1
Q
Normative ethics
A
what we ought to do and why
2
Q
Business ethics
A
normative ethics of business
3
Q
Ethics reasoning
A
underpins many sustainability measures and provides a framework for articulating an organisation’s objectives beyond legal requirements
4
Q
Consequentialist system of ethics
A
- act because of the pay-offs of an action: “the ends justify the means”
- greatest happiness principle: bring about the outcome which yields the greatest good for the greatest number
- use utility
5
Q
consequentialist - negatives
A
- some groups may get a bad deal
- is it better to have more utility now or later? do you discount future utility (if so at what rate)?
- transient populations create a problem for utilitarianism because the set of people affected is constantly changing, making it unclear how to compare, aggregate or prioritise happiness over time
- economic growth may be viewed as ethical even if it benefits only one group or damages one group’s livelihood
- difficulty in accessing the measurement info necessary (and the cost of doing so)
- people may express differing/conflicting preferences for the same outcome depending on how its described
- to maximise happiness, you need to know what your actions will cause, but in real life, we’re often wrong about cause and effect
- with uncertain, unique choices, how do we determine probabilities?
6
Q
ford pinto case
A
in the 1960s, ford developed a low cost pinto to compete with foreign cars. during safety testing, the car failed to meet federal standards, as the fuel tank could rupter and cause fires even in low-speed rear-end collisions. Instead of redesigning a car, they used cost-benefit analysis and calculated that the cost of fixing the issue was higher than the estimated harm. They chose not to implement the safety improvements. this shows how placing a monetary value on human life and relying on flawed CBA can justify harmful decisions
7
Q
deontological (rules based) system of ethics
A
- follow the rules! (the law, codes, company policies)
- may yield the same results as consequentialist but the ethical reasons for this course of action are different
- complying with legal requirements may be viewed as fulfilling the moral requirements of the business (Milton Friedman)
- precautionary principle
- fairness and justice
- protects individuals and minorities
- provides clear moral boundaries
8
Q
deontological system of ethics negatives
A
- minimal compliance
- manipulation
- most people still have the intuition that outcomes matter
- breaking rules
- be truthful with customers: kellogs claimed their cereal improved childrens’ attentiveness by 20%
- false advertising: rimmel scandaleyes using false lashes - treat employees well
- nestle fined for employee suffering life changing injuries due to roller mechanisms on conveyor belt
- can appear rigid/insensitive to catastrophic outcomes
9
Q
virtue ethics
A
- useful when consequentialism isn’t feasible and rules aren’t known for a specific context
- the company itself is virtuous: implies a non-reductive view of the company - it has moral agency itself and we can’t trace responsibility to individuals/hold them accountable
(but: reductive view of the company: it’s always theoretically possible to trace the actions of a company to its CEOs, directors, local managers etc. but may be very difficult in practice. - CSR reports
10
Q
precautionary principle
A
- if an action might cause serious harm, don’t wait for full proof, act to prevent it anyway
- Rio Declaration: “if there is a risk of serious/irreversible damage, lack of scientific uncertainty isn’t a reason to delay action”
e.g. instagram restricts harmful content, changes algorithm for young users
11
Q
moral absolutism
A
- there are universal moral truths (universal over time and for all cultures)
12
Q
moral relativism
A
- morality can only be understood contextually (e.g. good relative to local cultures)
e.g. in some countries, “facilitation payments” are normal. in others, they’re seen as bribery
13
Q
are there ways to deal with moral relativism in international business?
