Harmonization of sustainability reporting standards – a solution to which problem?

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Text by: Svetlana Gross and Jenni Puroila, PhD students at Misum

Currently there are more almost 400 different sustainability reporting instruments globally[1]. The SDGs (Sustainable Development Goals) include a specific goal (Goal 12.6) to encourage companies to report on sustainability as part of their reporting practices. Governments, NGOs, market regulators, stock exchanges, industry associations and standard setters have developed requirements for reporting. The question is no longer about whether companies should report on sustainability but rather how. Today the discussion is focused on standardization and harmonization of the reporting, but less so about its purpose and long-term effects.

Earlier in November Misum had the pleasure of hosting a public lecture by its board member Prof. Bob Eccles, who is currently Visiting professor of Management practice at Saïd Business School at Oxford University. The lecture’s topic was “Setting standards for non-financial information: what is the solution?”, and Prof. Eccles raised some important and interesting points on the topic. The question he brought into the discussion was “who should take the responsibility of developing the global standard for non-financial reporting”.

This request for a solution is relevant since the proliferation of standards has been criticised to have increased the reporting burden for companies but also creating a certain amount of confusion among reporting entities and among information users. Therefore, the current call for harmonization and alignment seems to be echoing all over. However, the large number of standards reflects the breadth of sustainability-related issues as well as the innovation and experimentation process in this emerging field. The question that is commonly being ignored or taken for granted is to whom the reporting is directed to.

It is an important question to ask, because it determines what purpose this reporting is serving and what kind of decisions it is supposed to influence: operational, strategic or purely financial? The standards for sustainability related information such as SASB and IIRC are developed to provide information for financial decision-making. As are the more traditional financial reporting bodies such as FASB (US) or IASB (the rest of the world). Throughout Prof. Eccles’ lecture the assumption that the investors are the main audience of sustainability reporting was not questioned. What it means in practice is that information about the non-financial aspects of the company’s environmental and social impacts need to be translated, and integrated, into financial terms.

Including financial implications of social and environmental risks as a part of financial reporting provides more accurate financial information and is in fact fulfilling those reporting requirements that are already in place in financial reporting regulations. This is nothing new. But it does not fulfil the purpose of sustainability reporting if we assume that its purpose is to support the transition towards more sustainable economy.

Today, the investors are expected to make the “right” decisions about our common future, but based on which grounds? One of the most recent and acclaimed efforts in integrating environmental, or specifically climate-related, information into the current accounting and investor decision-making is The Task Force on Climate-related Financial Disclosures, TCFD[2]. It has recently published a framework and recommendations for reporting to be used by financial and non-financial organizations representing the largest greenhouse gas emitting industries: energy, transportation, materials and buildings, agriculture, food and forestry. The focus is on financial impact of climate-related risks and opportunities on an organization, rather than the impact of an organization on the environment.

Recommendations include describing “the resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario”. If focusing on the organizations’ impact on the environment, an honest analysis from fossil-based extraction and energy companies will be – “there is no scenario consistent with a 2°C warming where our company survives”. The accepted moderate emissions reduction pathway consistent with (a 75% chance of keeping the global warming below) 2°C includes that fossil-fuel emissions should peak by 2020 at the latest and fall to around zero by 2050[3]. Scenarios for lower than 2°C require even faster phasing out of fossil fuels. Will the companies adhere to this analysis when focusing solely on the financial impact on an organization as requested by these recommendations?

There is nothing wrong with the approach of those standards highlighting investors’ point of view as such, but problems arise when this approach becomes the dominating one. Giving the lead responsibility of alignment and harmonization to those organizations that focus on the investors’ perspective means maintaining the status-quo. This kind of reporting does not give enough incentive for companies to transform their practices towards more sustainable economy but rather contributes to their financial stability. Should this kind of reporting even be categorized under the 400 sustainability reporting instruments when in fact its purpose is to provide financial information about non-financial matters without requirements of measuring the impacts outwards to society and environment?

The sustainability challenges are larger and encompass issues that have implications reaching beyond the financial performance. If we want to find a solution for these major sustainability challenges we need a broader and more inclusive perspective that changes the target from sustaining the financial returns to sustaining our planet and humanity.

Text by: Svetlana Gross and Jenni Puroila, PhD students at Misum

Follow Jennie Puroila on Twitter: @jennipuroila

[1] UNEP, GRI, KPMG & the Centre for Corporate Governance in Africa (2016) Carrots and Sticks Global trends in sustainability reporting regulation and policy. Available at: https://assets.kpmg.com/content/dam/kpmg/pdf/2016/05/carrots-and-sticks-may-2016.pdf

[2] https://www.fsb-tcfd.org/publications/final-recommendations-report/, June 2017

[3] Rockström, J., Gaffney, O., Rogelj, J. et. al. 2017. A roadmap for rapid decarbonization. Science, Volume 355 Issue 6331

 

Crowdfunding for Sustainability: A new vehicle for green growth?

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Text by Kristian Roed Nielsen, PhD and Misum Postdoc researcher

The emergence of reward-based crowdfunding as novel source of funding for entrepreneurs (also labelled innovation finance) has been hailed as a democratizing revolution within innovation finance (Lawton and Marom 2012; Mollick and Robb 2016). The potential to engage consumers directly for capital is proposed to be changing “how, why, and which ideas are brought into existence” (Gerber and Hui 2013:1) by, for example, reducing the geographical constraints of traditional funding (Agrawal, Catalini, and Goldfarb 2015) in addition to expanding access to entrepreneurial finance to a greater range of individuals and teams (Lehner and Nicholls 2014; Sorenson et al. 2016). Its potential for enabling sustainable entrepreneurship is therefore also gaining popular and academic traction. But is this hype or does reward-based crowdfunding truly represent a needed innovation funding boon for sustainable entrepreneurs? This is exactly what my dissertation sought to explore by examining under which conditions and to what extent reward-based crowdfunding could financially benefit entrepreneurs with social and/or environmentally-oriented products. And can it? Well it depends.

The dissertation finds that while consumers represent a significant and growing source of innovation finance this does not necessarily translate into more sustainable finance[1]. Instead, funding success for sustainable entrepreneurs depends on the purpose of their endeavor (i.e. social or environmental); the amount of financing sought; entrepreneurs’ geographic location, social capital, network and prior experience; and – in no small part – the product [offered].  The fact that innovation finance can now be driven by consumers rather than professional investors does not in itself change consumer demands; demands which more often than not fail to correlate well with sustainable behavior. Instead reward-based crowdfunding appears for certain types of campaigns as an enabler of sustainable product innovation, while in other circumstances it enables egocentrically-oriented campaigns.

