#SustainableFinance

Institutions matter: The importance of institutional quality when embedding sustainability within the capitalistic realm

By Lisa Bernt Elboth, Adrian Rudolf Doppler, & Dr. Kristjan Jespersen

◦ 5 min read ◦

Institutions not only structure any sort of social interaction [1], but are also essential in solving societal problems [2], such as climate change and the associated threat towards a fair and just future. It is not without reason that the United Nations particularly emphasized institutional progress within SDG 16 [3] to advance to a more effective, inclusive, and accountable society. In a recent study, it was found that institutions matter to a great extent when scrutinizing the relationship between corporate financial performance (CFP) and ESG performance. More specifically, the institutional environment a company finds itself in determines whether sustainable business practices get transformed into financial returns.

The claim that more sustainable companies are outperforming their not so sustainable peers is not new [4] and the consequent shift of investors’ preferences towards more sustainable companies has been taking place with increasing speed over the last decade [5]. Associated wake-up calls and the urge to take ESG into consideration are not surprising either. Besides the alleged desire of investors for a just and sustainable future, this shift is more likely based on the theory that sustainable finance delivers abnormal returns [6]. But is the relationship between sustainable behavior and financial performance as straightforward as it is disseminated? Are more sustainable corporations indeed more likely to achieve better financial results regardless of where they are and what they do?

In fact, when utilizing ESG scores, rankings, and performance as a proxy for sustainable behavior, two meta-analyses [7] [8] concluded that in most empirical studies the resulting relationship was not as simplistic, universal or linear as it is often propagated. In a corresponding literature review, the researchers also identified a large number of discrepancies among scholars in how to statistically model the relationship, what control variables to use and how to even quantify the dependent and independent variables of focus. Following these insights, the researchers uncovered a determining factor in establishing and shaping the emphasized relationship – institutional quality.

Key Findings

The final sample consisted of datapoints from 6,976 corporations, situated in 75 different countries over a period of eleven years or, specifically, from 2009 to 2020. Subsequently, these were analyzed applying fixed effects panel regression models. Both an accounting- and a market-based measure were used to quantify corporate financial performance, respectively, Return on Assets (ROA) and Tobin’s Q. Meanwhile, ESG performance was proxied by ESG scores from Refinitiv (former Thomson Reuters). The variables associated with institutional environment were split into

Institutional Quality, calculated through a factor analysis and based on the World Governance Indicators from the World Bank and
Industry Sensitivity, a dummy variable equal to 1 if the GICS industry of a firm was deemed sensitive towards ESG.

Institutions are among the determinantal factors for the link

Interestingly, the general statistical analysis of ESG and CFP did not yield any significant results, however, when moderating effects stemming from the institutional environment were introduced, this changed. Under high institutional quality, the researchers found a positive relationship between ESG scores and financial performance. Contrarily, the relationship was negative under low institutional quality. Exemplified below by the case of Finland 2012, Argentina 2018 and Zimbabwe 2012, institutions can be seen as the determining factor for direction of the focal link. Furthermore, the industrial environment a corporation finds itself in was found to affect the relationship ambiguously. Generally, sensitive firms seem to receive relatively less financial gain for improved ESG performance, and it may even be negative.

Possible explanations for such dynamics

Legal institutions, such as environmental regulations, labor laws or health and safety requirements, can serve as the means of reflecting sustainable behavior inside a company’s balance sheet. Finland was for instance the first country to introduce a carbon tax capturing corporate pollution by giving it a price and hence affecting accounting profits.
In highly corruptive settings, where the trust of the general public is lacking, the likelihood of sustainable activities being perceived as greenwashing and thus not rewarded by investors, could be another reason for an inverse relationship in low institutionally developed regions.
In line with the previous, when accountability is low, and corporate entities can disclose information without third party verification, it could be relatively easy to stay focused on short-term profits through unsustainable practices but still receive a better ESG rating.
In environments with low institutional quality, banks tend to only give out short-term loans in order to reduce their own risks. This can lead to a vicious cycle of corporate lenders also only focusing on short-term profit maximization which then again decreases their access to capital, constraining their ability to engage in long-term sustainable practices.

Putting the SO WHAT into practice

When setting out for systemic change, it is important to ensure the necessary institutional environment in order to encourage individuals, as well as corporate entities to act in the best interest of the entire society and the planet. Thereby, a bottom-up approach focusing on incentivizing every individual and a top-down approach, fostering legal macro-level change can be synthesized, leading to the best possible outcome. These institutions should seek to maximize accountability, transparency, and mechanisms to internalize negative externalities. Corporations within such environments should fully leverage opportunities associated with sustainable practices, such as cheaper access to capital, in order to incrementally advance the progress towards a just space for humankind. Corporations, which are especially sensitive towards ESG related elements irrespective of their ESG scores, should aspire to enhance their own credibility, as this might award them with a competitive advantage. Lastly, societies with high institutional quality should strive for teaching about their institutions and the associated benefits to everyone else, as a global problem can only be solved on a global level.

References

Doppler, A.R., & Elboth, L.B. (2022). Institutional Quality, Industry Sensitivity and ESG: An Empirical Study of the Moderating Effects onto the Relationship between ESG Performance and Corporate Financial Performance (Unpublished master’s thesis). 22098. Copenhagen Business School, Denmark.

About the Authors

Lisa Bernt Elboth recently graduated with an M.Sc. in Applied Economics and Finance as well as a CEMS Master’s in International Management from Copenhagen Business School and Bocconi University. Her interest in global matters and sustainability has flourished during her studies impacting the choice of master thesis topic and this subsequent blog contribution.

Adrian Rudolf Doppler works as a research assistant for the Department of International Economics, Government and Business at Copenhagen Business School and had just graduated with a Master’s in Applied Economics & Finance and the CEMS Master’s in International Management after a two-year journey. He had always been passionate about ESG, Sustainability and the existing links with the capital markets, as well as the complex system dynamics arising form it.

Kristjan Jespersen is an Associate Professor at the Copenhagen Business School. He studies on the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance.

Photo credit: Galeanu Mihai on iStock

How do we think about sustainable investing? Suggestions from an exploratory study

By Margherita Massazza & Dr. Kristjan Jespersen

◦ 4 min read ◦

From the outset, this blog post takes the perspective that behavioral finance is required to assess the perceived tension in sustainable investing (SI). Our work investigates the extent to which sustainability considerations are included in investment decisions, and the drivers behind SI approaches.

Sustainability is increasingly integrated in financial markets, with the acronym “ESG” (Environment, Social, Governance) becoming an all-encompassing term widely used in all phases of the investment process. According to a recent global review, sustainable assets [1] reached USD 35.3 trillion at the end of 2019, representing 35% of total professionally managed assets, and they are set to grow further in the coming years. Yet, despite its growth and the positive sentiment associated with it, there is an inherent tension in sustainable investing.