A
yes, set non-negotiable global standards, allow flexibility in less critical areas, use international benchmarks (global anti-corruption frameworks, human rights standards) even if local norms differ
14
Q
rules based ethics clash with moral relativism
A
rules based ethics (human rights, company codes of conduct etc.) depend on clear, universal rules. if morality varies by culture, a universal culture may seem inappropriate
e.g. treatment of staff (working hours, rights, etc)
15
Q
whose interests should the company serve? milton friedman
A
milton friedman: in his capacity as a corporate executive, the manager is the agent of individuals who own the corporation… and his primary responsibility is to them
16
Q
shareholders
A
have residual interest and voting rights
17
Q
passive investors
A
e.g. index funds, may not be actively engaged in monitoring & controlling the companies in which they’re invested
18
Q
business roundtable (2019) - USA
A
CEO said companies should serve: customers, employees, suppliers, communities, shareholders
19
Q
corporate governance code (2018) - UK
A
- firms must define purpose, values, strategy
- purposeful company taskforce: profit is an outcome of purpose, not the purpose itself
20
Q
problems with stakeholder approach
A
- there is a clear shift toward purpose-driven and stakeholder orientated business models, but this creates tensions with traditional shareholder primacy
- if a company must serve all its stakeholders: what if interests conflict?
e.g. higher wages vs shareholder profits: no clear decision rule - the stakeholder model lacks clear prioritisation, making it difficult to operationalise in practice when shareholder interests conflict
21
Q
directors duties (2006) - companies act - UK
A
directors must promote success of the company for shareholders while having regard to: LT consequences, employees, suppliers/customers, environment/community, reputation
stakeholders are still considered but shareholders still come first
22
Q
should companies still be purposeful?
A
purposeful: clear social mission, positive societal impact, profit as a result of purpose
- builds trust
- LT value creation
- stronger economy and society
BUT
- can be vague/PR-driven
- hard to measure purpose
- may conflict with profit goals
shareholder primacy remains legally dominant but is increasingly challenged by regulatory, investor and societal purposes
23
Q
is sustainability declining?
A
no:
- overall trend is still strong
- stronger regulations (EU, IFRS)
- global adoption of sustainability standards
- china leading in green energy
- firms globally affected by EU rules
yes:
- political pushback (US)
24
Q
accounting is good because
A
- it addresses problems of asymmetric info
- it signals performance
- it has real effects on investor capital allocation decisions
25
what makes disclosures high quality
1. relevance
- information capable of influencing decisions e.g. revenue which helps predict future performance
- single materiality: effect on the organisation (e.g. financial risks) due to its environmental an social activities
- double materiality: effect on the organisation (e.g. financial risks) of environmental and social issues and social and environmental impact of the organisation's objectives.
2. faithful representation
- info should be complete, neutral, free from error/bias. shouldn't omit relevant info/include misleading info
3. verifiability
- independent observers should reach similar conclusions. requires standard disclosures so that an auditor can test if the disclosure is fully representative
4. understandability
- info is classified, presented and described clearly & concisely
5. timeliness
- info is made available to users early enough to influence their decisions
26
Rana Plaza
over 1000 people killed in rana plaza, a commercial building in bangladesh that collapsed in 2013 in which garment production operated
- 27.6mn people in situations of forced labour (3.3mn are children)
- forced labour is highest in low-income countries (6.3/1000 ppl)
27
Modern Slavery
- slavery, forced labour, bonded labour, child labour, sexual servitude, organ trafficking, human trafficking
28
poor work conditions
legal/illegal but considered unethical: unsafe work conditions, poor pay, lack of entitlements
29
legal and appropriate work
legal and legitimate, compliance with relevant laws, right to collective bargaining, no forced/compulsory labour, no discrimination in the workplace, no child labour
30
world benchmarking alliance
