Nijhof, A., Lenssen, G., Roger, L. and Kievit, H. (2014), "How to finance the transition to a more sustainable global economy and society?", Corporate Governance, Vol. 14 No. 5. https://doi.org/10.1108/CG-10-2014-0117Download as .RIS
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How to finance the transition to a more sustainable global economy and society?
Article Type: Guest editorial From: Corporate Governance, Volume 14, Issue 5
The fundamental question that hangs over the finance and sustainability debate – and a question that emerges as one of the most challenging areas of interest for companies, investors, academics and policymakers – is how to finance the transition to a more sustainable global economy and society. It has been brought into sharper focus by the continuing impacts of the financial and economic crises – ranging from austerity policies and cuts in public spending to escalating poverty levels and reduced access to capital for companies in many parts of the developed world and beyond (Barnett, 2007; World Bank, 2012). The spotlight has also been firmly placed on trying to understand the ethical and governance failures that allowed the crisis to emerge and contributed to its fallout.
The ongoing financial and economic crises and its vast influence on society at large, underscores change is needed and a new contract between business and society is mandated (Nijhof and Jeurissen, 2010). While being a leader or an entrepreneur, one should keep a keen eye on the interest of all current and future stakeholders of an organization. Major issues need to be addressed like internalizing the so-called externalities; the cost of doing business cannot be transferred to new generations. Business models will have to change to include the bottom of the pyramid and ensure trust between all parties involved. To restore trust, transparency needs to be increased to allow for reliable and meaningful integrated reporting (Graafland and Nijhof, 2007). Finance, and banking in particular, should be geared toward a smooth flow of money through the system. Doing business in an ethical manner means profits should be acceptable and allow sustainable innovation (Kiron et al., 2013). Business schools need to scrutinize their curriculum and ensure educating “responsible leaders” who will make a long-lasting difference. On all of these topics, we still have a long way to go (Margolish and Walsh, 2003; Devinney, 2009; Aguinis and Glavas, 2012).
Yet, amid the gloom, there are reasons to remain hopeful. The 2012 UN Summit in Rio witnessed an unparalleled commitment from business to invest in and drive collaborative solutions for a sustainable future – in infrastructure and governance, not merely in products and services. Global industry leaders will also play a more central role in shaping the United Nation’s Sustainable Development Goals. In terms of sustainability and finance, platforms such as the UNEP Finance Initiative have broken new ground around the valuation of natural capital, while studies such as the Barclays Capital – Accenture report “Financing the Transition to a Low-Carbon Economy in Europe” have advanced thinking about the investment mechanisms and capital requirements for resourcing economic transformation (Whitehouse et al., 2012).
What stands out today is the breadth and depth of discussions that have evolved in all regions of the world, engaging practitioners across every industry sector and faculties in all disciplines of finance, economics and management (Amaeshi and Grayson, 2009). Nowadays, sustainability debates take place over encompassing macroeconomic theory and orthodoxy, economic development in new and old markets, the role and relevance of capital markets and financial sectors, access to finance for innovation and new enterprise models, as well as defining and analyzing the relevance of non-financial value drivers in business.
To contribute to these discussions, this special issue of corporate governance focuses on the development of theoretical and empirical insights on the interface between the financial sector, business, governments and society. It aligns with the thematic focus of, and build from discussions held at The Academy of Business in Society (ABIS) Annual Colloquium hosted by Nyenrode Business Universiteit on October 16-17, 2013 in Breukelen, The Netherlands. This special issue publishes papers that foster progress in research relevant to business and management practice, as well as establish a set of learning priorities and implications for future research on the link between sustainability and finance.
Interlinkages between corporate governance, sustainability and finance
The topic of this special issue is somewhat controversial, both in the business community and in the academic community (Roome, 2001; Tideman et al., 2013). In the discourse of corporate social responsibility managers and faculty, the theme is perceived as somewhat alien, as it was thought to be only relevant for banks and the financial sector (Aguinis and Glavas, 2012). It shows how CSR is still perceived and practiced sometimes as a stand-alone instead of an integrated approach to the mainstream of business. Finance is at the heart of business just like the global financial system is at the heart of the global economy and the corporate finance course is at the heart of the MBA curriculum (Eccles et al., 2011). This integrated approach between sustainability and finance fits with this special issue, as it addresses the core issues around the financial challenges to master the transformation toward increased levels of sustainability which is one of our most pressing tasks ahead of us. A task which stretches all along from the global arena, to regional areas, industry sectors, companies and even our personal lives (McWilliams and Siegel, 2000; Tencati et al., 2004).
