Table of Contents
List of Figures..IV
List of Tables..V
List of Abbreviation..VI
II. Corporate Responsibility..3
A. Theoretical Foundations..3
1. Governance Ethics..3
2. Stakeholder Governance..5
1. Governance Structures..7
2. Management Activities..7
3. Reporting Frameworks..8
III. Sustainable Investment..11
A. Conceptual Foundations..11
1. Double Dividend..11
2. Fiduciary Duty..12
IV. The 2030 Agenda: The Sustainable Development Goals..21
A. Economic Implications..21
1. The Role of Business..21
2. The Role of Finance..23
B. The Role of Standards..25
V. Critical Reflections..27
A. Corporate Responsibility..27
B. Sustainable Investment..30
C. The 2030 Agenda: The Sustainable Development Goals..33
VI. The Sustainable Development Goals in the Interface between Corporate Responsibility and Sustainable Investment..36
A. Interdependencies and Interfaces..36
B. Derivation of Hypotheses..38
1. Qualitative Research..43
2. Expert Interviews..44
3. Data Collection and Analysis..45
1. H1: Economic Opportunities..46
2. H2: International Standards and Consistency of Language..48
3. H3: Undermining of Integrative Approaches and Symbolic Use..50
4. H4: New and more Substantial Forms of CR and SI.. 52
C. Results and Implications..55
D. Limitations and Further Research..59
List of Abbreviation
CFP - Corporate Financial Performance
CISL - Cambridge Institute for Sustainability Leadership
CR - Corporate Responsibility
CSR - Corporate Social Responsibility
CSRD - Corporate Social Responsibility Departments
ESG - Environment, Social, Governance
FNG - Forum für nachhaltige Geldanlagen
FSC - Forest Stewardship Council
GRI - Global Reporting Initiative
G250 - World’s 250 largest companies by revenue
ILG - Investment Leaders Group
ILO - International Labor Organization
ICMA - International Capital Markets Association
ISO - International Organization for Standardization
MCS - Management Control Systems
MSC - Marine Stewardship Council
N100 - Top 100 companies by revenue per country
OECD - Organisation for Economic Co-operation and Development
PPP - Public Private Partnerships
PRI - Principles for Responsible Investment
SDGs - Sustainable Development Goals
SI - Sustainable Investment
SRI - Sustainable and Responsible Investment
UN GC - United Nations Global Compact
UNEP - United Nations Environment Program
UNEP FI - United Nations Environment Program Finance Initiative
WBCSD - World Business Council for Sustainable Development
“Unless globalization works for all, it will work for nobody” (Annan 1999).
This quote is from a speech which Kofi Annan, former Secretary General of the UN, gave at the World Economic Forum in Davos in the year 1999. Annan called for a global pact between business leaders worldwide and the UN to collectively address the ecological and social threats posed by the expanding globalization (cf. Annan 1999). In the meanwhile, the requested compact has been established as UN Global Compact and many businesses have accepted their responsibility for the provision of public goods and the shaping of global regulations. In fact, approximately 75% of large and mid-cap companies around the world now report on their corporate responsibility (KPMG 2017: 4). Hence, in this paper the hypothesis behind Annan’s quote, that business actors can play a central role for facing global challenges, is adopted.
Furthermore, this paper highlights the role of financial actors as another key factor in facing global challenges. If negative externalities are not internalized in stock market prices, companies with the highest negative external effects could receive most of the investors' capital. Hence, financial actors could change the way companies generate profits by tying investment capital to social objectives. Indeed, up to 26% of the world's professionally managed assets are already used to promote sustainable business practices (GSIA 2016: 3-5).
Now, the UN is once again calling on business leaders to face together the most pressing ecological, social and economic challenges. In 2015, 193 countries signed the 2030 Agenda for Sustainable Development, a new universal vision of the future which is constituted by 17 Sustainable Development Goals (SDGs). Hence, new questions arise about the implications of the SDGs for responsible business and financial actors. In consequence, the largely unexplored interfaces between SDGs, ‘Corporate Responsibility (CR)’ and ‘Sustainable Investment (SI)’ are illuminated in this paper. Here, the question whether the SDGs can drive more consistent, measurable and substantial forms of CR and SI represents the focal point of this research.
In order to answer the research question, the fields of CR and SI as well as their potential roles for the SDGs are summarized in a first step. Here, rationales, mechanisms and standards behind CR and SI are elucidated. In the second chapter, ‘Governance Economics’ and ‘Stakeholder Governance’ were selected as theoretical basis for CR. By integrating into broader economic and social theories and drawing on other explanatory frameworks for CR, they have been identified as the most comprehensive theories in the field of CR. Afterwards, CR governance structures, management activities and reporting frameworks as well as relevant standards are briefly outlined. In chapter three, the concepts of ‘Double Dividend’ and ‘Fiduciary Duty’ are used as explanatory foundations, since a fundamental theory of SI is still missing. Subsequently, a brief overview about SI strategies, ratings, products and standards is provided. Chapter four explains the potential roles of business and finance in achieving the SDGs and summarizes current SDG trends in international standards for CR and SI.
