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Dear colleagues,

If you work on corporate sustainability with a particular focus on financial markets, please consider sending a short paper to our EGOS sub-theme (see details below). EGOS will take place virtually from July 8-10, 2021. The submission deadline is on January 12, 2020, see www.egosnet.org/2018_tallinn/sub-themes_call_for_short_papers. We assure you the discussion will be rich, engaging, fun, and managed well. Feel free to contact us if you have any questions.

All the best,

Tima Bansal, Mark DesJardine, and Emilio Marti

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Sub-theme 30: Financial Markets and Corporate Sustainability

Convenors:

Tima Bansal

Ivey Business School, Canada

tbansal@ivey.ca

Mark R. DesJardine

Pennsylvania State University, USA

mdesjardine@psu.edu

Emilio Marti

Erasmus University, The Netherlands

marti@rsm.nl

Corporations are often slave to financial markets as they seek capital to fund their corporate initiatives. Through their grip on corporations, financial markets can shape the time horizons and community orientation of corporations. On the one hand, the intergenerational equity espoused by sustainability – and its ambition to foster an inclusive society – can become an elusive or irrelevant ambition for corporations. On the other hand, some parts of financial markets are becoming more attuned to the value of environmental, social and governance (ESG) criteria in anticipating corporate risks. Using these new metrics, financial markets may push unsustainable corporations to become more sustainable. In this sub-theme, we welcome submissions from various organizational disciplines that explore the negative and positive ways in which financial markets shape corporate sustainability.

How financial markets undermine corporate sustainability

Pressure from financial markets can undermine the efforts of companies to engage in corporate sustainability (Bansal & DesJardine, 2014). Recent research has shown how such pressure shrinks the investment horizons of managers (DesJardine & Bansal, 2019), leading firms to invest less in long-term initiatives (David et al., 2001), such as corporate social responsibility (CSR) (David et al., 2007; Neubaum & Zahra, 2006). For example, short-term shareholders increase the likelihood that firms reduce pension benefits for their employees (Cobb, 2015). Similarly, activist hedge funds are particularly likely to target socially responsible firms (DesJardine et al., 2020) and subsequently reduced targeted firms' investments in long-term initiatives and CSR (DesJardine & Durand, 2020). While offering a starting point, this research does not elucidate how financial markets actors – such as different types of shareholders, analysts, intermediaries, and rating agencies – affect corporate sustainability in more nuanced ways, such as by distinguishing their effect on the social and environmental dimensions of sustainability (Reinecke & Ansari, 2015). This sub-theme thus calls for more research on how different types of financial market actors shape corporate sustainability.
 
More attention is also needed to uncover the mechanisms that connect financial markets to corporate sustainability. For example, bearing in mind that quarterly reporting is believed to promote short-termism, researchers could explore whether changes in how companies communicate with financial market actors (e.g., semi-annual versus quarterly reporting) affect corporate sustainability. Similarly, pressure from activist owners increases the likelihood of corporate wrongdoing (Shi et al., 2017). Broadening this focus, new work could explore how pressure from activist hedge funds and other types of activist owners influences corporate sustainability. Each of these factors may serve as standalone pressures, or as boundary conditions for the relationship between financial markets and corporate sustainability.
 
Possible questions include, but are not limited, to:

• How do shareholders' investment horizons undermine specific dimensions of corporate sustainability (e.g., social versus environmental)?
• Under which ownership structure (e.g., public versus private or concentrated versus fragmented) is corporate sustainability most hampered?
• Through which mechanisms do financial market actors impose pressures on firms that inhibit corporate sustainabilit (e.g., shareholder resolutions, share buy-backs)?

How financial markets foster corporate sustainability

At the same time, some financial market actors – such as sustainable investors, data providers, or analysts – start to realize that corporate sustainability may translate into long-term financial performance. We have seen a substantial rise in the amount of capital flowing into sustainable investing and an expansion of ESG data. Existing research has mostly focused on the intraorganizational and field dynamics of financial markets actors who take an interest in sustainability. At the intraorganizational level, researchers have, for example, explored how investment firms integrate ESG data (Arjaliès & Bansal, 2018) or how insurance companies differ from banks (Risi, 2020). At the field level, researchers have analyzed, for example, how new ESG data emerges (Beunza & Ferraro, 2018), how key considerations in sustainable investing evolved over time (Dumas & Louche, 2016), how the rise of sustainable investing varied between countries (Yan et al., 2019), how ESG indexes emerge (Slager et al., 2012), and how using sustainable investing models can create self-fulfilling prophecies (Marti & Gond, 2018). In this sub-theme, we welcome further research on both intraorganizational and field dynamics.
 