Although governments seem to fulfill an important role in societal change, it is the role of business to direct investments, to channel capital, to include the bottom of the pyramid and to internalize externalities (Grayson et al., 2009). However, business operates in a society where national borders seem to lose meaning, where capital flows become increasingly global and interconnected, where countervailing powers are changing with a firm role for non-governmental organizations and where company leaders become more and more aware of the impact of their business on the lives of all of us (Ossewaarde et al., 2008). Therefore, the interlinkages between (corporate) governance, finance and sustainable developments should be explored to find directions to face the challenge to finance the transition to a more sustainable global economy and society.
In such an integrated approach toward how to finance the transition to a more sustainable global economy and society, a wide array of topics need to be addressed. Many questions, then, pop-up for business and for business-schools:
Questions that relate to the role of finance in business. How do we restore trust in businesses’ finance? What possible roles can and will finance play in enabling the sustainable and inclusive economy and new business-models?
Questions that regard business itself and the need for new business-models. Should we really include externalities in our balance-sheets? Should we go for long-term change in our value-chains?
Questions that regard the call for new leadership. Do we need to develop new capabilities and competences? What could business-schools do to better prepare students for their role as future leaders?
Questions that more specifically lead to self-reflection of business schools. Were business schools part of the problem? How do we include leadership, governance, ethics, values and spirituality in our talent-development programs?
This special issue aims to publish a selection of papers addressing these questions, creating insights based on research and contributing to further debate by reflecting on the consequences for corporate governance, finance and sustainability.
Partners involved in this special issue
The guest editors would like to acknowledge all those who assisted in preparing this ABIS Special Issue, reviewing the papers and supporting the editorial process, not least those who reviewed the papers. Special thanks goes to Elena Urizar, Project Manager at ABIS for her capable managing of the submission process and her comprehensive support in the editorial process throughout. The Guest Editors would also like to thank Bouwe Taverne, Sander Tideman, John Swannick, Prof Mollie Painter Morland, Prof Ronald Jeurissen and Prof Dennis Vink for their support in the initiation and progress of this special issue.
This special issue of corporate governance is produced by ABIS in close collaboration with Nyenrode Business Universiteit. The issue builds on the contents from the 2013 ABIS Colloquium on “Sustainability and Finance.” The ABIS Annual Colloquium addressed these challenges with an interdisciplinary approach (social sciences, economics, applied science and technology). The Colloquium is a platform for knowledge exchange, knowledge alliances, knowledge generation, setting new agenda in the field of business and sustainability, business innovation, education and research. ABIS Colloquium is a unique occasion to disseminate the last acquired knowledge on business and sustainability issues and build bridges between the academia and businesses. The venue of the ABIS 2013 Colloqium was at Nyenrode Business Universiteit in The Netherlands, because the theme of the colloquium was closely linked to Nyenrode’s core values of leadership, entrepreneurship and stewardship.
The development of themes linked to the ABIS Colloquia
The ABIS Colloquia from 2002 to 2012 have taken disciplinary perspectives on the corporate responsibility agenda. The first two colloquia explored general knowledge dimension and societal expectations about the role of business in society. In subsequent years, the conference themes have taken on more specific disciplinary approaches (Table I). The Colloquia in 2010 and 2011 were more clearly around frameworks suggested by contemporary taxonomies of the global economy. In 2012, at the occasion of the ABIS Decennial Symposium, it was stated that as the past decade unfolded, events in the global economy have underlined that the original corporate responsibility agenda has passed, and that it has moved on to global sustainability challenges, including macro trends such as greenhouse gas emissions, climate change and environmental depletion, as well as the financial crisis which demonstrated the inherent lack of stability in the financial system (the two of course being fundamentally intertwined). The two last colloquia addressed these new challenges.