In a second step, the various basic assumptions and mechanisms underlying CR and SI are critically reflected in chapter five to understand their practical strengths and weaknesses in general. This is necessary to assess then in particular the practical relevance of CR and SI for the SDGs. In chapter six, inter- dependencies and interfaces between CR and SI as well as the potential role of the SDGs in this area are first examined.
In a third step, the research hypotheses on opportunities, risks and prospects of the SDGs as drivers for CR and SI can be then derived from the comprehensive foundations of step one and the critical assessment of step two. In chapter seven, the research design is first elucidated and then the hypotheses are discussed on basis of the empirical data, which were collected from seven interviews with experts from CR and SI.
The results are then used to answer the research question of whether the SDGs might be drivers for CR and SI, as well as to present implications for politics, economics and finance. At the end of the chapter, the limits of the results are outlined and further fields of research are recommended. The paper closes in the last chapter with a short summary of the research project and the most important findings.
II. Corporate Responsibility
Corporate Responsibility (CR) is used in this paper as generic term for the “responsibility of enterprises for their impacts on society” and stays therefore in line with the European Commission’s definition of Corporate Social Responsibility (CSR) (EU Comission 2011: 6). However, in literature CSR is only one term besides various theoretical concepts, such as Corporate Social Performance, Business Ethics, Stakeholder Theory or Corporate Citizenship (cf. Carroll 1999). Hence, by staying descriptive and broad, CR might summarize different historical, theoretical and practical facets (cf. Blowfield/Murray 2014). A broad summary about the various theories underlying CR would go behind the scope of this paper and would not provide the knowledge needed for the analytical part.1 Hence, Governance Ethics and Stakeholder Governance are selected as theoretical frameworks, since they fit best into broader economic and social theories by drawing on other relevant CR concepts. Against this background, mechanisms and standards of CR on the governance, management and reporting level are outlined.
A. Theoretical Foundations
1. Governance Ethics
Governance Ethics is a contribution to governance economics and mainly constituted of social theory, business ethics, institutional economics and organizational theory (Wieland 2014: 7, 30). In social theory it is argued that modern societies are characterized by the functional differentiation of their system parts. This means that a leading hierarchical social structure, which might be based for instance on a traditional function system (e.g. religion), does not longer exist. Instead the society consists of autonomous function system, like in politics, economy, law, science and so on. These function systems are so strongly differentiated that their logical codes can be distinguished in binary categories, such as having power/not having power, payment/non-payment, lawful/unlawful or scientifically true/scientifically false and so on. All actions, which are always a form of communication, within and between the subsystems can be decrypted by these codes. Finally, the subsystems can be reproduced by constant use of the function code through communication (cf. Luhmann 1998: Chapter II, IX).
The firm as an organization and entity in its own cannot be part of only one specific function system but must apply different codes, such as economic, legal, political, but also aesthetic or moral languages (“polylinguality”) (Wieland 2014: 32). Indeed, institutional economist O. E. Williamson has illustrated that the structure of a firm is often more complex than just the market logic of payment/non-payment (cf. Williamson 1985: Chapter I). According to him, a firm must evaluate for each transaction the most efficient governance structure. Depending on the risk of defection of the contract partner and the specificity of the transaction for the own business, a firm must decide whether it procures the transaction on the market, forms a quasi-market (hybrid) contract arrangement or integrate it hierarchically into the own business (Williamson 2005: 5-7). Thus, since the integration of agency theory, transaction cost theory, contract theory and the interplay of formal and informal institutions into economics, it is known that transaction costs of organizations are strongly depending on the transaction atmosphere and their capability to create trust (Spangenberg 1989: 18-21). However, the ethical aspect of transactions was not emphasized in former theories of the firm. Hence, Governance Ethics extends the understanding of the firm within governance economics by adding morality and the concept of moral-economic transactions as productive resources (Wieland 2014: 8, 18-19). The question is, how to integrate the moral binary code of good/bad into the corporate governance; respectively into its guiding code.
As an organization, the firm follows not a binary code but a “guiding difference” which is expressed in the difference between revenue and expense. The difference of “revenue/expense” is a comprehensive communication for solvency and mostly determines the survival of firms in the economic system (ibid.: 28). Therefore, all transactions have to be evaluated through this guiding difference/code. However, this does not mean that morality cannot be integrated into economic decisions and transactions (ibid.: 33-37). Nevertheless, from a system theoretical point of view, the functional systems of economy (payment/non- payment) and morality (good/bad) remain autonomous and therefore moral-economic transactions would be something third – namely the difference between morality and economy processed by the organizational guiding code (ibid.: 30-31, 34). Formal institutions (FI), informal institutions (IF), individual self-commitments (IS) as well as cooperation and coordination mechanisms (OCC) are determining the function of a moral-economic transaction. In this sense, morality can be reformulated as management of risk and reputation to comply with formal and informal institutions, such as international standards or cultural moral background assumptions (ibid.: 16-18, 24). Consequently, the implementation of a code of conduct/ethics and corresponding compliance systems (“values management systems”) within the governance structure are valid coordination mechanisms to incentivize individual moral self-commitments (ibid.: 41). The capability of a firm to govern, manage and communicate not only its economic but also moral code, finally determines its efficiency and effectiveness to cooperate. For this reason, if the firm is understood as medium of cooperation projects of different stakeholders, the moral-economic transaction can be communicated as comprehensive information to the guiding code “revenue/expense” (ibid.: 33-36).
