair wages and working conditions; reforming the corporate election system so that voting occurs on a more rational, periodic, and thoughtful basis supportive of sustainable business practices and long-term investment; improving the tax system to encourage sustainable, long-term investment and discourage speculation, with the resulting proceeds being used to revitalize and green America’s infrastructure, tackle climate change, invest in American workers’ skills, transition workers from carbon-intensive industries to jobs in the clean energy sector; and taking other measures, such as reform of corporate political spending and forced arbitration, to level the playing field for workers, consumers, and ordinary investors.

Misrecognition in a Sustainability Capital: Race, Representation, and Transportation Survey Response Rates in the Portland Metropolitan Area

US household transportation surveys typically have limited coverage of and responses from people of color (POC), which may lead to inaccurate estimation of POC transportation access and behavior. We recast this technocratic understanding of representativeness as a problem of “racial misrecognition” in which racial group difference is obscured yet foundational for distributive transportation inequities and unsustainability. We linked 2008–2012 population and housing data to an apparent stratified random sample of 6107 household responses to the 2011 Oregon Household Activity Survey (OHAS) in a “sustainability capital”: the Portland, Oregon metropolitan area. We detailed how the 2011 OHAS consistently overrepresented White households and underrepresented Latinx/Nonwhite households in aggregate and at the tract-level. We conducted tract-level spatial pattern and bivariate correlation analyses of our key variables of interest. As expected, our subsequent tract-level spatial error regression analysis demonstrated that the percent of Latinx/Nonwhite householders had a significant negative association with 2011 OHAS household response rates, net of other statistical controls. Further analyses revealed that the majority of the ten “typical” tracts that best represented the spatial error regression results and racial misrecognition in the OHAS exhibited historical and contemporary patterns of racial exclusion and socially unsustainable development in our study area.

Sustainable Capital Instruments and Their Role in Prudential Policy: Reverse Green Bonds.

In this paper we introduce a new variant on the more traditional green climate bond. Green bonds are standard corporate bonds created to finance environmentally beneficial projects. The concept of a Reverse Green Bond is very similar to contingent convertibles (CoCos) issued by financial institutions since 2009. Reverse Green bonds are hence different compared to the traditional vanilla Green Bonds and offer a higher yield. Investors in this asset class carry the extra risk to miss out on a coupon payment or even forgo the complete face-value of the bond if the issuer misses a pre-agreed climate trigger. For Reverse Green Bonds, such a coupon cancellation would not constitute a default-event. Hitting the climate trigger has also a consequence for the issuer. The skipped coupon or missing face value of the issue will be paid out into a climate fund by the issuer of the Reverse Green Bond. In this paper, we work out a valuation model for these securities and elaborate on their role in prudential policy.

The future of globalisation: neo-fascism or the Green New Deal

Global capitalism is visibly showing up unacceptable inequalities and social contradictions. Three camps have emerged in the ruling class in response to over-accumulation, poverty, middle-class stagnation and environmental crisis: inclusive capitalism; militarised accumulation; the Green New Deal. All fractions adhere to neoliberal principles. Inclusive capitalism – neoliberalism with a nod to Keynesianism – means continued stagnation since it avoids the need for a social-democratic regulatory system. A turn to authoritarianism – the police state of twenty-first century neo-fascism, according to theorist William I. Robinson – is unlikely, though militarised accumulation is now an essential outlet for capital. Green capitalism, in which China is now the leading global investor, particularly with transnational public and private partners, neither breaks with neoliberalism, nor can potentially reverse environmental disaster. That would take social movements defining a Green New Deal for a sustainable capitalism to be an effective hegemonic bloc.

Toward Fair and Sustainable Capitalism <br>A Comprehensive Proposal to Help American Workers, Restore Fair Gainsharing between Employees and Shareholders, and Increase American Competitiveness by Reorienting Our Corporate Governance System toward Sustainable Long-Term Growth and Encouraging Investments in America’s Future <br>

Toward Fair and Sustainable Capitalism <br>A Comprehensive Proposal to Help American Workers, Restore Fair Gainsharing between Employees and Shareholders, and Increase American Competitiveness by Reorienting Our Corporate Governance System toward Sustainable Long-Term Growth and Encouraging Investments in America’s Future <br>

Developing a corporate director's internal fiduciary duty to promote corporate sustainability: a comparative survey of hard and soft laws benchmarking Nigerian law