- 90% of the world's most influential companies fail to ensure human rights, decent work, and ethical conduct
- 10/2000 companies identify and assess human rights risks in their supply chains
- less than 5% companies report paying a living wage
31
responsibilities in the supply chain
- direct responsibility for any harms/failure to do good
- indirect responsibility for any harms/failure to do good
- ability to prevent harm/do good
- in countries with dictatorships or poor human rights records, supply chain responsibilities require enhanced due diligence, as companies may be indirectly linked to state abuses and must use their leverage to prevent harm where possible. If harms can't be mitigated, firms should consider responsible disengagement while minimising negative impacts on workers & communities
32
Human Rights Disclosures
1. EU: CSRD, ESRS S2
2. US: California Transparency in Supply Chains Act, NY Fashion Act
3. UK: Modern Slavery Act
33
EU Corporate Sustainability Reporting Directive (CSRD)
Applies to:
- EU large & publicly listed companies with >450mn turnover and >1000 employees
- Non-EU companies with >450mn turnover in the EU
- companies not in the CSRD scope must comply with the corporate sustainability due diligence disclosure (CSDDD) - publishing an annual statement on their website covering due diligence policies, identified impacts, and actions taken
34
ESRS Standards (European Sustainability Reporting Standards)
- ESRS 1: General requirements - principles, materiality process, how to prepare sustainability info
- ESRS 2: general disclosures - mandatory disclosures on governance, strategy, materiality assessment, KPIs, value chain
Environmental Standards
- E1: Climate Change; E2: Pollution; E3: Water and Marine Resources; E4: Biodiversity & Ecosystems; E5: Resource use and circular economy
Social standards:
- S1: own workforce; S2: workers in the value chain; S3: affected communities; S4: consumers and end users
35
ESRS S2: Workers in the value chain
- scope: impact on workers outside the company's workforce - upstream and downstream value chain
- topics covered (if material): working conditions, equal treatment, fundamental rights (e.g. freedom of association), elimination of child & forced labour, privacy, adequate housing
- key mechanism: companies disclose based on their double materiality assessment - only topical requirements deemed material need to be reported
- external verification (audit) required: covers both the materiality process and ESRS compliance
36
ESRS S2 vs CDDD
- ESRS S2: broader scope (entire upstream & downstream value chain), CSDDD has a narrower focus ("chain of activities" only)
S2 disclosure requirements:
- S2-1: policies - describe policies for managing value chain worker impacts, aligned with international standards (e.g. UN guiding principles)
- S2-2: engagement - how the company engages with workers/representatives or "credible proxies" e.g. NGOs to understand impacts
- S2-3: remediation & grievance - channels for workers to raise concerns (e.g. hotlines, grievance mechanisms) and remedy processes
- S2-4: actions - specific actions taken to prevent/mitigate/remediate negative impacts and resources allocated
- S2-5: targets - time bound, outcome orientated targets to track progress
37
political developments - weakening of CSRD/CSDDD
- Reuters (Dec 2025): EU agreed to scale back corporate sustainability laws after pressure from firms and govts (incl US & Qatar)
- environmental campaigners, some investors and governments, were dismayed
- exxonmobil: changes didn't go "nearly far enough" - due diligence law still applies to foreign firms
- trump: "non starter for trade talks"
38
Omnibus project (EU commission proposal)
- postpone reporting requirements for companies due to report in 2026 or 2027 by 2 years
- raise reporting thresholds (>1000 workers, >450mn - only larger firms)
- delete sector specific standards requirement
- keep assurance at limited assurance (not moving to reasonable assurance)
39
US Human Rights Disclosures
- california transparency in supply chains act: companies must disclose on their website the extent to which they:
1. verify supply chains to evaluate and address risks of human trafficking and slavery
2. audit suppliers
3. require suppliers to certify materials comply with slavery/trafficking laws
4. maintain accountability standards for employees/contractors who fail to meet company standards
5. provide training on human trafficking and slavery for staff with supply chain responsibility
40
Dodd Frank Act Section 1502 - Conflict Minerals Disclosure