2. Stakeholder Governance
Stakeholder Governance adapts a “resource-based view of the firm” and argues for perceiving the nature of a firm as nexus of formal and informal contracts which lowers transaction costs for resource owners to cooperate (Wieland/Heck 2013: 41, 46). The creation of value is therefore only achieved through productive cooperation between material and immaterial resource owners, who then become stakeholders of the cooperation project. The value surplus between the offer of the individual resources at the market and the usage of the resources in a contractually regulated cooperation team is called “cooperation rent” or “shared value” (ibid.: 44-49). Thereby, Stakeholder Governance stays in line with the framework of Governance Economics. From both perspectives, it is suggested to distinguish the stakeholders between primary stakeholders who are contractually involved in the production of the cooperation rent and secondary stakeholders who can have a positive or negative influence on the relationship between the firm and the primary stakeholders (Freeman et. al 2010: 24- 29; Freeman 2004: 237). Therefore, a firm and its management are constituted by the cooperative process between stakeholders and the strategic shaping of these relationships (Wieland 2014: 110). In each transaction the level of potential cooperation rent depends on the predictability of the cooperative behavior of all actors involved. Due to bounded rationality and incomplete contracts a high continuity expectation in a cooperation relationship leads to less transaction costs and therefore more efficient allocation of resources, i.e. higher material or immaterial cooperation rent (ibid.: 49-51). Beside the capability to ensure efficient and effective transaction processes within the firm´s network, another crucial question remains: How can the cooperation rent be distributed fairly among all involved stakeholders? In any case, from a Governance Economic perspective, a stakeholder must be prioritized regarding to his relevance for the cooperation project and not in the light of democratic claims (ibid: 113). However, this does especially not mean that NGOs or political actors should be excluded of a cooperation team, but their relevance for a transaction as actual team member must be evaluated first to distribute their share of the cooperation rent (cf. Figure 1). Hence, against this backdrop stakeholder management comprises all forms of governance which seek to identify, prioritize, incentivize, monitor and control stakeholder relationships (ibid.: 117-119, 133-134).
[Figures and tables are omitted from this preview.]
Fig. 1: The firm as nexus of stakeholders and their resources
Source: Wieland 2014: 106
1. Governance Structures
The contribution of the concepts of moral-economic transaction and shared value to Governance Economics has implications for the governance of transactions and stakeholders within a firm. From this perspective the management of Corporate Responsibility (CR), understood as moral-economic transaction and stakeholder management, is not just something additional to the firm but genuine material for its business; because it determines its efficiency and effectiveness to cooperate (cf. Wieland 2014: 108, 207-211).
If CR is perceived as corporate task to govern legal as well as moral responsibilities towards stakeholders, it would ideally start at the strategic normative management of the firm at the top leadership level. The communication of the values through code of conduct and ethics as well as policies and procedures would then allow to manage moral-economic transactions on organizational and individual level. These communication designs could create transparency within risk sensitive business areas which is at the end crucial for internal and external monitoring of compliance with laws and due diligence towards stakeholders. Principles, guidelines, directives and procedures of value management can then be implemented through leadership responsibility, internal communication, trainings, human resource, daily business practices and external reporting. Finally, the practical CR performance can – through these steps – be internally or externally audited and monitored (cf. Wieland/Grüninger 2014).
2. Management Activities
The management of CR strategy within a firm is usually organized by own departments, e.g. compliance, environmental, sustainability or corporate social responsibility (CSR) offices; in the following expressed by the common name ‘CR department’ (Arjaliès/Mundy 2013: 290; Loew/Braun 2006: 28). However, the execution of moral-economic transactions is depending on the daily business practices of the different organizational departments, such as Procurement, Production, Research & Development, Human Resource and so on. Hence, the CR department should be able to manage multidimensional objectives and put in place cross-sectional measurements (Loew/Braun 2006: 10, 24, 32). To comply with stakeholders’ expectations, the CR management is supposed to address several ecological and social issues. Thus, integrative management control systems (MCS) and tools for the different organizational departments should be provided. This could enable for instance the procurement department to monitor the ecological performance and compliance to human rights along the supply chain or the accounting department to capture expenditures for social or environmental matters (Schaltegger et al. 2007: 27-28, 43- 44).2 In the following, few examples for practical activities are illustrated with which CR departments seek to fulfill their tasks:
[Figures and tables are omitted from this preview.]