The factors that influence funding success for sustainable entrepreneurs are five-fold. Firstly, while consumers are on aggregate more likely to support socially-oriented ventures – as compared egocentrically-oriented campaigns – environmentally-oriented campaigns often perform worse than their egocentric counter-parts. Secondly, entrepreneurs should consider how much funding they are seeking as in reward-based setting as entrepreneurs who seek more than 8,000 US$ (€7,400) will on average find it increasingly more difficult to garner funding. Thirdly, location still matters even with crowdfunding context and entrepreneurs located in an urban setting with a high median income and social capital will find it significantly easier to garner funding. Fourthly, an entrepreneur’s personal network in addition to past experience with crowdfunding strongly influences the likelihood of funding success. Prior success with crowdfunding resulting 173% increase in expected funding, while failure results in a 17,7 % decrease. Finally, the products on offer themselves strongly influence individual pledging behavior both in terms of sustainable and unsustainable pledging, but also in terms of whether social or environmental orientation garners support. Hence when we look at a more detailed picture of the products themselves individuals seem motivated by different things when pledging. Specifically there is some indication that for fashion items, electronics and other “wearables” consumers pledge for egocentric reasons (i.e. style, make and color), while for other more out-of-sight items social (i.e. fair wages) and environmental (i.e. recycled materials) values win the day.

Hence while reward-based crowdfunding is not a silver bullet often espoused by its proponents for tackling the funding concerns of sustainable entrepreneurs “the crowd” does hold a significant potential that thus far remains largely untapped. It is this untapped potential that hope to unravel with my work at Misum.

If you want to read the none-condensed version of my dissertation you can find it here.

Text by Kristian Roed Nielsen, PhD and Misum Postdoc researcher

Follow Kristian on Twitter: @RoedNielsen

[1] Sustainable finance referring to capital that is invested in entrepreneurs or ventures who pursues a good, service, or process system that offers an improved or the same economic performance with lesser externalities in the form of social and environmental hazards (Bos-Brouwers 2010; Halme and Laurila 2009).

References
Agrawal, Ajay, Christian Catalini, and Avi Goldfarb. 2015. “Crowdfunding: Geography, Social Networks, and the Timing of Investment Decisions.” Journal of Economics & Management Strategy 24(2):253–74. Retrieved (http://dx.doi.org/10.1111/jems.12093).

Bos-Brouwers, Hilke Elke Jacke. 2010. “Corporate Sustainability and Innovation in SMEs: Evidence of Themes and Activities in Practice.” Business Strategy and the Environment 19(7):417–35. Retrieved (http://dx.doi.org/10.1002/bse.652).
Gerber, Elizabeth M. and Julie Hui. 2013. “Crowdfunding : Motivations and Deterrents for Participation.” ACM Transactions on Computer-Human Interaction 20(6):34–32.
Halme, Minna and Juha Laurila. 2009. “Philanthropy, Integration or Innovation? Exploring the Financial and Societal Outcomes of Different Types  of Corporate Responsibility.” Journal of Business Ethics 84(3):325–39. Retrieved (http://dx.doi.org/10.1007/s10551-008-9712-5).
Lawton, Kevin and Dan Marom. 2012. The Crowdfunding Revolution: How to Raise Venture Capital Using Social Media. New York: McGraw Hill Professional.
Lehner, Othmar M. and Alex Nicholls. 2014. “Social Finance and Crowdfunding for Social Enterprises: A Public-Private Case Study Providing Legitimacy and Leverage.” Venture Capital 16(3):271–86. Retrieved (10.1080/13691066.2014.925305).
Mollick, Ethan and Alicia Robb. 2016. “Democratizing Innovation and Capital Access: The Role of Crowdfunding.” California management review 58(2):72–87.
Sorenson, Olav, Valentina Assenova, Guan-Cheng Li, Jason Boada, and Lee Fleming. 2016. “Expand Innovation Finance via Crowdfunding.” Science 354(6319):1526 LP-1528. Retrieved (http://science.sciencemag.org/content/354/6319/1526.abstract).

The Kapuszinski Lecture on Development 2017 – Stockholm School of Economics (SSE) – November 15, 2017

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By Jan Eliasson, Former Deputy Secretary General United Nations

I am truly honoured to deliver the 2017 Kapuscinski Lecture. It is a signature yearly event, which brings the EU member states and citizens together around the common challenge of development in the 21st century.

My approach today to the subject of global development is very much influenced by my work at the UN over the past three decades. This work spans over peace and security, conflict resolution, humanitarian action as well as human rights and institution building.

In my analysis of our development challenges, I am also strongly influenced by the work on and adoption of the Sustainable Development Goals (SDGs) and the 2030 Agenda in September 2015 at the UN.

Other elements of significance for my understanding of development are the negotiations and agreement on Climate Change and the emergence of the concept of Sustaining Peace.

Let me from the outset propose that the overall vision and goal should be the universal acceptance of the need for both sustainable development, sustainable peace and sustainable human rights.

My main message today is that economic and social development must be seen, and carried out, in the broader perspective of peace and security, human rights and strong and effective institutions.

In the final document of the UN General Assembly Summit in September 2005, which Sweden had the honor to chair; this relationship is summarized in the following over-arching formula:

There is no peace without development, there is no development without peace and there is neither peace nor development without respect of human rights.

Another crucial conclusion is that development requires mobilization, not only across the areas peace and human rights, but also across a broad range of actors: governments, international organizations, and also parliaments, the private sector, civil society, and the academic and scientific community.

To this list must in today’s world be added the role of media, not least social media – and, ultimately, the role of all of us. Nobody can do everything, but everybody can do something.

No one escapes responsibility for improving human conditions in a world where international cooperation and solidarity now are challenged, even threatened, in the political life of our nations. This threat is evident in the debate in key areas like trade, migration and climate.

This observation of mine is also related to the fact that international and national agendas are growingly interrelated. The dividing line is no longer evident between what we do at home and what is being done in the world.

My conviction is that a good international agreement or formula is, in fact, in the national interest of individual countries. The Paris climate agreement of 2015 can well illustrate this thesis. The future of our nations cannot be separated from the future of the Planet.

In reverse, what we do to build good societies at home – with peaceful conditions, fair distribution of resources and wealth, inclusive and non-corrupt institutions and respect for human rights – is a contribution to a better life to our citizens, but also to international peace and security.

Far too often, I have seen that the absence of these positive factors leads to tensions, to civil strife and even to international interventions, in weak and fragile states.

With this in mind, we should appreciate what the Nordic countries have achieved in terms of well-functioning societies and institutions. This has contributed to a greater degree of trust here than in most other countries.  Admittedly and sadly, we live in a world with much of unfulfilled expectations and a disturbingly high ”trust deficit”.

To me, the new SDGs and the 2030 Agenda represent a remarkably lucid and comprehensive road map for a better life for the peoples of the world and for a livable planet.