This tension stems from the apparent disconnect between the theoretical assumptions of classical financial models, focused on risk and financial returns as the predominant determinants of investment decisions (e.g., Capital Asset Pricing Model, Modern Portfolio Theory, etc.), and the empirical evidence of SI, where portfolio allocations are affected by non-financial aspects like personal values and social pressures. How can we make sense of this tension?

Usually, the contradiction is formulated in terms of a tradeoff between financial returns and ESG impact: in order to achieve one, investors must forego the other. However, this view is still rooted in a traditional finance perspective, according to which including ESG considerations or seeking a non-monetary impact comes at the expenses of returns.

There needs to be more nuance in how sustainable investing decisions are investigated and assessed. Given the pervasive and engaging nature of ESG issues, sustainable investing is likely shaped by internal and external forces that go beyond the financial-vs-impact debate. By acknowledging the role that cognitive limitations, biases, and the external context play for investments, behavioral finance allows to capture the financial impact of factors that tend to be overlooked in mainstream financial theories.

Under this perspective, the authors carried out a study based on primary data from European retail and professional investors. It focused on two main questions:

To what extent are sustainability considerations included in investment decisions?

Firstly our analysis broke down the relative importance of four attributes for the investment choice, i.e. the relative weight (expressed in percentage) that each characteristic exert on the investment decision. Sustainability attributes carry a relative importance of about 38%, with ESG score displaying a 26% relevance, and the investment’s end objective a 12% relevance. Taken together, these parameters display a larger role than standard financial attributes of risk level (relative importance of 33%) and expected returns (relative importance of 29%) (Figure 1). The results confirm the significance of ESG aspects for a well-rounded assessment of an investment, arguing against the traditional perspective of risk and returns as the sole determinants of investment choices.

*Figure 1 – Relative importance of investment attributes for investment choice, by investor type*

What drives investors to invest sustainably?

Secondly, we identified the main tendencies leading investors to engage in SI. Starting from a set of 16 heterogeneous motives, 4 main drivers emerged: a desire for self-expression, a financial-strategic rationale, the influence of the external context, and an opportunistic motive (Table 1). These drivers depict SI as a multifaceted phenomenon that unfolds along various dimensions, and not only on the financial and impact layers. They propose a novel perspective to think about SI, which takes into consideration how endogenous (e.g., alignment with values) and exogenous (e.g., role of regulation) forces may affect investments.

*Table 1 – Drivers of Sustainable Investing*

How can the findings help us better assess sustainable investing?

This analysis shows the extent to which ESG aspects are integrated in investments, confirming their importance for investment choices. It also shows the multidimensionality of SI drivers, which eschews the rigid perspective of traditional finance and accounts for the impact of relevant internal and external factors.

With this understanding, it is possible to formulate practical insights for industry participants to address the current challenges of SI. In fact, there are concerns related to the over-inclusion of sustainability in investment decisions at the expenses of fundamental financial analysis, which may lead to mispricing, inflated asset evaluation, and potentially an “ESG bubble”.

Standardize definitions and improve sustainability communication. Social context emerged as one of the drivers of SI, and regulators have a strong role to play in harmonizing the meaning of sustainability in finance. Legislative and non-governmental bodies are working to overcome the lack of standard definition and frameworks in SI – e.g., via the European Union’s Sustainable Finance strategy. Their effort to create a common vocabulary and shared understanding of what SI entails will help to align incentives, concepts, and strategies. In parallel, the financial-asset supply side (e.g., fund providers, financial advisors, etc.) should communicate clearly and extensively on the sustainability aspects of financial products. Given the importance of ESG characteristics for investment choices, this will ensure investors have reliable and trustworthy information to guide their investments. Together, the agreement in terminology and the availability of sustainability information will reduce the possibility for misinformation and opportunistic tendencies to sway investment decisions.
Recognize the existence of complex drivers behind sustainable investment decisions. Investors, both professional and retail, should evaluate how different motives affect their investment choices. Knowing that multiple drivers exist will ensure that investment are aligned with goals, limiting the influence of irrationality and misinformation. This will not only benefit investment strategies, but also curb counter-productive results such as the emergence of an ESG price bubble. To explore what drives investor’s decisions, an ad-hoc survey could be submitted ahead of opening investment accounts, mirroring the logic of the MiFID directive. This may have positive effects, such as involving more retail investors in sustainable investing [2].
Finally, consider adopting a behavioral approach when studying sustainable investing. The flexibility of behavioral finance may allow to grasp further insights and help to think about this timely topic in a novel way.

References

[1] The Global Sustainable Investing Alliance (GSIA) considers defines “Sustainable” all assets that integrate ESG factors in the analysis and selection of securities. More detail in their latest global report.

[2] Retail investors still face barriers to fully engage in SI: the topic is investigated in the paper “Investment Barriers and Labeling Schemes for Socially Responsible Investments” by Gutsche and Zwergel (2020).

About the Authors

Margherita Massazza is a CBS and Bocconi graduate in Economics of Innovation, with a focus on Sustainability. Her research investigates the links between traditional investments and behavioral finance to understand how sustainability decisions unfold. She is currently working in the Foresight team of AXA, an insurance company, where she studies the role that corporations will play in the future and how the concept of sustainability will evolve.

Photo by PiggyBank on Unsplash

How the EU Taxonomy Impacts Businesses Beyond Europe

By Andreas Rasche

◦ 4 min read ◦

In 2020, the EU launched its classification system for environmentally sustainable economic activities, the so-called “EU Taxonomy Regulation” (hereafter: the Taxonomy). The Taxonomy is part of an integrated system of new EU-wide sustainability regulations, including new disclosure requirements for investors. While the Taxonomy is based on EU regulation, it can be expected that it will also have effects on businesses beyond Europe.

Basically, there are two ways in which the Taxonomy can affect non-EU companies. First, there are direct regulatory effects on non-EU companies. Because of the global nature of financial markets and the existence of global trade flows, non-EU companies will be directly exposed to the Taxonomy in different ways. Secondly, there will also be more indirect consequences, which I call “ripple effects”. Such effects exist because the Taxonomy raises the bar globally for how sustainability information should be disclosed, by whom it should be disclosed, and it which ways it can be disclosed. I briefly discuss both effects.

Direct Effects

In the short run, some non-EU companies will be exposed to the Taxonomy because of direct regulatory effects. Consider the following two examples:

A non-EU investor or financial advisor that wants to offer products on the European markets will be exposed to the Sustainable Finance Disclosure Regulation (SFDR) which requires an alignment with the EU Taxonomy. To offer financial products on European markets non-EU investors will therefore have to align with SFDR and hence the Taxonomy.