Fig. 2: Activities of CR departments in French large caps
Source: Arjaliès/Mundy 2013: 296
3. Reporting Frameworks
The operationalization of CR governance and management is usually followed by a periodic reporting on CR activities. Following reasons for CR reporting are highlighted in the literature: display responsibility towards a wide range of stakeholders; respond to stakeholders´ expectation and contribute to society well-being; manage own legitimacy; guard company´s reputation and identity; reduce information asymmetries and improving stakeholder decision making as assets for long-term profitability; divers institutional pressure (cf. Bonsón/Bednárová 2014: 183-184). Since companies must address different stakeholders’ expectations, such as e.g. shareholder, consumers or society, they should report on financial economic as well as non-financial environmental and social information (together they build the so called “triple bottom line”) (Ballou/Heitger 2005: 4). This information is disclosed separately in different reports or put together to an integrative report. In fact, there is an overall trend for large companies to integrate their CR information in their annual financial reports. In Europe, 77% of the top 100 national companies by revenue are reporting on CR activities, whereby this number is going to raise necessarily due to the ‘European Directive for Non-Financial Disclosure’ (KPMG 2017: 11, 21). 2017 is the first fiscal year in which all companies in the EU with more than 500 employees must report on environmental, social, employee-related, human rights, anti-corruption and bribery matters. Furthermore, all affected companies are encouraged to rely on international frameworks for code of conduct, management and reporting such as UN Global Compact and Global Reporting Initiative (EU 2014: 1-2).
Since the European directive (as mentioned above) introduced the obligation for CR reporting for larger firms, but did not further specified about what and how to report, it remains a variety of governance, management and reporting frameworks which impede comprehensive assessment and comparability of actual CR performance. However, the ongoing adaption of international standards and guidance for code of conduct, management and reporting has contributed to more structuring and harmonization. (cf. Einwiller/Ruppel/Schnauber 2016; cf. Vigneau/Humphreys/Moon 2015).
Approximately 4500 large and small caps in Europe have signed the UN Global Compact (UN GC). The framework comprises ten principles which are derived from: The Universal Declaration of Human Rights; the International Labour Organization´s Declaration on Fundamental Principles and Rights at Work; the United Convention Against Corruption; the Rio Declaration on Environment and Development. These principles can serve as normative value system on the corporate governance level for code of conduct and policies which ensure that the mentioned international conventions are not harmed. Furthermore, the principles could also be used as orientation for CR management and reporting (cf. UN GC 2014). The UN GC demands from the signatories an official leadership commitment to the principles as well as to communicate their action on them, whereas the action is not reviewed.
The International Organization for Standardization (ISO) provides inter alia standards for environmental management systems like the ISO14000 family, which encompasses e.g. water, emission or eco-design management systems (cf. ISO14000 2009). The SA8000 Standard is offering a comprehensive standard for social management systems. The standard criteria are based on international conventions, such as the International Labour Organisation (ILO), Universal Declaration of Human Rights as well as the UN Convention on the Rights of the Child (cf. SA8000 2016). Both standards can be only obtained by certification processes which demand concrete requirements as well as periodic audits.
Over 60% of large caps in Europe use the Global Reporting Initiative (GRI) guidance for their CR reporting, which makes GRI the largest reporting standard in Europe (KMPG 2015: 42). The GRI is an international independent organization which is affiliated in its work with the United Nations Environment Program (UNEP) and other networks. The newest GRI 4 reporting standard comprises comprehensive indicators for economic, environmental and social performance as well as guidelines for disclosure of e.g. specific governance, ethical and stakeholder matters. Thereby, GRI aligns its criteria to several international frameworks such as UN GC and OECD Guidelines for Multinational Enterprises (cf. GRI 2015). GRI is a voluntary reporting standard without sanction mechanisms for non-compliance.
III. Sustainable Investment
Sustainable Investment (SI) is used in this paper as an umbrella term for “a long-term oriented investment approach, which integrates environmental, social and governance (ESG) factors in the research, analysis and selection process” (Eurosif 2016: 9). SI stays therefore in line with the definition of Sustainable and Responsible Investment (SRI) of Eurosif, the leading European association for promotion of SI. However, in literature SRI is only one term besides various terminologies, such as Responsible Investment, Ethical Investment, Socially and Responsible Investment or Values Based Investment. Yet, all these definitions share that investment decisions are made according to both financial and social/ethical/political criteria (cf. Sandberg et al. 2009: 521). Hence, by fitting in this context SI might in addition broadly describe a growing investment trend which explicitly seeks to achieve financial returns and a measurable contribution to a more sustainable society (cf. Novethic 2017: 2). Since a fundamental theory of SI is missing, two renowned conceptual frameworks for the operationalization of SI are elucidated. Furthermore, a brief overview about SI strategies, ratings, products and standards is provided.
A. Conceptual Foundations
1. Double Dividend
The basic idea behind SI can be traced back to Islamic or Christian groups who decided to align their investment with their moral commitments by excluding any investments related to for instance alcohol, gambling or abortion (Saiti/Wahab/Ahmad 2017: 82-84; Grieble 2001: 17-18). Thus, profitable investments which are in line with extra-financial criteria can be financially and ethically beneficial. This can be perceived as ‘double dividend’ (oekom 2012: 2; ILG/CISL 2017: 5). Since then, different strategies and criteria, besides religiously motivated exclusions, have been evolving over time to generate a double dividend. Thus, the question arises how the relation between the two kinds of dividend might look like.