It is an ambitious agenda. The UN Member States aimed high, fully aware that setting these daring goals meant leaving the lowest common denominator negotiations behind.

During the talks, I was as Deputy Secretary-General making the point that this agenda could not turn into realities with measures and steps taken only by governments and international organizations. For success, the SDG Agenda required utilizing the huge potential of the business community, civil society and the world of science and technology.

This ”horizontal” mobilization is now one of our greatest tasks. If we succeed in bringing all these actors on board the journey to a life in dignity for all, we will make a giant step forward to a more rational, more effective method of solving problems of human development. The ”silo approach” must be left behind!

This also requires us to combine local, national and regional efforts with international cooperation. Such crosscutting cooperation builds on the premise that we discard the zero-sum game thinking – one part wins and the other one loses. In today’s world we must aim for win-win formulas, based on sound give-and-take and on the realization that the word ”together” is our most important word. If we do not adopt the win-win method, we will be left with highly damaging and dangerous lose-lose propositions. America First – or for that sake Sweden First – simply does not work. It could lead to America – or Sweden – Alone.

Let me now highlight the most prominent of the features of the 2030 agenda.

The basic common feature is, of course, sustainability. None of our pursuits can have lasting effects if we do not base them on sustainability. We may have a Plan B in other areas of politics and life, but when it comes to the existential issue of climate change and environmental degradation, we have no Planet B.

Accepting this, lead us to adopt long-term thinking – away from quarterly results and mandate periods. Another consequence is the urgent need to accept and share responsibility for future generations. This fundamental realization must penetrate all sectors of society, and all of us as human beings.

A second key feature of the SDGs is universality. In contrast to the Millennium Development Goals (MDGs), the SDGs are to be universally implemented – by the countries of the North as well as of the South. This is meant to send a strong message of inter-dependence – we are all in the same boat. Development is an obligation for all, rich as well as poor. By this, Agenda 2030 represents a conceptual break-through. Development is a global responsibility.

A third feature of the SDGs is their mutually re-inforcing character. The 17 goals are closely related. If we, for instance, improve the global water and sanitation situation, we will see progress in child mortality, maternal health and education. The same goes for each and every one of the goals. This means that we must promote a crosscutting, horizontal approach to meeting challenges and solving development problems.

A fourth feature is the relationship of the new goals to the fundamental formula of peace, development and human rights. Goal 16 underlines the importance of peaceful societies, access to justice and strong institutions.

This is another conceptual achievement of Agenda 2030 – the realization, as stated, that efforts for peace and security, development and human rights cannot be divorced or seen in isolation. Rather, they can achieve lasting results only if they are carried out in parallel.

For experts and practitioners in the security, development and human rights communities this is a golden opportunity to mobilize common efforts and reach joint results. Some steps forward have already been taken. In April 2016, the UN Security Council and General Assembly adopted identical resolutions on Sustaining Peace.

This concept is based on seeing peace building as a common responsibility of different sectors across national and international fields. It also underlines the importance of prevention as well as post-conflict peace building as an extended arm of prevention.

Lastly, let me highlight the importance of institutions for development. I have to admit that this issue was one of the most difficult to negotiate. Some countries felt that it was related primarily to domestic affairs and responsibilities.

However, it is hard to dispute that poor governance, corruption and lack of trust in institutions are seriously detrimental to development. Strong, honest and well-functioning institutions are not only beneficial for our citizens. They are also a positive factor in terms of support, cooperation and investments from the outside world.

Today, it is crucial that more of trust be built in leaders, institutions and democratic processes. Not least in view of the communication revolution and the emergence of powerful social media, there is an urgent need to counter extremist forces, which politically exploit the lack of trust. These movements must be taken seriously.

Let me conclude by high-lighting one area, which affects development, security as well as human rights , and which, I suggest, is of historic significance: the issue of refugees and migration.

In the SDGs, migration is listed under goal 11. But it goes beyond this particular goal. Migration and refugee movements have broad and deep economic, social, cultural and political implications. The narrative on migrants and refugees is controversial and often contradictory. Some see perils and problems – others see possibilities and potentials.

The economic consequences of 244 million migrants and 65 million refugees are significant. They contribute to growth in all countries where they live. Studies by IMF and the OECD verify this. They also make possible demographic growth, which is crucial not least for Europe’s and North America’s future. Further, their remittances to families in their home countries are three times higher in value than the total Official Development Assistance (ODA) in the world.

These facts and figures ought to be introduced and stressed in the sometimes toxic debate on refugees and migrants, and this apart from the fundamental question we should all face: are we in the future to build our societies on diversity or exclusion.

This, of course, presents a tremendous challenge to our nations and our peoples. Are we to develop and live up to integration policies, which include, and seriously deal with, education, housing and employment for all?

This is not an easy task for any society, whether it is on the national or local level. But I claim that the long-term gains and benefits of effective integration are much larger than the short term obstacles.

Migration and how we deal with refugees will be a decisive factor for the  journey ahead of us. We will in this century see millions of people leaving not only conflicts but also extreme poverty and climate change disruptions.

Facing this historic challenge requires action plans spanning over development, security and human rights which must be embraced by both national and international actors. Solving the problems inside nations will in this world be as important as international agreements and strategies.

In this pursuit, on both levels, the 2030 Agenda is a formidable instrument as well as an indispensable road-map for the future.

I hope that each and everyone of you in your present and future endeavors will make use of this new instrument in the toolbox of progress for humanity. By doing so, we can contribute to a life in dignity for all on this vulnerable planet Earth. We must do all we can to reduce the gap between the world as it is and the world as it should be.

By Jan Eliasson, Former Deputy Secretary General United Nations

Board Oversight of Corporate Sustainability – From Awareness to Engagement

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By Andreas Rasche

Corporate sustainability and responsibility have come a long way. One aspect that has been sidelined quite a bit is how corporate sustainability is linked to the work of Boards of Directors. My plea here is a simple one: We need to anchor corporate sustainability at the Board level, and we need to do it in a way that Boards move from an awareness that sustainability related work exist (which is usually given) to a deeper engagement with sustainability-related questions.

Through my work and research I often talk to corporate leaders about sustainability. Often, I ask them: “Does your Board discuss sustainability-related matters?” Few leaders reply with a straight “no”; they emphasize that their Board is aware of sustainability issues.  However, equally few leaders claim that their Board really shows high levels of engagement vis-à-vis corporate sustainability. Most emphasize that the Board approves/discusses the annual sustainability report, and also that the Head of Sustainability gives an annual update to the Board. Yet, approving a report once a year and getting an annual update on relevant activities is different from engagement. Awareness is not the same as engagement, and confusing the two can give Directors the misleading impression that their Board really addresses corporate sustainability.