A non-EU company with EU-based investors is very likely to receive questions from these investors about the company’s alignment with the Taxonomy. Investors need this information to meet disclosure requirements under SFDR, for instance to classify their financial products in terms of their sustainability exposure. In other words, at least some non-EU companies will start disclosing more on Taxonomy-related indicators.

I could list more examples here (e.g., non-EU asset managers wanting to raise money in the EU), but the message is clear: the effects of the Taxonomy are not limited to businesses located in Europe. Particularly, the Taxonomy’s interaction effects with SFDR will affected non-European companies as well as investors.

Ripple Effects

Ripple effects are more indirect effects. They occur if an intervention, such as the introduction of a new regulation, creates further effects that reach beyond the system that was supposed to be influenced by the intervention. Such regulatory ripple effects can occur in different ways.

In the context of the Taxonomy, one important ripple effect is related to the practices of European businesses. Many of these businesses are global players, and they will apply the Taxonomy to their global operations regardless of whether these operations occur in a country that is legally covered by the Taxonomy. Sustainability reporting is usually done at the corporate level and therefore also includes firms’ non-European operations. The EU’s new disclosure regulation the Corporate Sustainability Reporting Directive (CSRD) will require that such reporting at the corporate level is taxonomy-aligned. In this way, European global players will “export” the Taxonomy to other parts of the world.

There are also ripple effects at the political level. The system of new EU legislation – including, the Taxonomy, SFDR, CSRD and other regulatory elements – is unique in the world. So far, no other region or country has a comparable system. However, the major economic regions in the world have also realized that future business will be difficult without sustainability-related regulations that enhance transparency and prevent greenwashing.

Consider two recent examples: In June 2021, the UK announced the creation of a Green Technical Advisory Group. This Group is supposed to develop and implement a UK green taxonomy, which is expected to be based in part on the EU Taxonomy system (e.g., in terms of metrics). In the US, President Biden signed Executive Order (EO) 14008 during his first days in The White House. While this EO does not aim at creating a US-based taxonomy, it has created a National Climate Task Force across different federal departments, which at least some see as an important step into the direction of more rigorous ESG-related regulation.

Other countries and regions are likely to look to Europe when thinking about how to design a workable taxonomy regulation, as the challenges that have driven the creation of the EU Taxonomy are the same throughout the world: we need more transparency around sustainable economic activities, we need to better benchmark firms’ sustainable activities, and we we need to prevent greenwashing.

It is too early to say whether there will be convergence among the taxonomies developed by different countries and regions, but one thing is for sure: they are here to stay…

About the Author

Andreas Rasche is Professor of Business in Society and Associate Dean for the Full-Time MBA Program at Copenhagen Business School. More at: www.arasche.com.

Photo by Krzysztof Hepner on Unsplash

SFDR, NFRD and the EU Taxonomy – What is their relationship?

By Andreas Rasche

◦ 5 min read ◦

The new Sustainable Finance Disclosure Regulation (SFDR) is on the minds of many investors these days. While a lot has been written on SFDR itself, I discuss how it relates to the Non-Financial Reporting Directive (NFRD) and the EU Taxonomy on sustainable economic activities. Taken together, these regulations can be overwhelming and maybe even confusing. While this is not the right place to comprehensively discuss all three regulations, I make some clarifications on their interlinked nature.

SFDR, NFRD, and the EU Taxonomy – What are we Talking About?

To start with, let us briefly review the three legal instruments, all of which belong to a series of EU regulations under the EU Action Plan on Sustainable Finance.

NFRD is the EU legal framework for regulating the disclosure of non-financial information by corporations. It was adopted in 2014 and states that corporations have to report on ESG information from 2018 onwards (for the 2017 financial year). NFRD is rather flexible – it applies only to so-called “public interest entities” (basically rather big corporations) and it contains so-called comply-or-explain clauses (allowing for non-disclosure of information if this is made transparent and reasons are given).

SFDR is the new EU regulation that introduces rules for financial market participants (FMPs) and financial advisers (FAs) to report on how they account for sustainability risks. SFDR applies at the “entity level” (i.e. requiring financial firms to report on how the whole organization deals with such risks) and also on the “product level” (i.e. requiring firms to report on how their financial products are affected by such risks). SFDR contains few comply-or-explain clauses (e.g., smaller firms, with less than 500 employees, can opt out of reporting on due diligence processes). The regulation asks all FMPs and FAs to report on sustainability risks even if they do not offer ESG-related products. If an entity offers ESG-related products, SFDR requires additional disclosures depending on how “green” the product is considered to be. SFDR came into force on 10 March 2021.

The EU Taxonomy regulation (hereafter: the Taxonomy), which entered into force 12 July 2020, reflects a common European classification system for environmentally sustainable activities. Basically, the Taxonomy tried to answer the question: What can be considered an environmentally sustainable activity? Answering this question is essential for investors to prevent “greenwashing” – i.e. a situation in which financial products are marketed as being sustainable without meeting sustainability criteria. The taxonomy defines six environmental objectives, and it defines an economic activity as sustainable if this activity contributes at least two one of these objectives without, at the same time, doing significant harm to any of the other objectives.

Differences and Commonalities

To start with, it is important to note the different legal status of SFDR/the Taxonomy as well as NFRD. NFRD is based on an older EU Directive (2014/95/EU). Directives imply that EU member states have to translate the broad requirements into national regulation. By contrast, SFDR (2019/2088) and the Taxonomy (2020/852) are both based on European regulation, which is immediately enforceable and does not require transposition into national law.

To understand how the three legal frameworks relate to each other, look at the Figure below. NFRD applies to corporations of all kinds. Hence, for investors NFRD is mostly relevant because it stipulates how investee companies report ESG data. SFDR, by contrast, most concerns financial market actors and ensures transparency about how these report on sustainability risks to their audiences (e.g., retail investors). The Taxonomy was introduced to have a common reference point when trying to figure out whether an economic activity really is sustainable. The Taxonomy therefore has the power to further specify the regulations set out in SFDR and NFRD.

Emerging Relationships

The linkages between the three frameworks will be further specified throughout the coming years. While SFDR has been in force since 10 March 2021, it is only in the so-called “level 1 stage of development”. As with many EU regulations, level 1 development sets out the basic framework principles for a regulation, however without specifying technical details. SFDR level 2 will come into force once the regulation is complemented with Regulatory Technical Standards (RTS), which are developed right now. The RTS will also specify the linkages to the Taxonomy in more detail (e.g., related to the “do-no-significant-harm” concept inherent in SFDR).