- not strictly labour rights but related to supply chain human rights
- requires disclosure on conflict minerals
41
UK: Modern Slavery Disclosures (2015)
- organisations that meet certain criteria are legally required to publish and annual modern slavery statement in a prominent place on their website if their turnover is >36mn
- disclosures should address: company policies, structures, due diligence, risk assessment, training and effectiveness
42
FRC Report on Modern Slavery
- modern slavery reporting lacked the info needed for shareholders and wider stakeholders to make informed decisions
- 1/10 companies didn't provide a MS statement at all
- 1/3 statements were easy to read
43
weak enforcement - MS statement
(-) no fines for non-compliance - only the risk of commercial and reputational damage
(-) may be viewed as a "tick-box exercise"
(-) attempts made to improve enforcement by introducing significant fines have been unsuccessful
44
Boohoo
- shareholders have rebelled against high pay for execs at the fast fashion group, criticising it for paying "very low" prices to factories making its clothing
- remuneration report revealed that the CEO was paid ~1.4mn last year after he was awarded a generous bonus despite missing targets
45
Macia et al. (2023)
- firms disclosing higher conflict mineral risks often perform better, as disclosures signal honesty, cost-efficiency, and supply chain realism rather than poor practices
46
Mai et al. (2023)
- modern slavery reporting is now widespread, with most firms compliant but weaknesses remain in risk assessments, due diligence, and training. High quality reporting is linked to clear regulations, prior experience, and strong supply chain control
47
Biodiversity
1. genetic diversity: the variety of genetic info within and between populations of species: greater genetic diversity allows species to adapt to changing environments, resist diseases and contribute to ecosystem resilience
2. species diversity: variety of species within a region or ecosystem. Includes no of different species (richness) and relative number of each species (abundance). increased diversity often = healthy ecosystem
3. ecosystem diversity: the variety of ecosystems, natural communities, and habitats in a particular area/the planet as a whole. ecosystem diversity looks at how the interaction of different species and their environment create complex ecological systems with their own processes
48
why is biodiversity important?
- double materiality: maintaining a balance of Earth's ecosystems and providing vital services such as: production of food, fuel, fibre and medicine, regulation of climate, water & disease... etc.
- relevant for companies (single materiality): which impact biodiversity, affected by biodiversity loss which is a financial risk (natural resource supply/quantity, customer demand)
49
TNFD (Taskforce on Nature Related Financial Disclosures)
- VOLUNTARY global framework for reporting nature and biodiversity related risks and opportunities
- helps companies identify and measure dependencies on nature, impacts on nature risks and opportunities, governance/strategy/metrics around nature
- widely adopted by firms and investors globally as a mkt driven approach ahead of regulation
50
ESRS E4: Biodiversity and Ecosystems
impact, risk and opportunity management:
- E4-1: transition plan, biodiversity in strategy and business model
- ESRS 2 IRO-1: Processes to identify and assess material biodiversity/ecosystem impacts, risks and opportunities
- E4-2: policies related to biodiversity and ecosystems
- E4-3: actions and resources related to biodiversity
metrics & targets
- E4-4: targets related to biodiversity and ecosystems
- E4-5: impact metrics related to biodiversity and ecosystem change
- E4-6: anticipated financial effects from biodiversity/ecosystem risks and opportunities
51
financial effects disclosure requires
- expected financial effects (a single amount or a range)
- description of effects considered, impacts and dependencies and the time horizons when they're likely to materialise
- assumptions used to quantify effects, plus sources & level of uncertainty
52
E4 company impact metrics
- conversion of land cover (e.g. deforestation, mining)
- changes in ecosystem management (e.g. agricultural intensity)
- changes in spatial configuration/connectivity (e.g. habitat fragmentation)
- E4 only applies if biodiversity is identified as material through the double materiality assessment. A company may conclude it isn't material and omit E4 entirely.