Finance literature suggests that investment decisions should be founded on the balance between at least three criteria, namely return, risk and liquidity (Steiner/Bruns/Stöckl 2012: 48). Therefore, performance is more than just return, but defined as risk-adjusted return which means that return is divided by a certain risk measure (e.g. volatility). Liquidity from the investor´s point of view is a measure for the time flexibility and the price to which he can withdraw from an investment (Fischer 2010: 449). Against this backdrop, numerous studies have been conducted aiming to reveal the impact of extra-financial ethical criteria on financial performance. Yet, due to the variety of ethical criteria and strategies underlying the examined SIs, a generalization remains difficult (Busch/Bauer/Orlitzky 2016: 315-317). In fact, there are surveys which attest SI worse, equal or even better risk-adjusted performance compared to their conventional counterparts.3
Hence, some proponents of SI highlight the importance of internalizing negative external effects, such as pollution, environmental degradation and human rights abuses, through the integration of extra-financial criteria into the investment; even at the expense of below average market returns (cf. Schröder 2014: 37- 45; Novethic 2017: 3). Other proponents argue, however, that the integration of extra-financial criteria (mainly environmental, social and governance (ESG) aspects) into an investment portfolio has no negative or even positive influence on the financial performance (cf. Eurosif 2016: 5; Hertrich 2014: 47-56). This assumption goes hand in hand with the argument that good ESG performance of companies is related with good corporate financial performance (CFP). This relation is also supported by a meta study which has aggregated evidences from more than 2000 empirical studies on the relation between ESG and CFP (cf. Friede/Busch/Bassen 2015).
2. Fiduciary Duty
The two co-chairs of a working group, appointed by the United Nations Environment Programme – Finance Initiative (UNEP FI) and comprised of 13 pension fund managers who held together in trust 1,7 trillion USD assets under management, stated in the so-called ‘Freshfields Report’: „Quality of life and quality of the environment are worth something, […] they are not reducible to financial percentages” (Freshfields 2005: 3). The authors from the internationally renowned law firm Freshfields Bruckhaus Deringer concluded in this report that the consideration of ESG information into an investment decision is in line with legal requirements for fiduciary duties of pension fund managers in all scrutinized countries (ibid.: 13). Hence, the working group inferred on basis of the Freshfields Report that the disregard of ecological, social and governance matters might even breach a trustee´s fiduciary duty to act in best interest of pension funds recipients (UNEP FI/UKSIF 2007: 8).
Fiduciary duties imply that those who manage other people´s money should always act in the interests of the beneficiaries. Here, loyalty in terms of balancing the interests of beneficiaries and not acting for the self-interest or a third party is one overall accepted duty. Another duty is prudence, in terms of acting with due care, skill and diligence. (PRI et al. 2015: 11). However, since the mainstream interpretation of the interests of beneficiaries suggests maximizing financial returns, the question arises how the integration of ESG criteria influences the performance of an investment.
As mentioned before, a general answer to this question remains difficult, since there are many ways to integrate ESG matters and still different use of single ESG criteria (cf. Novethic 2013). Proponents of the ‘fiduciary duty argument’ therefore stay in line with the mainstream interpretation of beneficiary interests. Thus, they argue for the integration of material ESG criteria not as mean to increase financial returns but as measure of prudence to reduce financial risks (ibid.: 21). Consequently, fund trustees just enlarge their information basis as risk management which would not endanger the financial return (cf. Martin 2009).
Another approach is to demand institutional investors, such as pension funds or insurances, to use their discretionary power by exercising their voting rights at shareholder meetings or engaging in dialog with companies in order to address ESG related issues (Apostolakis et al. 2015: 4-5). This claim goes hand in hand with the argument that long-term financial performance of institutional investors who are diversifying their investments in all industrial sectors and geographic regions, will be determined by the overall economic stability (cf. UNEP FI/PRI 2011). Thus, due to the financial influence of these “universal owners” it is their fiduciary duty to be mindful of the negative as well as positive externalities of their investments. Consequently, they should always strive to ensure long-term economic stability (Hawley/Williams 2002: 286-289). In fact, the debate around fiduciary duty has strongly driven SI in Europe, especially in the UK in the recent years (Eurosif 2016: 54-55, 97-99).
SI has experienced for more than a decade double-digit compound annual growth rates (CAGR) and SI strategies affect nowadays approximately 53% of European and 26% of global professionally managed assets (GSIA 2016: 3-5). Indeed, these trends speak for a growing relevance of ESG criteria (i.e. double dividend) and the significance of fiduciary duty for many institutional investors. However, the numbers veil the different ways these conceptual frameworks are operationalized through various strategies, ratings and products. SI strategies can roughly be summarized in rewarding and/or punishing respectively restricting strategies. With the former strategy, ESG activities are rewarded or incentivized by hinging cash flow on them. With the later strategy, some business activities are categorically excluded or actively addressed through dialog or voting (Busch/Bauer/Orlitzky 2016: 312-314). In the following, main SI strategies in Europe and their market shares are illustrated:
[Figures and tables are omitted from this preview.]