So, what can we say right now? The current versions of SFDR and NFRD do not yet link disclosures to the Taxonomy. This is likely to change, especially with the SFDR RTS being further specified and rolled out (in early February the European Supervisory Authorities released their final draft of the SFDR RTS). Moreover, the NFRD regulation is currently under consultation and will be revised in the near future. However, two important linkages are important to consider right now.

First, the scope of the Taxonomy is defined through NFRD and SFDR. In other words, if an organization is affected by NFRD and/or SFDR, the Taxonomy will also be relevant for its disclosure practices. It is important to note here that the EU Taxonomy defines further mandatory disclosures in addition to what is laid out by NFRD and SFDR.

Second, the Taxonomy asks companies (incl. asset managers) to report the percentage of their turnover and capital as well as operational expenditures that are aligned with the Taxonomy. It also asks asset managers to report the percentage of their portfolio which is invested in economic activities that are aligned with the Taxonomy.

The Future

We will witness a good deal of technical specifications of all three regulations throughout the next years. SFDR level 2 reporting will kick in once the RTS standards are part of the reporting (probably by mid-2023); also by 2024 year-on-year comparisons of data points under SFDR will be likely mandatory. The six environmental objectives of the Taxonomy will be specified through technical screening criteria, some of which will be released very soon.

It is good to see non-financial reporting and sustainable finance being backed by strong European regulations. It allows for more comparison and benchmarking and hence transparency. But, of course, we should also be prepared for a good deal of clarifications that will be necessary until institutionalized reporting cycles can fully kick in and unfold their potential.

About the Author

Andreas Rasche is Professor of Business in Society at the Copenhagen Business School (CBS) Centre for Sustainability. His latest book “Sustainable Investing: A Path to a New Horizon” (with Georg Kell and Herman Bril) was published recently. Email: ar.msc@cbs.dk Homepage: www.arasche.com

Tax havens, COVID-19 and sustainability

By Sara Jespersen

At CBS we will host a workshop and two public events (see below for sign up) on corporate tax and inequality next week 24th – 26th June 2020 – the COVID-19 crisis has underlined the pertinence of this topic in major ways.

Taxation, tax havens and corporate tax have been high on the agenda for a while. Since the outbreak of the global financial crisis of 2008 corporations seeking to minimize their tax payments have been under close watch from the media, civil society and politicians with a focus on ensuring that corporations pay their “fair share”. The OECD and the EU have gone to quite some length to try to stop tax-optimizing behavior through revising and modernizing existing rules and legislation. In collaboration with the IMF and the World Bank they have invested time and resources in strengthening tax systems, governance and improving domestic resource mobilization in low- and middle- income countries. This work is ongoing and corporate taxation is already high on the list of priorities for the world community. But then along came COVID-19.

Taxation is central in two ways when we reflect on the pandemic and what will follow. Firstly, governments have passed historic economic recovery packages to ensure that the private sector stays afloat and to avoid mass lay-offs during the lockdown period in 2020. The question is what can we expect in return? Secondly, the emerging discussion on the disruption caused to national economies should be thought into long-term solutions for sustainability including tax.

“Tax haven free” recovery packages

Poland and Denmark, followed by Italy, Belgium and France have attached an explicit conditionality to their COVID-19 state support that companies cannot be registered in tax havens.

In light of this clear conditionality, there has been a media storm in Denmark, when a journalistic investigation revealed that several companies that government support had an ownership structure that was associated with tax havens and with a consumer outcry on social media. This prompted one of the companies, a well-known bakery “Lagkagehuset”, to take out full-page advertisements in daily newspapers to counter the criticism and explain the company structure. The CEO also did a lengthy interview on the issue of the company’s ownership structure to a major daily newspaper.

Two immediate takeaways can be drawn from this:

It has revived the discussion about the usefulness of tax haven blacklists (see more on this by CBS professor Leonard Seabrooke in Danish). Which countries should be on them, and what does it mean if you as a business (or individual) are associated with a tax-haven on such a list? One thing is clear, measures to push countries into greater cooperation will not in itself comprise a substitute for measures to make companies act responsibly.
It has emphasized the importance of corporate governance including a reflected approach to responsible corporate tax practice. The fact that there are so-called tax havens out there warrants companies and individuals to decide how or if they want to be associated with these. If yes, companies must accept that they may be liable to critique and journalistic and even political inquiry into what that association means. It should come as no surprise that association with these jurisdictions may entail suspicion.

Tax havens are not the only concern in relation to companies’ environmental, social and governance (ESG) behavior in this pandemic. The financial times reported how NGOs and investors are challenging shareholder primacy as it leads to growing inequality. Corporate governance and ESG, including tax, is now more than ever one to watch for companies that wish to be part of a sustainable business community in the short-term and the long-term.

Opportunities in the long term

Recovery packages are short-term measures. However, in the long term, the pandemic offers an opportunity that must not be missed in terms of taking a serious look at which direction our global society is heading.

While the pandemic, in theory, cannot tell the difference between the poor and the rich, it is clear that the existing inequality in our society is all made acutely visible during COVID-19. In the US more than 40 million have lost their jobs during the pandemic. In Sierra Leone, there is allegedly just 1 available ventilator in the entire country (for a population of 7 million, where Denmark has more than 1000 ventilators for a population of 5.8 million). As for the gendered impacts even for the better off, there are indications that women are less able to find time to prioritize research and publishing during the crisis than men are (). While big tech companies look to come out of this crisis more profitable and, possibly, powerful than ever.

These are just examples of how inequality is front and center in this crisis and how it offers an important opportunity to consider if the direction we are heading in is where we want to go.

With many countries having been in a complete] lockdown and economic activity at a standstill, this presents a unique opportunity to truly rethink how well the existing economy has worked for our societies and planet. The city of Amsterdam in the Netherlands has seized the opportunity to embrace the concept of the doughnut economy and the OECD is arguing that it makes discussions about challenges of digitalization of the economy and a minimum level of tax for MNEs more pertinent.

Tax is the central tool for governments to raise revenue and engage in redistribution. However, it is much more than a technical tool in an administrative toolbox.

It is the modern social contract for individuals and businesses as highlighted by the discipline of fiscal sociology. Short term, long term, whichever way, you approach it tax should, and will, play a central role in the debate about where we want to go from here towards a more sustainable, and more equal, future.

It provides a key source of revenue to finance vital public services, it can act as an explicit redistributive tool central to fighting inequality, and if used wisely, it can incentivize the behavior of corporations and individuals including the transition to more sustainable practices. Some of these things will be discussed at CBS in June.

A timely workshop on corporate tax and inequality

At CBS we are hosting a timely interdisciplinary workshop as a collaboration between the department for Management, Society and Communication, CBS center for sustainability, and the Inequality platform on corporate tax and inequality. We are bringing together researchers from around the world to meet (virtually) and discuss different pieces of research emerging on this relationship. We have legal analysis, economic modelling, qualitative analysis of tax administration efforts, and sociological analysis of tax professionals and wider societal tendencies on the agenda.