Table I Development of themes of the ABIS Colloqia 2002-1013
Overview of articles in this special issue
First, this special issues includes papers that frame and test the interlinkages between corporate governance, sustainability and finance. All of these papers contribute to the overall challenge of how to finance the transition to a more sustainable global economy and society, by focusing on specific angles like the treatment of risks, inclusive decision-making and the functioning of markets.
The special issue starts with a conceptual paper. Joris Lenssen, Nicolay Dentchev and Ludwig Roger argue in their work that corporate governance is threatened by systematic crisis which cannot be solved solely by corporate managers. This paper develops the idea that sustainability challenges should be addressed simultaneously at different levels, from individual level to supranational level. Fabien Martinez, also, approaches the idea of corporate governance as a multidimensional problem. His article uses a contingency theory approach to critically examine the compatibility between corporate environmental responsibility and business strategy. This study opens up avenues for researchers to explore the results of an extended compatibility evaluation of environmental and social responsibilities in business. Christina Kleinau, in her article, offers a new approach to assessing whether agricultural index funds contribute to sustainable development. Empirical research has been conducted on whether speculation via index funds has unjustifiably affected commodity prices. However, results of these investigations have been inconclusive due to stark limitations in data availability. By approaching the issue from a conceptual point of view, the article delivers theoretically sound arguments as to why agricultural commodity index funds are likely to have an unjustifiable effect on prices and hence, are a danger to sustainable development.
The second block of contributions addresses specific topics around the challenge of how to finance the transition to a more sustainable global economy and society. In this second block, papers are included that cover specific topics in relation to this challenge, with a focus on micro-finance, micro-insurance and socially responsible investments.
The paper of Giorgis Apostolakis, Gert van Dijk and Periklis Drakos address the impact of microinsurance on individual’s ability to overcome poverty and analyzed the literature on this particular subject. Following this first step into the microfinance domain, the paper of Anuschka Bakker, Jaap Schaveling and André Nijhof focuses on determining the influence of governance mechanisms on sustainability and outreach of microfinance institutions.
Finally, after collecting data on microfinance and a general literature overview in the first two papers, we move slightly from the strict domain of microfinance to sustainable financial practice. The research of Benjamin Tobias Peylo discusses the gap between “rational investment” and social responsible investment (SRI) and propose a framework that bridges the conceptual gap between conventional investment and SRI. This synthesis is apt to improve the methodological rationality of SRI by a sound financial framework and the consideration of portfolio-effects.
Starting with more theoretical approaches in the first two blocks, our last block is more into the practical use of initiatives in relation to the challenge of how to finance the transition to a more sustainable global economy and society. In this block, there is a special emphasis on papers about emerging economies.
The paper of Nikolai Mouraviev and Nada Kakabadse focuses on Kazakhstan and Russia. They interrogate the functioning of public–private partnerships to understand if their contributions to economic and social sustainability are a reality. Pinky Dutta and Debabrata Das present, in their paper, a very practical insight on the Indian microfinance institution and how they cope with sustainability issues. Nair Abhilash studied also the Indian reality and the impact of non-economic investment on Indian investors. The author gives a definition for the SRI in the Indian context.
As a conclusion for this issue, the paper of Heiko Spitzeck questions the meaning of the corporate citizenship concept and its implications in Brazil. This is the first study about the maturity of corporate citizenship in Brazilian companies. This research points to a gap regarding understanding and practice in corporate citizenship in Brazil.
An overview of all of the papers in this special issues is presented in Table II.
Table II Overview of articles in this special issue on governance, sustainability and finance
André Nijhof, Ludwig Roger, Henk Kievit and Gilbert Lenssen
André Nijhof is an Associate Professor based at Department Entrepreneurship and Stewardship, Nyenrode Business Universiteit, Breukelen, The Netherlands.
Ludwig Roger is an Academic Coordinator based at Department of Academic and EU funding, ABIS - The Academy of Business in Society, Brussels, Belgium.