Boards that are just aware of the company’s sustainability-related work miss an important point: decades of research have shown that sustainability is about identifying risks and opportunities for the company. Hence, we cannot (and should not) disconnect relevant discussions from the “regular work” of any Board.  By “regular work” I mean the classic role of the Board, which is to approve and monitor corporate strategy against risks and opportunities. Nearly every aspect of corporate strategy has a sustainability angle to it. The challenge is to identify this angle and to make the most out of it.

How, then, can we ensure that Boards really engage in sustainability-related discussions? Research in this area is still rather scarce, and it would be misleading to claim that we have a lot of insights into this topic. I want to suggest three broad areas that seem important when thinking about how to move Boards from awareness to engagement.

  1. Structure: One important area is to think about how to structure Board oversight of corporate sustainability. There are different options but not one best way. Some Boards may find it useful when the entire Board discusses sustainability-related issues. This keeps relevant content high on the agenda and also makes sure that there is broad involvement in the debate. Other Boards may find it more useful to create a separate committee for sustainability-related discussions or they may enrich the work of an existing committee. This option may be risky in the sense that it unnecessarily isolates relevant debates. On the other hand, a committee can signal importance and ensures that the topic is regularly addressed. Both options do not exist in isolation; they can, of course, be combined.
  1. Culture: Each Board has a culture, and even without generalizing too much it is fair to say that most Directors still understand their main job as controlling and monitoring what is happening in and around the company. I share the view expressed by David Grayson and Andrew Kakabadse that in the longer run the structure that a Board adopts may be less important. What matters most is the mindset that a Board develops vis-à-vis corporate sustainability. Does the Board see sustainability just as an add-on, or does it see relevant issues as an integral discussion of risk mitigation and opportunity maximization? Does the Board identify its own role primarily as being about monitoring, or does it also understand itself as a mentor willing to guide sustainability-related discussions? And in what ways does the Board signal to the organization that sustainability is central to any strategic decision? The self-understanding of the Board matters, and this self-understanding cannot be changed overnight. It develops over time, like any culture does. A Board’s culture is influenced by a number of aspects; such as who participates (often people with explicit sustainability knowledge are lacking) and also by whether the Board is open to learn about the relevance of sustainability.
  1. Strategy: While Boards can have a great structure to address sustainability and also the right mindset that underpins such a structure, true engagement around corporate sustainability may mostly be visible in the pattern of actions that a Board adopts. Henry Mintzberg once called such a pattern “a strategy”. Whether or not corporate sustainability is part of a Board’s DNA becomes visible in actions such as the hiring of C-level executives and the compensation packages offered to these executives. A Board that neglects sustainability-related criteria when deciding on compensation packages disregards an important opportunity to fully engage in the discussion and to adjust its own strategy. While in the past many argued that the lack of robust indicators makes it impossible to tie compensation towards sustainability goals, this argumentation does not hold anymore in times where we have long lists of indicators, measures, and materiality maps.

I am not claiming that this is a conclusive list, but it is certainly a platform to start thinking about how to better engage Boards in discussions around corporate sustainability. First initiatives are emerging around this topic. The UN Global Compact launched a Board Programme a while back, and Stockholm School of Economics is discussing the creation of a similar engagement program for Swedish companies. After all, being aware may just not be enough…

Andreas Rasche (@RascheAndreas) is Professor of Business in Society at Copenhagen Business School and Visiting Professor at Stockholm School of Economics. More information at: www.arasche.com

Low-carbon management in the shipping industry and the absence of economic

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Incentive Structures: A Case of Market and Non-Market Failures?

Text by Serafim Agrogiannis, PhD Candidate in Business Administration at Misum

Navigating the aspects that distil the situation to its very essence requires openness. Not a polarized stance in the debate about uncritically urging firms to raise their environmental performance standards. Such an approach is underpinned by the aim to disprove criticism of the industry lagging behind in sustainability efforts where such a verdict is invalid and to raise awareness and possibly improve amongst other the utilization of low-carbon management where disapproval is due.

Climate change is more topical than ever. Unnerving times about its impact have pervaded considerations of the shipping industry’s role towards GHG emissions reductions. The latest study of the International Maritime Organization (IMO) depicts a current increase of 70% and projects escalation up to 250% by 2050 compared to the baseline year of 1990. This reveals an estimated increase of 200-300% in shipping activity (IMO, 2014) and according to the European Parliament’s report it will comprise of almost 17% of global carbon emissions if left unregulated (ENVI, 2015).

Such evidence serves as an eye-opener. It has vindicated a multitude of tenets held dear by proponents arguing against the shipping sector’s exemption from the Paris Agreement on climate change in 2015. The IMO’s reaction has been to persuasively establish the case that forthcoming carbon data collection requirements would supplement existing initiatives and formulate a coherent response for alleviating the industry’s impact on climate change. Parallel to this, is the new EU regulation (2015/717) on monitoring, reporting and verification (MRV) of carbon emissions for all ships reaching European ports effective from the 1st of January 2018 onwards. Both initiatives reflect a willingness to deal with information asymmetries through increasing transparency and data reliability.

But how do these attempts relate to the market overall? The majority of the shipping sector functions under a risk-based approach adopting only the necessary measures compliant with legislation and operational on-journey ramifications for achieving fuel efficiencies (Poulsen et al., 2016; van Leuween and van Koppen, 2016). In this case, stringent environmental, safety and health standards for reasons of customer/shipper vetting procedures (e.g. oil industry) and for certain management guidelines such as the International Safety Management (ISM) code prevail. Even in the container segment, which is alleged to be more advanced concerning environmental considerations, large shippers only partially deal with carbon management. Instead, reputational and cost reduction concerns prevail. Such a cost-cutting strife and commoditization eradicates any potential of incentive-shifting solutions. This largely invalidates proponents’ stance (e.g. Vandenbergh, 2013; King et al., 2012) for market based measures (MBM’s) and the internalization of environmental externalities. Add to this the weaknesses in data accountability, ambition as well as improvement levels (Scott, 2017) and the landscape becomes clear.

Apart from this indisputable market rigidity, the industry context itself is challenging. First, shipping is extremely capital intensive, freight with cyclicality related to the world economy as well as the time lag in order to couple supply and demand of ships. As such, sustainability-related postulations remain far from a straightforward matter where elaborations encompass dynamic and uncertain juxtapositions against cost-effectiveness and corresponding time horizons in order to evaluate potential trade-offs through certain technology investment choices and related bunker prices. Second, regulation within the industry constitutes the main driver towards environmental upgrades. The existing Energy Efficiency Design Index (EEDI) as well as the Ship Energy Efficiency Management Plan (SEEMP) illuminate a reality where attempts are made to further reduce GHG emissions. Given that the majority of shipping market segments point towards intense competition, these compliance strategies are viewed as means of retaining current position within the industry. With respect to differentiation, market segmentation practices within the different segments (e.g. cargo, dry, bulk) pose varying contract award criteria where cost, quality, flexibility and reliability have stronger effects on shipping firms’ environmental performance compared to product differentiation advantage through the ships themselves “offering the services” in question. Third, and given the outsourcing of the ship management function, many shipping firms focus on the applicability of best practices toward carbon reduction through task specialization and knowledge diversity allowing for the creation of unique bundles of resources and capabilities.