Our keynote speaker Professor Reuven Avi-Yonah will give a (virtual) public lecture (SIGN UP HERE) on Thursday 25^th of June 2020 at 14:15 CET. He will speak to the short, medium and long term revenue options in light of the pandemic including a chance for a Q & A. He is a renowned scholar and has published widely on international tax, history of the corporate form, and CSR and tax among other topics.

The workshop concludes on June 26^th 2020 with a (virtual) practitioner panel to discuss knowledge gaps (SIGN UP HERE) from the perspective of professionals of various disciplines. Bringing together professionals from media, NGOs, tax advisory services, tax administration and business. This is likely to be a lively debate with the aim of furthering the CBS tradition of engaging the private sector on what could be fruitful avenues for further research in this axis of relevance between tax and inequality.

About the author

Sara Jespersen is a PhD Fellow at Copenhagen Business School. Her research is on the emerging relationship between responsible business conduct and corporate tax planning of multinational enterprises. In a complex governance context, there are now signs of corporations’ self-regulation and the emergence of voluntary standards. Sara is interested in what this means for our understanding of corporations as political actors and the notion of political CSR.

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Building A Better Planet: Toward a Sustainable Post-COVID-19 Society

By Daniel C. Esty

Covid-19 has dominated policy thinking across the world for several months – highlighting our vulnerability to unexpected threats, the fundamental reality of global interdependence, the critical role of science and data, and the value of collaborative efforts in response to a common challenge. And when the short-term public health crisis abates, the middle-term focus will be on economic recovery. But we should think now about the longer term – and the need to build a sustainable society that steps up to another looming threat: the prospect of destabilizing climate change. Thus, as we rebuild our economy, we must do so in a way that moves us toward a clean and renewable energy future as well as addressing other pressing sustainability issues including air and water pollution, waste and chemicals management, and our depletion of natural resources.

To help launch the conversation about the pathways to a sustainable future, I offer below 10 key elements to consider. These concepts build on the ideas laid out in the recently released book, A Better Planet: 40 Big Ideas for a Sustainable Future, that emerged from a multi-year research and policy initiative at Yale University, where I teach. For more information on the Yale Environmental Dialogue, please see the website.

1 ) End of externalities

A sustainable future requires that we commit to an end of externalities as the foundational principle for environmental policy. This starting point would require that we implement the Polluter Pays Principle, which means that those who release air and water pollution or greenhouse gases would have to stop these harms or to pay for their pollution. Likewise, any user of public natural resources – including water for irrigation, forests for timber, grasslands for grazing, or public lands for the extraction of oil, natural gas, or minerals – would be required to pay full price for the resources they take.

To be clear, making companies pay for the harms they cause will expose some business models as fundamentally unsustainable and only profitable when externalities are not internalized. These enterprises will have to remake their business strategies or go under.

2 ) Change in systems thinking

We must acknowledge that we live in a highly integrated world, as COVID-19 has so painfully made clear. Complex human and ecological systems require moving beyond traditional siloes to systems thinking — and regulatory design that links energy, environmental, and economic policies. More fundamentally, we must accept the fact that we will need to pursue multiple goals simultaneously and learn to do so in an integrated way that accepts the reality that our goals will sometimes be in tension — and thus need to be traded off and balanced.

3 ) Top-down targets & bottom-up implementation

We must recognize that policy frameworks and structures require both top-down targets and bottom-up implementation. This lesson has become plainly evident in the climate change context, where it is now clear that presidents and prime ministers do not control all the levers of society that must be pulled to deeply decarbonize our economy.

To achieve a sustainable future, mayors, governors/premiers, and other subnational political leaders – who often control economic development, transportation systems, and other key points of policy leverage — must play a significant role in reducing greenhouse gas emissions and building a more resilient society.

Likewise, business leaders – who also make day-to-day choices that profoundly shape the prospect for moving society onto a sustainable trajectory – must also be included in this conversation. Fortunately, both the 2015 Paris Climate Change Agreement and the UN Sustainable Development Goals (SDGs) expressly acknowledge the need for broader engagement of exactly this kind.

4 ) New economic model

New policy tools must replace the 20^th Century command-and-control regulatory model with economic incentives and other market mechanisms. While the government mandates of the past have allowed us to dramatically reduce pollution levels compared to five decades ago, further progress depends on price signals and a commitment to making emitters pay for the harm they cause.

5 ) New roles & various actors

Environmental progress must recognize new roles for various critical actors. Specifically, in decades past, the business world was seen as the source of pollution problems. But today, most corporate leaders recognize the need to be good environmental stewards so as to maintain their company’s social license to operate. They recognize that old notions about the mission of corporations being centered on shareholder primary and the maximization of profits has given way to a stakeholder model in which businesses have responsibilities not only to shareholders, but also to their customers, suppliers, employees, and the communities in which they operate.

Individuals are also advancing sustainability in new and important ways that go well beyond their long-recognized role as voters. Specifically, individuals today can make a difference as green consumers who make choices every day about which products to buy and which companies are selling sustainable goods and services. Likewise, a growing set of sustainability-minded investors are tracking environmental, social, and governance (ESG) performance metrics to ensure that their portfolios align with their values – and they hold shares in companies that are showing the way toward deep decarbonization and sustainability more generally.

And some impact investors are putting money directly into sustainability projects and enterprises with an expectation that their funds will make a difference in society as well as a financial return.

Finally, all of us with a smartphone can serve as watchdogs — capturing and sharing evidence of environmental wrongdoing on social media. We are also all positioned to offer comments and participate in public environmental debates in many places and ways that were not possible prior to the Internet era. This expanded access should deepen public participation and improve the diversity of perspectives that get factored into policy decisions.

6 ) Sustainable markets

We need sustainable markets that incorporate new lessons from various emerging fields of science and other emerging academic disciplines. Industrial ecology, for instance, offers new methodologies for mapping the flows of energy and materials across the economy. In this regard, as we rebuild business in the many sectors devastated by the Covid-19 pandemic, we should look sector-by-sector for opportunities to create closed loop production processes that generate zero waste. Such a system would focus on water recapture and the reuse and recycling of other materials.

We might, in this spirit, shift away from plastic packaging that generates greenhouse gas emissions as it is produced and too often accumulates after use in the ocean – and move toward fiber-based materials that can be more easily recycled or composted.