53
Omnibus project impact on E4
- mandatory biodiversity datapoints significantly reduced
- shift to more principles-based, materiality-driven approach
- no requirement to set new targets solely for reporting purposes
- only actual, measureable, material metrics required
- scenario modelling/quantitative estimates not required when effort is disproportionate
54
IFRS ISSB Standards
- IFRS S1: general requirements for disclosure of sustainability-related financial info
- IFRS S2: climate-related disclosures (builds on S1 structure)
- ISSB & Biodiversity (BEES - biodiversity, ecosystem, and ecosystem services)
- ISSB is currently developing disclosure requirements for BEES risks and opportunities
- research shows that 91% of companies made atleast one BEES disclosure but quality and consistency vary significantly across sectors
- investor view: need for better (not necessarily more) disclosure
- also focusing on the role of AI in biodiversity disclosures
- target: develop a BEES standard by Nov 2026
55
weaknesses in accounting for human rights
1. relevance: human rights have no immediate impact on financial performance (financial materiality). there's no common benchmark for moral and social evaluation (double materiality) therefore relevance is difficult to operationalise and may be inconsistently applied
2. faithful representation: double materiality requires companies to assess their own negative impacts. incentives to frame issues as low severity, limit scope of value chain considered, emphasise due diligence processes over actual harm
3. comparability: each company conducts its own materiality assessment so variation in what's material hence different topics disclosed and different thresholds used
4. verifiability: auditors can verify that a process exists but not the true level of harm (due to subjectivity and measurement issues)
5. understandability: how materiality was assessed, stakeholder engagement, severity scoring -> leads to technical ESG language and long methodology sections
6. timeliness: impact assessment is time-consuming and data intensive and much reporting is retrospective after bad publicity by media/NGO reports
56
are human rights disclosures financially relevant to investors?
(+) regulatory and legal risk: fines, bans, litigations
(+) operational risk: supply chain abuses can disrupt the supply chain
(+) reputational risk: due to social media and NGO scrutiny
(+) cost of capital & access to financing: ESG focused investors care about its effects on business model sustainability
(+) transitional financial risk: moving to ethical sourcing raises ST company costs
(+) link to financial accounting disclosures
- CF forecasts (supply disruptions, remediation costs)
- asset impairments (brand value)
- provisions/contingent liabilities
- revenue risks from boycotts/regulatory barriers
(-) impacts are uncertain and difficult to quantify
(-) often LT, whereas some investors focus on ST profit
(-) risks may be diversifiable for investors
(-) firms are often small and treated as a cost of business
(-) reputation damage is likely to be temporary
(-) consumers may not necessarily change behaviour (non-consumer sector, certain areas of fashion & food)
57
why is it so hard to account for biodiversity?
1. relevance: subjective stakeholder interests vary and hard to establish relevance of specific issues
2. reliability: data incomplete/estimated
3. comparability: ecosystems vary widely - biodiversity is inherently local
4. understandability: complex concepts - hard to simplify
5. timeliness: LT monitoring delays reporting
58
general critisisms of biodiversity accounting
(-) critics argue that disclosures tend to focus on policies and governance, rather than empirical evidence of biodiversity impact
(-) companies lack robust, consistent, and granular data to measure their upstream & downstream supply chain impacts
(-) biodiversity impacts often occur deep within supply chains, many companies initially focus on their direct operations only, leaving out significant upstream and downstream impacts
(-) biodiversity is complex to measure and many firms don't have the necessary tech/methodological capabilities
(-) firms may treat CSRD as a tick-box exercise (superficial reporting - fails to reflect actual risks and greenwashing)
59
disclosure requirements for biodiversity
1. governance over nature-related risks and opportunities
- who in leadership is responsible, oversight structures, frequent review
2. strategy & material dependencies/impacts on biodiversity
- how the business depends on and affects ecosystem & species (location specific)
3. risk management processes
- identification, assessment & prioritisation of nature-related tasks integrated into broader risk systems
4. metrics and targets (quantitative)
5. plans to mitigate biodiversity loss, restore ecosystems/reduce dependencies
6. constraints and linkages between biodiversity and climate risks/opportunities, given overlapping drivers
60
impact accounting
- a causal relationship between 2 or more factors
- the effect(s) of organisations' actions on (targeted) people and the natural environment
- impact accounting aims to measure the LT benefits of an organisations' activities on its stakeholders
- reported through: narrative of effects on the society/community, quantitative, financialised value
- non-mandated disclosure
61
what good impact reporting looks like
1. relevant info can be found easily and is suitable for different stakeholders
2. coherent: connects aims, plans, activities & results
3. reporting is full, open & honest