As a remedy, the discussion should embrace a wider perspective. Adopting a supply chain context (e.g. LSP’s) or its procurement function, could unveil potential of improvement. Issues proving material in the near future would also include shipbreaking procedures and the extent that strict working and environmental conditions, exceeding the baseline set by the United Nations’ Hong Kong Convention, are met. Given that recycling of steel is treated through a global commodity lens, the price paid for dismantling a ship is crucial: the lower the shipyards’ standards, the greater the profit potential of the shipping firm due to reduced commission prices paid. Recently, the EU published a list of approved shipyards that abide by certain standards and as an extension shipping firms could potentially agree on an industry-wide level to accept recycling practices conducted in certified shipyards. Revitalizing supporting infrastructure and making respective facilities more competitive and sustainability lenient through ports’ energy and environmental upgrade as well as their seamless integration with maritime operations and hinterland connections could provide added value and promote specialized shipping service clusters.

A steady hand could be offered by the financial sector as well. The newly announced initiative from ABN AMRO, ING and NIBC banks about the Responsible Ship Recycling Standard (RSRS) is telling. The introduction of alternative financing options in the wake of the global financial downturn almost a decade ago and due to stricter liquidity regulations for the banking system (e.g. Basel III) seems promising towards forging new partnerships empowering responsible and patient capital on the investors’ side and augmented oversight of key sustainability results.

Beyond doubt, sustainable shipping presupposes an engaged scholarship approach. Not sticking our heads in the sand. Empirical matters should be combined with multi-functional conclusions in terms of anticipating and influencing the type of knowledge needed for enlightening academic and practitioner spheres. In addition to normative research this calls for issue-oriented inquiry answering the wide diversification of practices involved within the policy-practice field, financial systems and supply chain management.

This is what we do at Misum. All the academic staff and colleagues have deep knowledge and tackle leading issues within our certain disciplines in a collaborative manner. The overarching aim is to invite attention from all across the policy, intellectual and practical spectrum in order to effectively tackle the challenges on the pressing and changing world of not only sustainable shipping but the role of business and society and their reinforcing interplay. We seek to further strengthen the ongoing dialogue about the most central concern nowadays: how to possibly make amendments in current business practices accompanied by appropriate policy-imbued interventions towards the benefit of the common good.

Written by Serafim Agrogiannis, PhD Candidate in Business Administration at Misum

The Challenge of Mobilizing Finance for Renewable Energy

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Text by Max Jerneck, PhD and researcher at Misum

Alternatives to fossil fuels are slowly gaining ground –  much too slowly for the world to have any reasonable chance of avoiding catastrophic climate change and ocean acidification. To speed up the process, there would have to be a sea change in investment patterns. Mature low carbon technologies such as solar and wind are attracting increasing amounts of investment but there is a limit to how much they can expand without coming up against the constraints of intermittency, i.e. the fact that they only generate electricity when weather conditions permit. Breaking into the mainstream would require overhauled electricity grids and technological breakthroughs in energy storage technology. To achieve a real transition from fossil fuels to renewable energy, continuous investments in innovation is needed. Mobilizing finance for this task is a real challenge.

Technological innovation is normally not a very good investment. Potential gains are inherently uncertain, and often do not accrue to innovators but to followers who refine the technology. In the case of low carbon technology, competition from incumbent industries makes the prospects dimmer still. For investors to bet on low carbon technology, they would have to be either wildly over-optimistic, or simply unconcerned with financial returns. These types of investors are always needed to bring technologies to deployment, according to economist and venture capitalist William Janeway. Governments are needed to finance the initial unprofitable phase of development, which often lasts decades, and speculators are needed to bring it to market. Only in a bubble does money pour freely and widely enough for technology to be rolled out, tested and tried in the field. Before the 2008 crisis, a combination of these two motivations drove a minor boom clean technology investment. Governments in Spain, Germany, Italy, and other countries paid generous subsidies for renewable energy, enticing irrationally exuberant investors to pour money into the sector. After the financial crisis and Europe’s turn to austerity, subsidies dried up and investors realized that they had lost half of their money.

Venture capital worked well in an unoccupied technological field such as computers (which also had heavy state-backing from the military) but energy is an occupied ”legacy sector”, where market power has merged with regulatory power, fortifying it against disruption. Creative destruction in such a sector is not be easy, particularly since fossil fuels also experience rapid technological advances, as in shale extraction, fracking, etc. The MIT technology review recently published an article called Why bad things happen to Clean Energy Startups, that chronicled the downfall of Aquion energy, an energy storage startup which apparently had done everything right, yet still went bankrupt. The venture capital model for financing clean technology is,”broken,”  another recent MIT report states. The clean energy transition cannot be financed by the private sector alone; it needs to be supported by governments.

One place where the government has invested quite heavily in renewable energy technology lately is China, where state-owned banks and local governments have generously supported the development and expansion of solar and wind energy. In fact, it is possible that government financial support has been too generous. Critics argue that ”soft budget constraints” provided by government weakens incentives for innovation, and keeps uncompetitive ”zombie” firms alive, leading to serious problems of overcapacity. For years, there has been rumours of an impending solar shakeout in China, but it has yet failed to come. Given resistance from local governments supporting their home firms, I am not sure that it will. Overcapacity can be resolved in two ways, by reducing supply or increasing demand. The Chinese may do so through a combination of measures, either by allowing or engineering a consolidation among renewable energy firms into a few national champions; by increasing domestic demand through installations; by shutting down renewable energy’s main competitor coal; or by increasing demand through foreign installations along the One Belt, One Road route. All of these policies are pursued with varying levels of success. It remains to be seen which combination of options prevail; I may return to them in a future post or article.

I am personally not sure that excess capacity in China’s renewable energy sector should be viewed as a problem. It has been the main cause of the steep decline in solar costs over the past decade, and is compelling chinese officials to increase domestic demand. It has allowed a constituency to take form around the technology which will be hard to unseat. Excess capacity represents facts on the ground which makes the advance of renewable energy harder to reverse. Starting with the 12-five year plan in 2011, solar energy has become one of China’s important strategic industries, which will presumably form a foundation for dominance in electric vehicles and energy storage as well. Since the Chinese state does not seem to apply any financial constraints, the only limiting factor is the technological prowess of Chinese firms, which seems to be growing year by year.