7 ) New tools & Big Data

Policymakers have a set of new tools at their disposal that can be deployed in support of a sustainable future. Big Data, in particular, has abundant applications that can help us to reduce environmental impacts – tracking emissions, identifying best practices in pollution control and natural resource management, and providing metrics that help us to identify policy leaders to emulate and laggards who should be spurred to do better. And while 21^st information and communications technologies have transformed how sports teams pick players, businesses market to their customers, and all of us make purchases, technological solutions have done rather little to reshape the environmental realm. But recent advances in data analytics, genomics, artificial intelligence, and machine learning all show significant promise for having important environmental applications.

8 ) Ethical foundation

We must build an ethical foundation for 21^st Century sustainability that captures the public’s evolving thinking about core values and fundamental principles. Most notably, the idea of environmental justice and concerns about equity and inequality make it clear that our policy programs must pay attention to who benefits from environmental commitments and who gets ignored.

Indeed, who pays for environmental inaction – including lead exposure from aging water pipes or asthma risk when urban air pollution is not abated – has become a fundamental question.

As we seek to “build back better” after COVID-19, climate change equity issues need to be given a more prominent role – both the intergenerational burden that the build-up of greenhouse gases in the atmosphere threatens to leave for today’s young people and the reality that movement toward a clean energy future will dislocate some communities, industries, and demographic groups in ways that will require transition assistance.

9 ) New ways of communication

We need a new approach to environmental communications and a commitment to translate expert guidance and science to the public in a manner that makes sense to everyday citizens. Tony Leiserowitz and the Yale Program on Climate Change Communication have demonstrated, for example, that political leaders must learn to distill and effectively translate scientific concepts and results to the public. And as Thomas Easley makes clear in his Better Planet essay “Hip Hop Sustainability,” we need new strategies that bring the climate change conversation to inner cities and other subsets of society in a way that engages those communities in their own language and on their own terms.

10 ) Innovation

Finally, a spirit of innovation must permeate the push toward a sustainable future. To create an environmental policy framework that is lighter, faster, and more effective than our regulatory programs of the past, we must harness the entrepreneurial capacity and creativity that exists all across the world. Innovation broadly-conceived has already brought us technology breakthroughs in wind, solar, tidal, wave, and fuel cell power. But we must seek innovation beyond the technology domain. We need to be equally committed to fresh thinking and new approaches to finance and investments in clean energy, government policies and incentives, public engagement strategies, and public-private partnerships.

Such innovation can reduce the cost of creating a sustainable future and diminish the perceived tradeoff between environmental progress and economic prosperity.

Despite recent challenges, the promise of a more sustainable society seems ever closer, but still just over the horizon. Progress thus depends on sustainability pioneers who are willing to run out front, innovate broadly, take on risks, accept failures (and redeploy resources quick when unsuccessful pathways are identified), and redouble their commitment to efforts that show promise.

This commentary builds on Dan Esty’s April 2020 virtual lecture at Copenhagen Business School and the University of Copenhagen.

About the author

Dan Esty is Hillhouse Professor of Environmental Law and Policy, Yale School of Forestry & Environmental Studies and Yale Law School

More about Covid-19 pandemic on Business of Society blog:

Small, yet important – and still responsible. Reflections on SMEs and social responsibility in times of Covid-19

How the pandemic can reset cities and transform aspects of urban mobility

The Coronavirus Pandemic – and the Consequentiality of Metaphors

Sustainable Development, Interrupted?

The Political Economy of the Olympics – Misconceptions about Sustainability

Supply Chain Responsibilities in a Global Pandemic

A Green and Fair COVID-19 Recovery Plan

In Movement from Tanzania to Northern Italy to Denmark

How to make food systems more resilient: Try Behavioural Food Policies

Lobbying and the virus – three trends to take note of

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Small, yet important – and still responsible. Reflections on SMEs and social responsibility in times of Covid-19

By Søren Jeppesen

One thing seems to be clear by now – that we are all challenged by the effects of the Covid-19 pandemic. This includes all enterprises, large as well as small firms. As states and individuals, also SMEs (Small and Medium-size Enterprises) need to figure out how to respond. SMEs constitute the vast majority of enterprises on the Globe, and their response to the current situation, including how they behave in terms of social responsibilities matter a lot. If jobs disappear, or wages are lowered and/or working conditions deteriorate, a large number of persons (employees) and families will be negatively affected. If environmental standards are lowered the nature and humans will be negatively affected.

The perception of what constitutes social responsibilities varies substantially across countries. As SMEs in different parts of the world face very different situations (see Spence et al. 2018), also in times of Covid-19, the responses will be very different. We already witness intense debates on what is the ‘appropriate way’ of reacting. Most SMEs have a less formalized way of operating compared to larger firms. While this is viewed as leading to being less socially responsible compared to large firms this type of organizing – not being so standardized – maybe be is an advantage in an unknown situation like the one that we are witnessing right now. Agility, creativity and ability to make a decision fast could be an advantage right now like the Danish small firms that have adjusted their production to include critical health products show.

However, the examples are probably the exceptions rather than the rule as only a smaller section of the SMEs typically can be characterized like this. The majority of the SMEs are operating in more traditional, standardized ways and have a more limited range of responses as things stand right now.

In our part of the world, governments have implemented numerous support schemes trying to assist the private sector, including SMEs, in various ways. The Danish SME has various public-funded support packages and a highly formalized labour market cushioned by a number of social benefit programs to factor into the considerations. Hence, we can insist that an important part of managing continues to be keeping an eye on working conditions and the environmental impact. In other parts of the world like the developing countries, governments have so far done less and given the much more informal nature of the economies, SMEs are much harder effected.

The Ugandan SME is faced with no economic assistance and a complete lockdown of the society leading to a dramatically reduced – if not totally halted – operation and turnover. In addition, no social benefits exist to assist employees who are losing their job. So, the overarching topic concerns the socio-economic dimensions of how many SMEs that survive while retaining a good number of the staff – or on the more pessimistic side – how many that go down leaving scores of people unemployed and without an income affecting individuals as well as tons of families.

What can we then expect in terms of social responsibilities in such a situation? Given that some developing country SMEs are characterized as having ‘family-like culture’, we would expect such enterprises to retain the employees (Tran and Jeppesen, 2016). Even though the SMEs retain the employees, owners and managers personally have to handle the insecurity that accompanies the situation as well as relating to the concerns among the employees.

The family-like type of organization could ensure that employees are kept and not fired. Still, we know that a number of SMEs pay little if any wages in times of limited production. Hence, having a job with no income does not make a difference right now.

Small enterprises in developing countries are also praised for their community engagement in taking up activities ensuring women (Langevang et al, 2015) or young people income. The localized response may assist in various ways of helping citizens in dire need. Religion and which church that you are a member of play a role. Some churches, as well as the wealthier members (and among these SME owners and managers), come forward to assist their congregation and the less well-off families in times of need.