4. verifiability (of claims about impact) - can range from informal stakeholder feedback to external audit
62
impact accounting for front line organisations - social return on investment
- mimics investment ratios
- key principles:
1. involve stakeholders
2. understand what changes
3. value the things that matter
4. only include what's material
5. don't over-claim
6. be transparent
7. verify the result
63
impact accounting for front line organisations - emmaus homeless charity
- investment = 4mn
- social value = 45.5mn projected
- 11 of social value per 1 invested
- key assumptions use financial proxies: improved quality of life (19250), reduced loneliness (13800), re-established family relationships (1688), increased financial security
64
front line organisations vs impact investors
FLOs directly deliver the service to people
impact investors provide capital to organisations/projects that create impact
65
impact accounting for front line organisations - st giles trust
- criminal justice/rehabilitation
- SROI ratio: 8.34 saved to the taxpayer per every 1 invested in peer-led services
66
impact accounting for front line organisations - wellsprings women's centre (vulnerable womens & charities)
use financial proxies for outcomes:
- sense of belonging: 35750 per year
- reduced isolation/feelings related to family violence : 58607/yr
- increased capacity/empowerment: 16857/yr
these proxies illustrate both the power and the limitations of SROI: the numbers look precise but rest on contestable assumptions
67
impact accounting for impact investors - global impact investing network
- investments made with the intention to generate positive, measureable social/environmental impact alongside a financial return
- compatible with a range of resources
- targets pressing global challenges: energy, healthcare, etc.
68
impact accounting for impact investors: snowball impact investment
- multi-asset fund focused on private markets
- themes: social equity & environmental sustainability
- ranked top 5% of Bcorps globally for governance protecting its impact mission
69
impact accounting for impact investors: bridges fund management
- 1.7bn raised
- 3 strategies:
1. sustainable growth funds (PE): education & skills
2. property funds (real assets): affordable housing
3. social sector funds: mission led social enterprises
70
impact accounting for impact investors: bridges impact methodology
TARGET OUTCOMES
impact treated as a performance variable alongside financial risk and return, key q's:
- who is the beneficiary
- how underdeserved are they
- how critical is the change
- how many are affected
- is there evidence of the impact
- does it create additional systemic change
ADDITIONALLY: would the outcomes happen anyway without this investment?
- is the investor incubating a model, targeting underinvested areas or providing strategic/non financial support?
- does it create new impact /crowd out existing impact
EXTERNALITIES
- unintended positive effects (jobs, skills)
- negative effects?
- any material ESG risks identified/mitigated/tracked?
ALIGNMENT
- is impact sustainable?
- is profit & impact generated tgt?
- or is impact dependent on subsidy/concessionary finance?
71
challenges with impact disclosures
1. relevance - identification an justification of the appropriate beneficiaries and stakeholders to whom the organisation is accountable
2. faithful representation - may be biased toward financial stakeholders , measurement issues impact accuracy
3. comparability - presentation of assumptions not standardised, prior year comparatives are often not given
4. understandability - assumptions and definitions may be unclear
5. assurance (independent verification) - often not undertaken/non-standardised
71
potential solutions to the measurement issues challenge of impact disclosures
- some standardisation projects for terminology
- impact measurement protocols
- training offered to organisations producing impact reports BUT misunderstandings still persist in understanding of terms and burden of reporting on organisations recieving multiple investment streams
72
So & Capanyola (2016)
outline key methods including SROI, theory of change (logic models), mission alignment (impact scorecard), experimental evaluations (RCT)
73
Morley (2025)
examines how impact terminology is standardised in the UK, highlighting mismatched understandings between investors and investees, and how crisises like Covid enabled front line organisations to challenge investor led definitions of impact
74
lemons problem
good car worth 1000, bad car worth 500. buyers can't distinguish so will pay 750 for any car
result: good cars won't be sold, the used car market will function inefficiently
75
solving the lemons problem
1. increased disclosure
2. regulation
3. guarantee and warranties
4. 3rd party certification
5. licensing
6. liabilities laws
7. customer ratings
76
capital markets and the lemons problem
- via information asymmetry
if we can't distinguish between good and bad securities, we will be willing to pay the average of both values
this means good securities are undervalued and issued less and bad securities are overvalued and sold more
77
financial statements
- measure and summarise the economic consequences of business activities
- high quality accounting info is relevant, comparable, understandable, verifiable and timely
- achieved through established standards/principles, internal controls, independent audits & enforcement
78
what's missing from financial statements
1. non financial info
- intangibles (brand rep, IP, etc.)