Fig. 3: Overview of SI Strategies in Europe
Source: Eurosif 2016: 12
The method of negative-screening or ‘exclusion’ is the oldest SI strategy to take ethical criteria into account. Thereby, certain characteristics of an asset are determining in advance whether the asset is categorically considered or excluded by an investor. The exclusion criteria could be based on values or norms and might focus on individual ESG dimensions. For instance, on the one hand value based ecological exclusion criteria might be activated when the company’s field of business is related to nuclear energy, genetic engineering or fossil fuels. On the other hand, norm based social exclusion criteria might be activated if e.g. issuers have not officially committed themselves to international accepted standards, such as the ILO Conventions or the UN Global Compact (Eurosif 2016: 20-21, 25-28, 70, 94).
While screening methods represent passive forms of SI strategies, engagement and voting are strategies which are called ‘active ownership’. Here, investors make use of their voting rights or introduce ESG related motions at the shareholder meetings. For instance, investors can exert influence in the governance dimension of ESG by demanding the executive board to implement a CR strategy (cf. section II.B.1). Here, they can campaign for a motion or enter directly into dialog with the board. The rationale behind this engagement approach is to actively impel any company to change its activities, mainly regarding ESG issues. Thus, larger institutional investors have a greater leverage with this strategy (ibid.: 22-24, 97-99).
Another prominent strategy is the ESG integration approach. Here, investors integrate ESG criteria into their investment decisions, but more as an extended information base. Due to information asymmetries between the investor and the issuers, ESG information is considered as additional information about business activities. Hence, the motivation of this strategy is to include certain ESG criteria (e.g. complains to human rights or environmental laws) which are material for the investment; either in the light of reputation gains, risk reduction or long-term stability. Thereby, the degree of ESG integration can vary between systematic ESG valuation in all financial ratings or non-systematic voluntary consideration by asset managers. In general, an overall trend towards more substantial integration can be observed (ibid: 50; Eurosif 2014: 17-19).
Positive-screening is not supposed to exclude assets like within negative- screening strategies, but it is still more restrictive than ESG integration. The rationale behind this strategy is to involve all businesses in the first place and to incentivize them to improve their activities over time. Against this backdrop, the ESG performances of issuers are assessed relatively to each other which is supposed to gradually trigger a performance competition between them. Thus, if a larger part of shareholders would, for instance, invest only in the best ESG performing companies within a sector, this would have decisive influence on their cost of capital (“best-in-class”). Other methods also exist, whereby it is only invested in the companies with the best ESG performance of all sectors (“best- in-universe”) or in the issuers that made the greatest efforts (“best-effort”) (Eurosif 2016: 9, 12-15, 70).
Sustainability themed strategies include environmental investments such as in renewable energies, transport or building and/or social related investments such as in healthcare, education or safety. Here, investors explicitly seek to drive one (or sometimes multiple) theme(s). In recent years, investments in renewable energies and energy efficiency have significantly grown in France as response to the reporting obligations of France´s recent ‘Energy Transition law’ and the COP21 in Paris 2015 (ibid.: 17-19; 71-72).
The strategy with the smallest market share but most dynamic CAGR is ‘impact investment’ (cf. Figure 3). Impact investors are, like themed investors, mostly addressing a specific sustainability issue and by investing seek to generate a positive impact on the solution (e.g. climate change as challenge and renewable energies as part of the solution). However, the explicit focus on measurable impact distinguishes this strategy from other SI methods. Therefore, impact investors might even prioritize positive impact towards normal market return, although in all cases financial returns are expected unlike philanthropic investment. The Netherlands has thereby witnessed the largest growth rates, driven by large institutional investors who identified impact investment as possibility to meet the demand for measurable positive impact with competitive financial returns while contributing to long-term social stability (ibid.: 36-37, 83 Eurosif 2014: 22-24).
All investors who use SI strategies draw their ESG information from either an inhouse-research team or an external research-provider. In Europe, such specialized research/rating agencies have, complementary to already existing financial rating agencies, evolved during the 1990s; in this paper they are called ESG rating agencies (cf. Schäfer 2003: 35). Here, the provision of ESG information generally undergoes the following steps:
1. Conducting a list of criteria which is consistent with the own understanding of sustainability (selection of information)
2. Gathering information through direct contact with companies, open sources, such as CR reports and media coverage, or exchange with independent institutions, public authorities and experts (acquisition of information)
3. Comparison of the assembled information with conducted criteria (processing of information)
4. Simplified representation of results for all scrutinized companies (aggregation of information) (ibid.: 33-44)
Since inhouse-research requires more staff and higher costs, most investors receive their ESG information from external ESG rating agencies. The ESG rating market in Europe is vital and constituted by various agencies which differ from each other in terms of their underlying methodologies and rating criteria. In this way, they can adapt to more individual investor preferences and therefore ensure market shares (Gabriel 2007: 112-114). Overall, the different rating methodologies can be classified between more ethic-ecological and more eco- nomic approaches.4 An ethic-ecological methodology is characterized by the deduction of ecological, social or governance criteria depending on their social relevance. Hence, in this approach the selection of rating criteria is usually derived from a pre-existing normative framework or a list of defined social threats. Consequently, ESG criteria might be selected regardless of their economic materiality for a business. By contrast, an economic methodology is characterized by an inductive approach. Thus, in the first place ESG criteria are inspected for economic materiality and are then selected. Some ESG rating agencies also adapt a customized approach by allowing their customers to select the criteria which they expect to be most material for their investment (cf. Döpfner/Schneider 2012).