We need to wait for the answer to whether and to what extent Covid-19 will be marked by resilience and a protective and more caring (social) response by SMEs – or rather by the tough reality of downsizing and/or closing down with numerous dire consequences.

References

Langevang, T., Gough, K. V., Yankson, P. W., Owusu, G., & Osei, R. (2015). Bounded entrepreneurial vitality: The mixed embeddedness of female entrepreneurship. Economic Geography, 91(4), 449-473.

Spence, Laura J., Jedrzej George Frynas, Judy N. Muthuri, Jyoti Navaret, 2018. Research Handbook on Small Business Social Responsibility: Global Perspectives. Edward Elgar Publishing.

Tran, Angie Ngoc & Søren Jeppesen. 2016. SMEs in Their Own Right: The Views of Managers and Workers in Vietnamese Textiles, Garment, and Footwear Companies. Journal of Business Ethics, 137(3), 589-608

About the author

Søren Jeppesen is Associate Professor at the Department of Management, Society and Communication at Copenhagen Business School. His research concerns the development of firms in developing countries. He focuses on SMEs, CSR and driving forces (or lack of same) for strategies of SMEs in developing countries in engaging in CSR (or not engaging).

More about coronavirus pandemic on Business of Society blog:

How the pandemic can reset cities and transform aspects of urban mobility

The Coronavirus Pandemic – and the Consequentiality of Metaphors

Sustainable Development, Interrupted?

The Political Economy of the Olympics – Misconceptions about Sustainability

Supply Chain Responsibilities in a Global Pandemic

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Teaching (and doing) anthropology in a business school

By Matthew Archer

For a while now, the discipline of anthropology has studied relatively marginalized or dispossessed people and communities, often in developing countries or poor parts of developed countries. What this means is that anthropologists are often critical of powerful organizations like governments, banks, and multinational corporations.

For the past year, I have tried to integrate these critical perspectives into my teaching at Copenhagen Business School. Although CBS is not a typical business school in the sense that it is not primarily an MBA-granting institution, many of my students are pursuing careers in finance and consulting that are typical of business school graduates.

Challenging business students

For young professionals who have been trained in both their classes and their internships to simplify and synthesize difficult concepts, it can come as a bit of a shock to be asked to read an essay about climate change adaptation in Guyana or vanilla bean farming in Madagascar, and unpack the theories and methods to think about how they relate to questions of corporate sustainability and sustainable finance.

But while this may be challenging, I’ve found that students often find it exceedingly valuable.

One of the hardest things to deal with as a young professional is often the tension between personal, ethical values and the pressures a company puts on you to increase profits.

The critical theories that anthropologists use to make sense of the world help students make sense of their work, especially those who are planning to go into sustainability-related careers. Understanding the way humans have navigated the relationship between nature and culture across time and space turns out to be a key piece to the puzzle of how the financial system or tech companies mediate that relationship in more familiar contexts.

Critical thinking

Just as important, it helps them learn to critically reflect on their choices as consumers, investors, citizens, and the numerous other social roles they inhabit, roles that tend to evolve fairly dramatically over time (for example, after they graduate, after they get their first promotion, after they’ve started families, etc.). This kind of reflection is key to building a more just and sustainable society.

Thinking about the role of emotions in determining who has access to clean water in Bangladesh, for example, might seem far removed from concerns here in Denmark about pension funds and money laundering, but as we’ve learned in my classes over the past few semesters, emotions like hope and anxiety play a big role in the way financial resources are distributed and accessed.

Anthropological theories and methods might seem far removed from the quantitative approach to management that defines contemporary sustainability. But to understand the role of businesses in society, the study of societies has to be taken at least as seriously as the study of business, and anthropology is a fruitful way of introducing this perspective in business schools.

About the author

Matthew Archer is Assistant Professor at Copenhagen Business School. He is an ethnographer and political ecologist interested in corporate sustainability and sustainable finance. Visit Matthew’s personal webpage.

By the same author: Sustainability’s Infrastructure

Photo by José Martín Ramírez C on Unsplash

Is it a right policy to focus on SDGs during Economic Slowdown?

By Anirudh Agrawal and Ashish Tyagi

Economic problems of India were not addressed either in the 2019 electoral debates or in the recent annual budget. Markets are showing a deep imbalance between demand and supply, leading to a significant rise in loan defaults, banking crises and job losses.

MSME has not shown a tendency to grow or create jobs along expected lines despite a nationwide program of targeted lending. Indiscriminate lending in the past has increased Non-Performing Assets (NPAs) in the banking sector. The industry is still adjusting to the new GST regulations while the real estate sector has still not recovered from the demonetization shock. On top of all this, pollution is at an all-time high and climate change is manifesting itself in the form of droughts and floods in different parts of the country.

In such a slowdown, a knee-jerk policy reaction is to spur investment and growth through any means possible, including reversals on climate and Sustainable Development Goals (SDGs). Quite recently, the government allowed 100 percent FDI in the coal mining sector to spur a revival.

But in this article, we argue that a renewed focus on Sustainable Development Goals (SDGs) presents an opportunity to revive the economy, create a new wave of jobs and potentially increase the competitiveness of Indian economy vis-à-vis the SDG laggards. The discussion that follows is in the context of India but is equally relevant for the rest of the developing world.

NPA crisis and an opportunity towards SDG oriented portfolio

The main reason for a steep rise in credit default rate is that while industries expanded capacity over time, domestic and global demand has slowed down considerably, stranding the new assets. The lack of market demand causes firms to default on loans. This increases the stress on the banks, which consequently, stall the liberal credit lines to firms, further weakening the economy.

One of the significant factors causing the NPA crisis in India is the MSME loan portfolio. MSME is the backbone of any economy. In developing countries, MSME account for 90 percent of job creation and economic activities. Over time, through hard work, market and government support, these MSME entrepreneurs are able to grow, engage in employment creation, disruptive innovation and ultimately become unicorns, which are nascent businesses with high market valuation and growth potential.

>>>However, despite the important role in job creation and liberal credit lines, MSME entrepreneurs in developing countries generally remain poorly skilled, lack proper business support, access to markets and are many times bullied by bigger firms. In the end, a great deal of capital channelled to MSME is not converted into higher value. <<<

To transform the MSME sector, government and other business-sector actors must treat MSME as students who need to learn and adopt skills related to competitive management, sustainability, marketing and financial reporting so that competitiveness and sustainability become inherent within the firm. MSME entrepreneurs can aspire globally through exposure from government-sponsored programs to attend MSME events in Denmark (for their dairy and animal industry), Germany (manufacturing), Italy (leather and fashion). They can learn more about international market trends and technologies where the bottom lines are firmly grounded on SDG compliance.