The most advanced emerging technological segments, however, are still dominated by western firms and laboratories. The question is how to bring these through the first difficult phase of development, an important task to advance energy storage and promote exploration to avoid lock-in to the dominant designs currently favored by China. The West is much richer than China and should have no problem mobilizing finance for this task. What is lacking is a sense of urgency and a strategic view of the economy. Five year plans are no longer in fashion, even in France.

Mariana Mazzucato has argued that development banks could fulfill this role. In Europe, that would be the  European Investment Bank or the European Investment Fund. Risky investments in innovation do not sit well with the bank’s mission of providing returns to its shareholders, however. To provide the financially unconcerned actors that are needed, investments might have to be backstopped by central banks. Much like quantitative easing has instilled investor confidence in sovereign bonds, promises to buy equities in innovative startups could do the same for venture capital investments in renewable energy. Central banks have bought various financial assets from old-economy firms since the crisis. A post on FT ALphaville earlier this year by Alexander Barkawi titled why monetary policy should go green pointed out the carbon economy bias of these programs. They are in violation of the Paris Agreement, which states that all financial flows be made consistent with low carbon growth. Venture capitalists do not invest in emerging low carbon technologies because they do not see a viable exit option. Having such an option provided by central banks could alleviate those concerns. Western nations do not have the institutional, political or ideological capacity to finance new industries at any level near that of China, but  the commanding heights of the financial system are still under government control, and could in theory be coupled with venture capital to drive the transition. Given the reluctance of western political leaders to address even immediate afflictions such as mass unemployment, and even willingness to exacerbate them, it is almost impossible to imagine them proposing sensible, let alone bold or visionary, policies to address the much more intangible and slow moving threat of climate change. But these are the sort of ideas that should be lying around in the next crisis.

Written by Max Jerneck, PhD and researcher at Misum

Sustainable investment: time to define what it means

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Text by Joakim Sandberg, Wallenberg Academy Fellow and Associate Professor at University of Gothenburg, also Associate Researcher at Misum

The financial industry has shown a growing interest in issues concerning sustainability, both social and environmental topics, over the last 20 years or so. According to some calculations (although they are probably exaggerated), Swedish investments with a sustainability profile amount to roughly 7-10 trillion SEK today. That would be about double the size of the Swedish real economy. A total of 38 fund companies, with a collective 670 fund options, participate in an industry initiative called “the Sustainability Profile” (www.hallbarhetsprofilen.se). This explosion of supply is of course promising for the end consumers, since it becomes easier to find savings options that integrate sustainability concerns. However, voices are being heard that not all funds have equally high ambitions in their so-called green options and that the quality in this regard is varied.

A central problem for consumers is to navigate sensibly through this jungle of products. As noted in a recent report by Konsumentverket (Rapport 2017:5 Om konsumenters möjlighet att välja hållbara investeringar), there are many challenges for most consumers, such as getting to grips with a large quantity of complex information and struggling to understand the concrete sustainability results. One of the central solutions proposed by the report is external and credible eco-labelling of investment options. Such eco-labelling has worked well in other fields, such as groceries and energy. Eco-labelling of investment products could help consumers greatly through identifying the most ambitious funds, assessing the concrete sustainability results of their efforts, and also communicating this in a simple and easy-to-understand manner on the market. This is likely to raise the quality standards in the industry.

Earlier this month, the Swedish Forum for Sustainable Investment (Swesif) hosted an event to introduce and discuss some of the eco-labelling schemes that now are being developed (more info on the event here). Presentations were given by Morningstar, ISS-Ethix/Climetrics, Ecolabelling Sweden (Svanen) and the Responsible Investors Alliance Sweden. These are not the only eco-labelling initiatives currently going on, but they may be a representative share. What became clear during the event is that the initiatives actually point in somewhat different directions: they rest on partly differing ideas of what sustainability consists in (E, S or G); how companies should work with this; what measures (qualitative or quantitative) are suitable; what baselines are adequate for the measures; and so on. What was perhaps most striking were the seemingly different visions of the ideal of sustainable investment: whereas some value precaution, integrity and attention to detail; others rather value effectiveness and “impact”.

The conclusion from all of this seems to be that we need to define more clearly what is meant by sustainable investment. This is, at bottom, a philosophical issue that I have spent many years of my research career on. I have identified two main philosophical understandings of, or perspectives on, sustainable investment: According to the “moral purity perspective”, on the one hand, sustainable investment is fundamentally about choosing the right companies to invest in since the ethics of the investment depends on the ethics of the underlying company (in a backward-looking manner). So, for example, it is better to invest in wind power than in coal since the former simply is a more sustainable industry. According to the “moral effectiveness perspective”, on the other hand, sustainable investment is about influencing the underlying companies to make a difference for society (in a forward-looking manner). That is, the most sustainable investment is not necessarily that which is most “pure” but rather that which is effective in making the world a better place. (For an overview of this research, see this article.)

The challenge that I see ahead of us is to use this kind of research to construct a more robust and research-driven eco-label for investment products. There are many ways in which this can be done. In a report for the Swedish Society for Nature Conservation (Naturskyddsföreningen), I have summarized international research on the effectiveness of the investment strategies used by so-called sustainable funds (find the report here). In brief, the results indicate that a positive investment strategy, especially one that targets small or new firms in great need of capital, is more likely to be effective than a negative investment strategy, i.e. the simple avoidance of large companies in unsustainable industries. There may also be opportunities for funds to influence the underlying companies through owner dialogues, but much more research is needed here. The report gives us a rough roadmap for what investment strategies that should be promoted by a progressive eco-label in the field, i.e. one that follows the moral effectiveness perspective. I will now be working with some of the organizations noted in this text to hopefully make the proposed eco-labels both more progressive and more easy-to-understand for end consumers. Our overarching hope is of course that this research makes a difference for the quality of sustainable investment opportunities in Sweden.

This is what we do at Misum; research that aims to be of both high academic quality and, at the same time, high usability for sustainable market actors.

Text by Joakim Sandberg, Wallenberg Academy Fellow and Associate Professor at University of Gothenburg, also Associate Researcher at Misum

In search of sustainable markets – look for interaction between market practice and policy practice

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Text by Lars-Gunnar Mattsson, Professor Emeritus in Business Administration, Stockholm School of Economics,  and researcher at Misum

Public and private concern for sustainable development is a megatrend. To what extent are markets part of the problem or part of the solution? Or maybe both? How can government policies aid or hinder development of sustainable markets? Such questions are fundamental but arguments are most often developed from a predetermined, or taken for granted political and/or theoretical standpoint about markets. My argument is that we need to know much more about how markets function in practice and about interaction between market practice and policy practice in order to better understand sustainable development in a market economy.

