Corporate Finance and Sustainability: A Teaching Note

22 Pages Posted: 12 Nov 2019 Last revised: 17 Feb 2020

See all articles by Dirk Schoenmaker

Dirk Schoenmaker

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM); Centre for Economic Policy Research (CEPR)

Willem Schramade

RSM Erasmus University; Sustainable Finance Factory

Date Written: February 16, 2020

Abstract

In the transition to a sustainable economy, companies are increasingly adopting the goal of In the transition to a sustainable economy, companies are increasingly adopting the goal of long-term value creation, which integrates financial, social and environmental value. That raises the fundamental question in corporate finance about the objective of the corporation. The current objective is maximising profit, which boils down to maximising shareholder value. But the shareholder model is holding companies back from sustainable business practices. An enhanced shareholder view recognises that it is instrumental to treat the other stakeholders well in order to preserve long-term shareholder value.

An alternative view is to broaden the objective of the corporate to optimising the integrated value, which combines the financial, social and environmental value. In that way, the interests of stakeholders are ranked equally. Such a move to the stakeholder model requires new rules for corporate governance and decision-making on corporate investments to deal with the various interests of current and future stakeholders.

This Teaching Note can be used in courses on corporate finance. It complements corporate finance textbooks, which usually adopt the shareholder model.

Keywords: corporate finance, corporate governance, sustainability, ESG

JEL Classification: G30, I30

Suggested Citation

Schoenmaker, Dirk and Schramade, Willem, Corporate Finance and Sustainability: A Teaching Note (February 16, 2020). Available at SSRN: https://ssrn.com/abstract=3479730 or http://dx.doi.org/10.2139/ssrn.3479730

Dirk Schoenmaker (Contact Author)

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam
Netherlands

HOME PAGE: http://www.rsm.nl/people/dirk-schoenmaker/

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Willem Schramade

RSM Erasmus University ( email )

P.O. Box 1738
Room T09-53
3000 DR Rotterdam
Netherlands

Sustainable Finance Factory ( email )

18
Rotterdam, 3034 SG
0682011037 (Phone)

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