Individual and institutional SI investors can invest their money in different kinds of mutual funds or bonds. Here, the market share of retail investors grew significantly from 3.4% in 2013 to 22% in 2015, but still account for a much smaller part of SI than institutional investors (Eurosif 2016: 52). The last available data from Eurosif revealed that in 2010 the largest institutional investors were pension funds, followed by universities as well as other academics and insurance companies. Surprisingly, the volume of foundations, public sector, religious institutions and occupational pension funds accounted for only less than 5% (Eurosif 2010: 16).
Sustainable investment (SI) funds (i.e. pension funds; insurance companies; mutual funds; exchange-traded funds) can integrate almost all SI strategies. As a first step in the development of a SI fund some issuers might be excluded from the conventional investment universe, in case a negative-screening is activated (Schäfer 2014: 65-66). In the next step, the rating methodology and criteria of the involved ESG rating agency or inhouse team affect the selection of issuers which might, depending on the ESG information, be actively influenced, considered as risky or as best in class by the SI fund manager. The same holds for sustainability themed SI funds, whereby issuers are selected based on one or more categories (e.g. clean technologies and/or healthcare) (Ibid.: 68-73). Consequently, the conventional investment universe is reduced to a new smaller ‘sustainable investment universe’. Finally, the SI funds manager can optimize on that basis the remaining shares to a sustainable investment portfolio (ibid: 74-77).
Green or social bonds (as well as the combination sustainability bonds) are strongly growing investment vehicles for impact strategies. According to the International Capital Markets Association (ICMA) green or social bonds are “any type of bond instrument where the proceeds will be exclusively applied to finance or re-finance in part or in full new and/or existing eligible green/social projects” (ICMA 2017a: 1; ICMA 2017b: 1). Green bonds are issued by firms, international organizations or national and local governments. By contrast, social bonds are organized as multi-stakeholder partnerships and structured as public-private-partnerships (PPPs). Issuers of green and social bonds guarantee the investors to repay the bond after a certain period (maturity date) plus periodic interest, while the disbursement of social bonds depends on the achievement of the objectives. Finally, in all cases it must be reported on the impact of the projects, whereby the effective impact can be audited by a third party (Schäfer/Höchstötter 2016: 578-582; Eurosif 2016: 39-41).
The lack of consensus on the use of SI strategies, ratings and in the European market is identified to be a barrier to engage into SI (PRI/UNEP FI/UN GC 2015: 16). However, some standardization initiatives have led to more transparency and better comparability (EY 2011: 21).
Here, the Principles for Responsible Investment (PRI) initiative is the most adapted SI framework to integrate ESG into investment strategies. The PRI is an investor initiative in partnership with UNEP FI as well as the UN GC and comprises 1,400 signatories from over 50 countries representing 59 trillion USD of assets. The signatories must commit to respect six principles which implies to incorporate, be active, promote, collaborate and report on ESG issues, while all actions remain voluntary (cf. PRI n.d.). The Eurosif transparency code is applied by more than half of SI funds in Europe. The standard demands all signatories to disclose their specific SI strategies as well as ESG policies and practices in form of a retrievable information sheet (cf. Eurosif n.d.). The ICMA has launched standards for impact investment strategies, such as green or social bonds. The green or social bond principles entail four core components which demand the bond issuer to (i) describe the environmental or social use of proceeds (ii) explain the process for project evaluation and selection as well as (iii) the management of proceeds (iiii) and report annually on the exact use of proceeds (cf. ICMA 2017a; cf. ICMA 2017b).
Normative (international or national) frameworks based on stakeholder dialogs or existing frameworks such as the “Brundtland Report” or the “Frankfurt- Hohenheimer Guidelines” might serve as foundation of ESG criteria for ethic- ecological ESG rating agencies or investors (Döpfner/Schneider 2012: 66-67). While the prominent definition of sustainable development within the Brundtland Report5 would represent a very broad foundation, the Frankfurt-Hohenheimer Guidelines encompass 850 criteria which might serve to assess social, ecological and cultural compatibility (cf. Cric e.V. 2009).
Some SI product standards have evolved in France, Belgium, the Netherlands, Austria, Switzerland and Germany to create transparency for investors what SI products are actually able to deliver (Eurosif 2016: 49). For instance, the FNG label for SI mutual funds guarantees that certain minimum requirements are respected, such as: the signing of UN GC and Eurosif transparency code; the exclusion of companies related to weapons and nuclear energy; ESG-analysis of minimum 90% of issuers in the portfolio. Furthermore, depending on for instance the SI strategies, the institutional credibility, underlying research process and ESG analysis quality it is distinguished between three quality levels. Finally, the SI funds are audited by the French ESG research company Novethic. Thus, in case of non-compliance they can lose the FNG certification (cf. FNG-Siegel 2017). Since issuers of green or social bonds are expected to explain and prove their use of proceed, a broad market of third party certifiers has already evolved (Eurosif 2016: 40).