There is, surprisingly, hardly any conceptual discussion in the literature and no convincing empirical findings that identify a sustainable market! I argue that a market is sustainable if it in the long run substantially promotes achievement of sustainable development goals. Thus a sustainable market must be dynamic, adapt to new scientific findings, discontinue unsustainable practices, be effective as regards technical and social innovation and consider external diseconomies, and external economies. Thus, somewhat paradoxically from a linguistic point of view, to be sustainable, and keep sustainable, change is necessary. Markets are not a priori given. They are continuously shaped and reshaped by businesses and individuals involved in interaction as sellers and buyers and influenced by public policies. Thus, change is an inherent characteristic of markets.

To make my point, I will refer to the Paris climate agreement in December 2015.  The Agreement was, given earlier failures, seen as a remarkable political and policy achievement. It was based on natural science studies of eco-system processes, acknowledging that human activities cause green-house gas emissions that lead to global warming. The Agreement left it to each government to develop and implement climate mitigation policies.

Human activities affecting green-house gas emissions are, directly and indirectly related to production and consumption of goods and services. In market economies interaction and exchange between actors within a market, and importantly between markets, serve to coordinate and allocate resources, as well as to develop and co-create resources. As government agencies now develop and implement policies based on the Paris agreement, it is important to understand if and how these policies help to perform sustainable market practice or perhaps hinder it. For instance, rules for public procurement might present examples of both positive and negative effects on sustainability.

Policy practice has a content rich tool-box to select a policy mix from. Economic incentives/disincentives, regulations and norms of different nature, investments in infra structure, education and research, as well as in reorganization of policy agencies, information campaigns (“nudging”!), etc. Policies most often leave a considerable degree of freedom on how to comply with them in market practice, a fact that makes it even more important to study market-policy interaction.

With reference to the UN Agenda 2030, one of the 17 Sustainable Development Goals (SDG 13) specifically concerns climate.  To reach the objectives agreed on in Paris, due to the overarching influence of climate change, policy and market practice related interaction are particularly crucial as regards SDG 7 on Energy, SDG 9 on Innovation and Infrastructure, SDG 12 on Production and Consumption and SDG 17 on Partnerships.

Concern for sustainability has generated an increasing number of initiatives in business, civic society and academia. Individual business-focused sustainability initiatives are relevant for understanding interaction between policy practice and market practice. CSR, Corporate Social Responsibility, aims to counter-balance the rise of share-holder value as the prime objective of companies. CSR introduces stakeholder engagement and achievement of Triple Bottom Line results. It has stimulated a major and growing stream of research and practical implementation. CS, Corporate Sustainability, emanating more recently from business strategy literature argues that business practices should consider triple bottom line outcomes. Stake-holder engagement in the business is important. CSV, Creating Shared Value, is also an idea coming from business strategy literature. It suggests that a firm that builds social value propositions in its corporate strategic behavior, creates competitive advantage. According to CSV more public policy intervention in the market is not necessary, it might likely be harmful.

How do these acronym identified principles for individual corporate behavior in markets affect over-all market practice towards sustainability? How do they affect interaction between suppliers, customers and competitors?   If market practice becomes more concerned with climate mitigation, stimulated by the principles for individual firm behavior alluded to above, then policies concerned with the same problems might become more effective.

Interaction between policy practice and market practice is bi-directional. An example is the reshaping of the EU Emissions Trading System. The lackluster performance during the first periods have initiated substantial revisions of the system and it remains to be seen if the new EU policy will create a more sustainable market practice.  Policy-market interaction for sustainable markets is also dependent on sustainable policies.

Public and private actors interact in many cases as aspects of New Public Management. Recent examples in Sweden of out-sourcing of electronic services and public/private partnership demonstrate the problematic nature of creating sustainable markets and sustainable policies.

Research about sustainable development in general, and especially about climate mitigation engages researchers and research institutions in all natural, engineering and social science disciplines and their sub disciplines. In this context interaction between policy and market practice is an important phenomenon that should be studied in an interdisciplinary, and even transdisciplinary, perspective to better understand market economies from a sustainable development perspective.

Written by: Lars-Gunnar Mattsson, Professor Emeritus in Business Administration, Stockholm School of Economics, and researcher at Misum

 

 

 

 

 

 

 

 

Who cares about the science?

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Text by Lin Lerpold, Associate Professor SSE & Executive Director Misum

During the summer I gave a lecture on how Swedish companies work with sustainability. I was in the United States presenting to a group of relatively educated and international business people, many of them having a Swedish background. For the first time I met with climate change deniers and it was somewhat of a shock for me. Though my lecture took for granted what an overwhelming majority of natural scientists agree on regarding human impacted climate change, I was unprepared for having to argue that climate change was indeed a surety. Of course there must be climate deniers also in Sweden but few would articulate their denial in a country where political correctness and conflict aversion is culturally high. My reaction was to fire back that according to the science it was beyond doubt that human behavior was indeed having a negative impact on our planet. The immediate response, “Who cares about the science?”

On April 22, more than one million people in more than 600 cities around the world united in an unprecedented coalition of organizations and individuals. People marched around the world to stand up for science and to defend the role of science in policy and society. Currently, a draft special report on climate change is now under review by the White House. The report was written by scientists inside and outside government, with input from the public and the National Academy of Sciences and concludes that Americans are most definitely feeling the effects of climate change right now. The report is designed to be an authoritative assessment of the science of climate change. According to the New York Times, some scientists fear that Mr. Trump will seek to bury it or alter its contents before it is formally released during the fall. The NYT headline reads, “Climate Report could force Trump to choose between science and his base”.

As scientists, with science as a belief system, we need to in the current zeitgeist of “alternative facts” ask ourselves why we now have to “Stand up for Science”. We need to go to where science is conducted and disseminated; to our universities and to academia, and consider whether we as institutions and scientists have in any way contributed to the loss of public trust in science, risking a new dark age with devastating consequences to humanity. Might it be possible that our contemporary academic structural incentives, with the sole de facto focus on scientific publications for promotion, has contributed to the demise of scientific influence and impact on society at large?

Though we pay lip service to the traditional three-legged stool mission of universities (research, education and service), we have overwhelmingly become subject to what Edwards & Roy (2017) describe as the “growing perverse incentives in Academia” where only the leg of research is valued in the scientific community which promotes on the number – often quantity over quality – of publications in scientific journals. The scientific journals and their articles themselves are usually neither accessible nor understandable to the general public.