Unlike bigger players which are slow, suffer from legacy issues; MSME is flexible enough to embed elements of sustainability and SDGs in their supply chains and value creation processes.

To survive and grow in a world with increasing climate change regulations, better cooperation is required between public institutions, banks and MSME entrepreneurs to work hard in sync, learn new practices and standards. Long-term growth requires MSME to make sustainability and SDG compliance inherent in the business plan, business model, management structure and type of service and product offered.

>>> Indian banks must actively focus on new industries creating products with lower environmental footprints. <<<

For example, instead of providing loans to typical plastic manufacturing SMEs, they must provide loans to entrepreneurs setting up green-materials factories, alternative plastic (biodegradable) factories, bio-diesel, or EV vehicle factories, which are environmentally efficient, follow international standards and are helping the nation achieve its Paris Agreement targets. The growth of competitive, innovative and greater SDG compliant MSME would make Indian economy stronger and mitigate job crises.

SDG focused Real-Estate Sector Regulation

Another cause of NPA crises in India is the rising real-estate inventory. Real estate sector was one of the largest employers during the 2004-2016 boom years of India (which is also true for most of the developing world). The assumption among investors during that period was that the real-estate will continue to grow and their investments will remain secure and ensure above-market returns. However, in the boom period, real-estate prices far exceeded their value, causing market failure in the current economic downturn.

But during economic downturns, it is relatively easier for politicians to make difficult decisions (as the public mandate is easier) and enforce innovative policies.

To address the issue of real estate inventory, the government must introduce regulations in the real estate market with quality controls, sustainability measures, green building codes, controls on the number of floors constructed, the green area within the apartment, restrictions on distance from the essential public services like a train station, police station, college, hospital, schools.

The regulations must forcefully move the industry towards significant sustainability goals (like those in Western Europe) with higher compliance on long-term sustainability, energy efficiency, and reliability. In addition to explicit sustainability actions like certification, greenified surroundings; firms and the government must focus on developing the real-estate sector, which is firmly embedded in a social, cultural and artistic milieu. Research has shown that housing where the communities have active social and cultural interaction tends to have higher value and lower crime.

Specific SDG driven controls would decrease the supply, increase the quality offered, and would significantly increase the value of the real-estate sector. If the buyers feel that their real-estate investments have greater value for a more extended period, the buyers and sellers will invest in the sale and purchase of the real estate, which would relieve the banks from possible NPA risks. The increased transactions in the real estate market would generate liquidity in the market that would further spurn growth. This suggestion on regulating the market stands in contrast to current appeals for liberalizing the real-estate sector. The liberalization of the real-sector has led to a rise in indiscriminate investment, increased half-built and abandoned sites which are causing a rise in water pollution, dust pollution and even dengue.

Pollution and Climate Change

Extreme climatic events and increased pollution are related to externalities that are threatening the sustainability of the Indian economy. The winter smog around the national capital Delhi significantly reduces the productivity of the city while putting residents under severe health risks. Lengthening of summer and unpredictability of monsoon is increasing water stress, as well as floods, which is putting households under stress and decreasing the overall national productivity.

To address these challenges, research-based and region-specific adaptation and mitigation investments will enable different regions to transform towards climate-resilient economic societies.

The government must invest in energy-efficient, global standard-compliant power plants to reduce smog around North India.

In addition, the government and private sector must invest significant capital in solar panel production, the infrastructure of EV automobiles, greener-sustainable materials, circular economy and responsible consumption. The green climate fund (GCF) has a specific mandate for adaptation finance for climate resilient agriculture and flood resilient infrastructure. The GCF is an interesting and evolving repository of knowledge which should help governments in designing and implementing climate mitigation and adaptation policies and investments.

Businesses around these emerging technologies are most likely to generate the next wave of job growth in the manufacturing sector.

In conclusion

Economic downturns are stressful times, but it is also said that “never let a crisis go to waste”. The downturns offer opportunities to re-write innovative policies as the public mandate is stronger for a change. India must use its current economic downturn as an opportunity to re-write public policies by incorporating elements of SDGs at each level of conception and decision and transform towards a greener, climate-sensitive and sustainable space. Sustainability at each level is the new competitive advantage and the emerging nations must capitalize it.

About the authors

Anirudh Agrawal is a doctoral fellow at CBS. His research interests are MSME finance, impact investing, social entrepreneurship and organizational 4.0. He is a chief strategy officer at Tvarit AI GmbH focusing on sustainable AI driven IT solutions and a visiting professor at Flame University India and formerly Assistant Professor at Jindal Global University.

Ashish Tyagi is currently a post-doctoral fellow and lecturer at Frankfurt School of Finance & Management. He completed his PhD from Penn State University. His research interests are environmental economics, climate change policies and sustainable transformation.

Photo by Sudha G Tilak

Banking on the Future – Driving Responsibility and Sustainability in the Financial Sector

By Lavinia Iosif-Lazar.

While the world seems to have moved on from the last financial crisis, one can only wonder if banks and financial institutions have learnt something from it that could steer them away from repeating the experience. From the educational side, we also have to consider whether business schools are able to instill in their graduates the values and norms to navigate financial institutions into clearer waters.

100 Years CBS – Time to Rethink Finance
During a CBS conference in the late months of 2017, academics and practitioners within the finance and banking industries alike had come together to think and “rethink the financial sector”. The purpose of the event was to bring to light the issues and opportunities of responsibility and sustainability within the financial sector, and create an agenda for future research and teaching in business schools, like CBS.

Over the course of the event, the ambition was to develop a dialogue with stakeholders from the banking and finance industry and to challenge the current attitude towards banking and its future with “responsibility” being the word of the day. The hope was that this dialogue would ignite new ideas and develop an agenda for future research and teaching in business schools towards 2117.

During the three tracks focusing on society, business models and the individual, with responsible banking being the overarching theme, participants heard speakers address issues spanning from the role Fintech and disruptive technologies like blockchain and cryptocurrencies play in industry innovation to different religious perspectives on banking and finance.

To Rethink Finance, we need to Rethink Education
When it comes to financial education, the focus was set on bringing it in sync with the new developments and real life challenges, while at the same time stressing the need for a business model based on valuation and normative principles. In crisis situations, the clear-cut modelling learnt in school no longer represents the norm. Education plays a major role in securing that the new generations of graduates have the capabilities needed to identify and understand people and their needs, rethink and modernize local banking and be attuned to the technological developments that can pave the way to a more responsible banking sector – centered on people instead of money.

Lavinia is project coordinator at CBS PRME. You can visit the PRME Office at Dalgas Have 15, Room 2C.007 & follow CBS PRME on Twitter, Instagram and Facebook.

Pic by Markus Leo (Unsplash), edited by BOS.