In addition, more research is needed on how financial market actors who value sustainability influences corporate sustainability. Such research could explore how and when different sustainable investing strategies are effective. In particular, two sustainable investment strategies have been on the rise, though researchers have not yet covered them substantially. On the one hand, shareholder engagement is supposed to have a big influence on corporate sustainability, but research on this strategy is just starting (e.g., Ferraro & Beunza, 2018; Gond & Piani, 2013). On the other hand, divestment from oil and gas companies is becoming increasingly commonplace (e.g., Carbon Tracker, 2013), though we still lack understanding about the process and potential consequences of this phenomenon.
 
Possible questions include, but are not limited, to:

• How do intraorganizational and/or field dynamics explain the mainstreaming of sustainable investing?
• How do shareholders' strategies to influence companies differ depending on whether shareholders value sustainability?
• Under which conditions are divestment campaigns most likely to succeed?

 References

• Arjaliès, D.-L., & Bansal, P. (2018): "Beyond numbers: How investment managers accommodate societal issues in financial decisions." Organization Studies, 39 (5–6), 691–719.
• Bansal, P., & DesJardine, M.R. (2014): "Business sustainability: It is about time." Strategic Organization, 12 (1), 70–78.
• Beunza, D., & Ferraro, F. (2018): "Performative work: Bridging performativity and institutional theory in the responsible investment field." Organization Studies, 40 (4), 515–543.
• Carbon Tracker (2013): Unburnable Carbon 2013:Wasted capital and stranded assets. London: Carbon Tracker Initiative; http://carbontracker.live.kiln.digital/Unburnable-Carbon-2-Web-Version.pdf
• Cobb, J.A. (2015): "Risky business: The decline of defined benefit pensions and firms' shifting of risk." Organization Science, 26 (5), 1332–1350.
• David, P., Bloom, M., & Hillman, A.J. (2007): "Investor activism, managerial responsiveness, and corporate social performance." Strategic Management Journal, 28 (1), 91–100.
• David, P., Hitt, M.A., & Gimeno, J. (2001): "The influence of activism by institutional investors on R&D." Academy of Management Journal, 44 (1), 144–157.
• DesJardine, M.R., & Bansal, P. (2019): "One Step Forward, Two Steps Back: How Negative External Evaluations Can Shorten Organizational Time Horizons." Organization Science, 30 (4), 647–867, C2.
• DesJardine, M.R., & Durand, R. (2020): "Disentangling the effects of hedge fund activism on firm financial and social performance." Strategic Management Journal, 41 (6), 1054–1082.
• DesJardine, M.R., Marti, E., & Durand, R. (2020): "Why activist hedge funds target socially responsible firms: The reaction costs of signaling corporate social responsibility." Academy of Management Journal, in press; https://journals.aom.org/doi/10.5465/amj.2019.0238.

• Dumas, C., & Louche, C. (2016): "Collective beliefs on responsible investment." Business & Society, 55 (3), 427–457.
• Ferraro, F., & Beunza, D. (2018): "Creating common ground: A communicative action model of dialogue in shareholder engagement." Organization Science, 29 (6), 1187–1207.
• Gond, J.-P., & Piani, V. (2013): "Enabling institutional investors' collective action: The role of the Principles for Responsible Investment initiative." Business & Society, 52 (1), 64–104.
• Marti, E., & Gond, J.-P. (2018): "When do theories become self-fulfilling? Exploring the boundary conditions of performativity." Academy of Management Review, 43 (3), 487–508.
• Neubaum, D.O., & Zahra, S.A. (2006): "Institutional ownership and corporate social performance: The moderating effects of investment horizon, activism, and coordination." Journal of Management, 32 (1), 108–131.
• Reinecke, J., & Ansari, S. (2015): "When times collide: Temporal brokerage at the intersection of markets and developments." Academy of Management Journal, 58 (2), 618–648.
• Risi, D. (2020): "Time and business sustainability: Socially responsible investing in Swiss Banks and insurance companies." Business & Society, 59 (7), 1410–1440.
• Shi, W., Connelly, B.L., & Hoskisson, R.E. (2017): "External corporate governance and financial fraud: Cognitive evaluation theory insights on agency theory prescriptions." Strategic Management Journal, 38 (6), 1268–1286.
• Slager, R., Gond, J.-P., & Moon, J. (2012): "Standardization as institutional work: The regulatory power of a responsible investment standard." Organization Studies, 33 (5–6), 763–790.
• Yan, S., Ferraro, F., & Almandoz, J. (2019): The rise of socially responsible investment funds: The paradoxical role of the financial logic." Administrative Science Quarterly, 64 (2), 466–501.

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Dr. Tima Bansal, FRSC
Canada Research Chair in Business Sustainability
http://www.ivey.uwo.ca/faculty/directory/tima-bansal/