IV. The 2030 Agenda: The Sustainable Development Goals
“The Agenda is a plan of action for people, planet and prosperity. (…) All countries and all stakeholders, acting in collaborative partnership, will implement this plan” (UN 2015: 1)
This short quote from the UN resolution A/RES/70/1, also known as ‘Transforming our world: The 2030 Agenda for Sustainable Development’, transports two paradigmatic messages: (i) the agenda comprises social, ecological and economic aspects (ii) and applies to everyone. In contrast to the former agenda, the ‘Millennium Development Goals’ (MDGs), these are two fundamental shifts, since the MDGs were primarily focused on social aspects and designed for ‘developing countries’ (cf. Kloke-Lesch 2015). Signed by 193 countries the 2030 Agenda represents a universal vision for the future constituted by 17 Sustainable Development Goals (SDGs) (cf. Figure 4) which are broken down by 169 targets and 232 indicators (UNSTATS n.d.). In this chapter, the potential roles of business and finance in the achievement of the SDGs are elucidated and current SDG trends in international standards for CR and SI are summarized.
A. Economic Implications
1. The Role of Business
Regarding the opening quote the aspect of “collaborative partnership” should be considered carefully, since it has important implications for the business sector. Indeed, international partnerships between politics, science, civil society and business have had a long tradition in the global sustainable development movement; dating back to the ‘Earth Summit’ 1992 in Rio de Janeiro. Since then, multi-stakeholder partnerships have proven to be useful to cope with complex and transboundary challenges. They improve the understanding of system linkages, share specific knowledge and resources and put the knowledge into action (UN-DESA/DSD 2015: 7-8, 18). For this reason, multi- stakeholder partnerships have played a crucial role in the 2030 agenda process and have been included in SDG targets 17.16 and 17.17 (UN 2015: 26).
Hence, firms have become a constitutive part of the global governance architecture by getting more and more involved in the provision of public (global) goods and in the shaping of (global) regulations (Scherer et al. 2016: 3). Indeed, there are many modes for the involvement of business in global regulations, such as: firm/industry self-regulations (e.g. code of conducts; Vinyl 2010); co-regulations together with civil society (e.g. Forest Stewardship Council [FSC]; Marine Stewardship Council [MSC]) or governments (e.g. PPPs); tripartite co-regulations with both sectors (e.g. UN GC; GRI; PRI) (cf. Steurer 2013). In fact, this kind of active or passive “meta-governance” goes beyond the traditional understanding of business activities (ibid.: 400-403). However, the interest of many firms in sustaining and profiting from public goods, such as climate and peace, as well as being perceived as morally legitimated, has become a significant driver to be involved as “political actors” (cf. Scherer/Palazzo: 2011).
Against this backdrop, the modern globalized economy might be described as a “cooperation economy” (Wieland 2014: 48). According to Governance Ethics and Stakeholder Governance (cf. II.A.) the capability of a firm to lead, manage and communicate its moral-economic transactions (cf. II.B.) determines its efficiency and effectiveness to cooperate with relevant stakeholders (ibid.: 33-36). Hence, in the context of global public goods and global regulations the focus should lie within the equation of moral-economic transactions (cf. II.A.1) on the capability to shape, or comply with international formal institutions (e.g. SDGs; UN GC; ILO) (ibid.: 54-55).
In this light, the SDGs, as global institutional framework, might have opened a new chapter for CR. As stated above, the role of business has explicitly become vital since it is expected to contribute substantially to the achievement of the global agenda by shaping as well as complying with the SDGs. Therefore, firms which still perceive sustainability as a side issue and not as part of their core business might soon be confronted with material competitive disadvantages (PwC 2017: 18). Thus, from a firm´s perspective the question might arise as to how the political SDGs can be translated into an economic language (cf. II.B.1- 3). Indeed, there have been made many efforts to answer this question in the recent two years (cf. Jandeisek et al. 2016).
According to the ‘Better Business Better World’ report the SDGs are offering a compelling growth strategy for businesses to capture unleashed economic value of more than 12 trillion USD by 2030 (BSDC 2017: 11-12). Yet, these market opportunities are compiling only 60 sub-markets in four sectors: food and agriculture; cities; energy and materials; health and well-being. Hence, first movers who align their resource and workforce management with the SDGs are supposed to have a 5-15 year advantage on the sustainable playing field (ibid.: 14- 18). In fact, the SDGs have already emerged as a clear trend in CR reporting applied by around 40 % of N100 and G250 firms (KPMG 2017: 39).
 Garriga/Melé framed the major theories underlying CR in four types (instrumental; political; integrative; ethical) and summarized them in a short overview (cf. Appendix 1)
 Schaltegger et al. provide a comprehensive overview of several MCS as well as tools for CR and match them with corresponding organizational departments (cf. Appendix 2)
 For instance, see studies from: Gil-Bazo/Ruiz-Verdú/Santos 2010 or Dowell/Hart/Yeung 2000 supporting a postive link; Geczy/Stambaug/Levin 2005 or Walley/Whitehead 1994 supporting a negative link; Renneboog/Horst/Zhang 2008 or Elsayed/Paton 2005 supporting a neutral link
 In this context, the debate in literature is also about “value and money” and “value for money” (cf. SustainAbility 2004; cf. Döpfner/Schneider 2012).
 „Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (UN WCED n.d.: Chapter IV)