Henk Kievit is based at Department of Entrepreneurship and Stewardship, Nyenrode Business Universiteit. Breukelen, The Netherlands.
Gilbert Lenssen is based at ABIS - The Academy of Business in Society, Brussels, Belgium.
Aguinis, H. and Glavas, A. (2012), “What we know and don’t know about corporate social responsibility: a review and research agenda”, Journal of Management, Vol. 38 No. 4, pp. 932-968.
Amaeshi, K. and Grayson, D. (2009), “The challenges of mainstreaming environmental, social and governance (ESG) issues in Investment decisions a survey of practitioners’ reports - EABIS research project”, Working Paper, Cranfield, available at: http://www.investorvalue.org/docs/TheChallengesOfMainstreamingEnvironmentalSocialAndFinancialPerformance.pdf (accessed 25 September 2014).
Barnett, M.L. (2007), “Stakeholder influence capacity and the variability of financial returns to corporate social responsibility”, Academy of Management Review, Vol. 32 No. 3, pp. 794-816.
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, Vol. 23 No. 2, pp. 44-56.
Eccles, R., Ioannou, I. and Serafeim, G. (2011), “The impact of a corporate culture of sustainability on corporate behavior and performance”, Working Paper 12-035, Harvard Business School, Boston, MA.
Graafland, J. and Nijhof, A.H.J. (2007), “Transparency, market operation and trust in the Dutch construction industry: an explorative study”, Construction Management and Economics, Vol. 25 No. 2, pp. 195-205.
Grayson, D., Kenneth, A., Jemel, H., Louche, C., Perrini, F. and Tencati, A. (2009), “Corporate responsibility, market valuation and measuring the financial and non-financial performance of the firm, sustaibable value series”, EABIS Research Project, available at: http://www.investorvalue.org/docs/EabisProjectFinal.pdf (accessed 25 September 2014)
Kiron, D., Kruschwitz, N., Haanaes, K., Reeves, M. and Goh, E. (2013), “The innovation bottom line”, MIT Sloan Management Review, Research Report Winter.
McWilliams, A. and Siegel, D. (2000), “Corporate social responsibility and financial performance: correlation or misspecification?”, Strategic Management Journal, Vol. 21 No. 5, pp. 603-609.
Margolis, J.D. and Walsh, J.P. (2003), “Misery loves companies: rethinking social initiatives by business”, Administrative Science Quarterly, Vol. 48 No. 2, pp. 268-305.
Nijhof, A.H.J. and Jeurissen, R.J.M. (2010), “The glass ceiling of corporate social responsibility: consequences of a business case approach towards CSR”, International Journal of Sociology and Social Policy, Vol. 30 Nos 11/12, pp. 618-631.
Ossewaarde, R., Nijhof, A.H.J. and Heyse, L. (2008), “Dynamics of NGO legitimacy: how organising betrays core missions of INGOs”, Public Administration and Development, Vol. 28 No. 1, pp. 42-53.
Roome, N. (2001), “Innovation, global change and new capitalism: a fuzzy context for business and the environment”, Human Ecology Review, Vol. 11 No. 3, pp. 277-279.
Tencati, A., Perrini, F. and Pogutz, S. (2004), “New tools to foster corporate socially responsible behaviour”, Journal of Business Ethics, Vol. 53 Nos 1/2, pp. 173-190.
Tideman, S.G., Arts, M.C. and Zandee, D.P. (2013), “Sustainable leadership, towards a workable definition”, Journal of Corporate Citizenship, Vol. 49 No. 3, pp. 17-33.
Whitehouse, S., Lacy, P., Veillard, X., Keeble, J. and Richardson, S. (2012), “Carbon capital, financing the low carbon economy”, available at: http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture_Barclays_Carbon_Capital.pdf (accessed 25 September 2014).
World Bank (2012), “Inclusive Green Growth”, World Bank, Washington, DC, available at: http://http://siteresources.worldbank.org/EXTSDNET/Resources/Inclusive_Green_Growth_May_2012.pdf (accessed 25 September 2014).
André Nijhof can be contacted at: mailto:firstname.lastname@example.org