Sustainable development has attained the character of a global objective, ideology and imperative enshrined in the Global Compact and other, usually voluntary arrangements to promote corporate sustainability. This has given greater cogency and topicality to the debate about the objective and responsibilities of companies and duties of company directors. This article is a comparative survey of companies' laws, sustainability laws and norms from various jurisdictions and by using Nigerian law as a benchmark seeks to elaborate a conceptual framing of a fiduciary duty on directors to promote corporate sustainability. An explicit new duty to 'promote corporate sustainability and the success of the company' and some vital considerations and devices for evolving Green companies and sustainable capitalism are examined.

Corporate Governance as Privately-Ordered Public Policy: A Proposal

In this Article, we show how our society can use corporate governance shifts to address, if not entirely resolve, a number of currently pressing social and economic problems. These problems include: rising income inequality; demographic disparities in wealth and equity ownership; increasing poverty and income insecurity; a need for greater innovation and investment in solving problems like disease and climate change; the “externalization” of many costs of corporate activity onto third parties such as customers, employees, creditors, and the broader society; the corrosive influence of corporate money in politics; and discontent and loss of trust in the capitalist system among a large and growing segment of the population. We demonstrate how, to a very significant extent, these problems can be traced to the way shares in business corporations are currently owned, traded, and voted. We also offer a plausible plan for shifting the structure of share ownership, trading, and voting to create a more democratic and sustainable capitalism that allows business corporations to better serve humanity. Our proposal, which envisions developing a new form of institutional shareholder, does not rely either on market forces or government interventions. Rather, it relies on voluntary cooperation and the private ordering of free individuals using modern information technologies. It operates to reduce inequalities not only in wealth and income but also in influence over business corporations.

Profil Usaha Industri Kecil Tahu dan Tempe “Makmur Jaya” di Kecamatan Denpasar Barat, Kota Denpasar

Profile of Small Industries Tofu and Tempeh “Makmur Jaya” in The District West Of Denpasar, The City Of DenpasarThis study aimed to determine the profile of industrial businesses of tofu and tempeh (Makmur Jaya), which included the availability of raw and auxiliary materials, production systems, production processes, types and quantities of production, costs of production, revenue, and marketing channels of small industries in the District of West Denpasar, Denpasar City. The data collected in this study were primary and secondary data, and method of collecting data.Profile of small industries of tofu and tempeh is a general overview of a business, in this case is the business of tofu and tempeh. The source of capital used by Makmur Jaya in producing tofu and tempeh was its own capital for business sustainability. The average amount of soybean raw materials required by Makmur Jaya in one production process for the manufacture of tofu and tempeh, namely, a total of 1.75 quintals per day to produce tofu and tempeh. Of which 75 kg of soybeans were used for making tofu, while the remaining100 kg for making tempeh. The average cost of production facilities issued by Makmur Jaya for producing tofu and tempeh for one time production process was an average of Rp. 59,762,083 per month. Makmur Jaya generally marketed their products to markets. The revenue generated by Makmur Jaya industrial business of tofu and tempeh was Rp 39,237,917 per month.

Ideological obstacles to effective climate policy: The greening of markets, technology, and growth

In light of the 2015 Paris Climate Agreement, this project synthesizes and advances critiques of the possibility of a sustainable capitalism by adopting an explicit ‘negative’ theory of ideology, understood as ideas that conceal contradictions through the reification and/or legitimation of the existing social order. Prominent climate change policy frameworks – the ‘greening’ of markets (market-corrective measures), technology (alternative energy, energy efficiency, and geoengineering), and growth (the green growth strategy) – are shown to conceal one or both of the two systemic socio-ecological contradictions inherent in the current social formation: (1) a contradiction between capital’s growth-dependence and the latter’s degrading impact on the climate (the ‘capital-climate contradiction’) and (2) a contradiction between the potential of using technological infrastructure that aids in emissions reductions and the institutionalized social relations that obstruct this technical potential (the ‘technical potential-productive relations contradiction’). Attempts to reform the very techniques and institutions that brought about the climate crisis will remain ineffective and reproduce the social order that results in climate change. After proposing a way in which societies might move out of the ideological trappings of green markets, technology, and growth, two alternatives are proposed: economic degrowth coupled with Marcuse’s conception of a ‘new technology’.