Many research-based universities’ mission is to provide science based education, be it to their own students, practitioners and policymakers, or to society at large. To fulfill that mission, universities need scientists conducting rigorous research, but also scientists able to act as translators of knowledge to their students and the general public. Moreover to justify the resources from public and private funding for research, scientists need not only be scientific knowledge producers and pedagogical transmitters of that knowledge, they also need to help ensure that their research informs and benefits society at large. Scientists must go beyond discourse through, oftentimes, impenetrable articles and be incentivized to also reach those outside the scientific community. Why else should resources be spent on research if not to better serve the development of our society?

This is often called the third leg (academic service), and involves contributing to science-based knowledge and expertise to policymakers, to practitioners, participating in expert evaluations, not least of all disseminating knowledge to the general public through mass media channels, thus having a potential impact more broadly to the general public. This leg of academia, necessarily legitimately connected and based on the scientific research leg, has the greatest potential to engage and make people outside the scientific community better understand and trust science again.

Yet though the three legs of education, outreach and service are most times included in formal tenure promotion requirements in leading universities, only lip service is paid to being a good teacher or knowledge disseminator outside the scientific community. Indeed, teaching is oftentimes considered a necessary evil and referred to as a “burden” or “load” and a scientist in the public eye is many times considered suspect or accused of being too “political” by other scientists when they engage in societal discourse. Instead, only publications in narrowly defined and established scientific journals are valued and considered legitimate in most tenure advancement evaluations.

Academics are humans and readily respond to incentives. The natural wish to achieve tenure and promotion along with the current overwhelming focus on scientific publications to do so, may possibly be linked to the general public’s disregard and even distrust of science. As scientists we do care about the science. We take it for granted as our belief system. How can we ensure that science matters also for non-scientists? How do we, for instance, make my lecture to the international business participants and politicians like Trump care about the science? Perhaps it is through a more balanced three-legged academic incentive structure promoting the legs of education and academic service to society as important as the leg of research.

Written by: Lin Lerpold, Associate Professor SSE & Executive Director Misum

Sustainability at the Academy of Management Conference 2017: Conspicuous silence on the role of the current political context for business

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Text by Mette Morsing, Professor in Sustainable Markets at Misum/Stockholm School of Economics.

Back in the days, when I was a PhD student, the SIM Division (Social Issues in Management) of the Academy of Management was the one important Division to join if you had an interest in corporate social responsibility, environmental challenges or ethical issues related to business. This was the only Division where fundamental questions of the legitimacy of business institutions and their responsibilities in society were discussed intensely. US professors Ed Freeman, Tom Donaldson, Sandra Waddock and many others were leading the debate. Later on the ONE Division (Organization and the Natural Environment) emerged with an important focus on the environmental aspects related to business.  My academic “AOM home” was OMT (Organization and Management Theory) but here, like in the other AOM Divisions, ethics, environmental challenges and social responsibilities were regarded as exotic, abstract and somewhat peripheral issues to be part of mainstream research on the firm.

Today, that has changed considerably. The important questions about the role, functioning and legitimacy of business institutions in the context of global challenges are now debated across the AOM Divisions. In other words, CSR and sustainability have become important mainstream research topics at AOM. For example, this year the OMT (Organization and Management Theory), OB (Organizational Behaviour), OCIS (Organization, Communications and Information Systems) and SAP (Strategizing Activities and Practices) Divisions have all attracted a considerable number of research papers, symposia and caucuses on environmental disasters, irresponsibility, unethical behaviours, corruption, inequality, human rights abuse and climate change.

Undoubtedly the current rise in business scandals has contributed to raise the attention among management scholars about these urgent matters. But perhaps even more important for triggering the scholarly attention is the current global questioning among politicians of man-made climate change, their denial or disregard of science, and their inability to find solutions but rather stimulate harsh political disputes about immigration. As we have all seen, governments are currently in dramatic ways setting a changed tone for societal progress. This new tone has created uncertainty and a tense situation for businesses awaiting the changes of regulatory frameworks that will influence their space to navigate. The media furnishes our society on a daily basis with these socio-political changes.

Therefore, it was surprising to find a conspicuous silence in the AOM community about the socio-political context that so heavily influences these crises in today’s world. Across the AOM Divisions and in the many presentations, debates and panels on the challenges to ethics, responsibilities, environment and climate change, the current political transformations in society were not mentioned. Instead there was a conspicuous silence. Perhaps the new political tone is taken for granted among management scholars? Perhaps current politics is not for management scholars to engage in? Perhaps it is too complex for a single-argument paper? Or perhaps the current political systems have become a taboo in a US management scholar context?

One exception, though, was the ONE Division (Organization and the Natural Environment) that hosted a rather popular “ONE plenary”: “Green management under pressure”. This group took the liberty of debating the dangers of the current global political transformations in relation to sustainable development in a mode that included empirically substantiated knowledge as well as normative input.

In this context it is worth reminding ourselves that this is exactly what professors Tom Donaldson and Jim Walsh (2015) called for in a recent article: empirical analysis, practical opportunities and normative theorizing. They challenge the current theory of the firm, inviting us all to reflect on providing novel answers to four basic questions on the role of business in the current societal context of the planet: (1) what is the purpose of the firm? (2) to whom should the firm be accountable? (3) who should be in control of the firm? and (4) how do we define a successful firm? What the “ONE plenary” session at AOM did was to add a fifth and important question about politics: what is an appropriate political context to support sustainable development? And a sixth equally important question about temporality: today, what are the important political transformations in the current business context?

While the research agenda on unethical behaviour, irresponsibility and sustainable development has successfully spread from the SIM and ONE Divisions to a much larger debate on the role of business in society across AOM Divisions, perhaps it is time to reconsider the next move: to engage AOM management scholars in exploring the role of today’s political context for business.

If we as management scholars want to remain not just novel and cutting edge in a scholarly sense, but also want to remain relevant to today’s business and society, we need to provide some thinking about how systemic injustice, corruption, human rights abuse and climate change are not just externalities of poor business management to be repaired by (other) managers. These problems are also closely related to the political systems and governance structures. Some management research has already engaged exploring for example political CSR and sustainability governance (e.g. Crane, Matten and Moon, 2010; Scherer and Palazzo, 2007, 2011). It is good. It is theory. It is conceptual. However, we still need to understand how we as management scholars can integrate the current governance structures that businesses today are operating in. That will make our own community not only relevant but also potentially influential.

So, while the SIM and the ONE divisions over the past decade seem to have successfully integrated their research agendas across the AOM Divisions, there still seems to be an obvious silence to break and a relevant new challenge to pursue: how to bring the global current political climate into the AOM scholarly debate?

Footnote. Academy of Management is a management scholarly community with 20 000 members and 10-12 000 of these meet every year at the annual conference in the United States.

 

Written by: Mette Morsing, Professor in Sustainable Markets at Misum/Stockholm School of Economics.