- human capital (training etc)
- customer satisfaction
2. externalities
- environmental damage
- disruption to local communities
- disruption to ecosystem
79
tragedy of the commons
individuals, acting in their own self interest, overuse and deplete a shared resource, ultimately harming everyone
80
solutions to the tragedy of commons
1. privitisation ownership of natural resources - owners internalise the cost of environmental damage
2. govt regulation - fines/taxes/quota
3. public & private collaboration - subsidies and grants
4. education - increases awareness
81
stakeholder theory
organisations should create value for all stakeholders not just shareholders (R Edward Freeman)
82
shareholder primacy
primary responsibility to shareholders, aiming to maximise shareholder value (Milton Friedman)
83
Dodge v Ford Motor Co
established that corporations must prioritise shareholder profits, ruling against Henry Ford for reinvesting earnings instead of paying dividends
84
Corporate Social Responsibility
- businesses actively contribute to societal goals, beyond profit max e.g.
1. public benefit corp
2. Bcorp
85
public benefit corporation
defined by US benefit law as a type of for-profit corporate entity legally empowered to pursue social and environmental goals alongside profit (e.g. OpenAI)
86
B Corp
for profit organisation ceritifed by Blab for their social impact (e.g. Patagonia, The Body Shop)
87
Sustainable Development Goals
People, Planet, Prosperity, Peace, Partnership
we need to achieve these SDGs (e.g. Co2 emissions etc.)
88
Sustainability
sustainable development is development that meets the needs of the present without compromising the ability of future generationd -> The Brundtland Report 1987
89
Why do (not) firms disclose voluntary sustainability info?
(+) meets stakeholder demand
(+) lower cost of capital
(+) enhance reputation
(-) revealing proprietary info to competitors
(-) public scrutiny - e.g. too much pollution
(-) setting a precedent that's too hard to beat
(-) subject to scrutiny if measures are inaccurate
(-) info production costs
90
Academic Evidence on Voluntary Sustainability Reporting
Firms have increasingly disclosed CSR information over the past 25 years, driven by growing market demand and improving cost-benefit dynamics. Disclosure is typically made through standalone sustainability reports, integrated annual reports, or third-party platforms like CDP.
91
Do Saints or Sinners Disclose? (Clarkson, Li, Richardson, Vasvari)
Firms with strong environmental performance are more likely to disclose sustainability information to signal their quality, while weaker performers tend to withhold it. Evidence from high-polluting industries shows better performers are more likely to follow GRI reporting standards.
92
Investor Demand and Climate Disclosure (Ilhan, Krueger, Sautner, Starks)
Most large investors view climate risk disclosure as equally or more important than financial reporting, and firms with climate-focused investors tend to provide better disclosures. These investors actively pressure firms to increase transparency around climate risks.
93
Real Effects of Voluntary Disclosure (Cohen, Kadach, Ormazabal)
Firms with greater ownership by CDP-aligned investors are more likely to disclose climate information, and such disclosure is associated with subsequent reductions in carbon emissions. This suggests voluntary reporting can drive real environmental improvements.
94
Voluntary Adoption of SASB Standards (Bochkay, Choi, Hales)
Firms are more likely to adopt SASB standards due to peer pressure and demand from sustainability-focused investors. Those that adopt these standards tend to have lower greenhouse gas emissions.
