Fiduciary Duties, Corporate Purpose and Stakeholder Interests: What Pre-COVID Sustainability Initiatives Can Teach About a Post-COVID Future

Abstract

COVID revealed that collective problems that exist at global scale require resources beyond those that can be easily mustered under the current rules for the American economic system. Unless one assumes that current rules governing the economy are adequate to address the need for a durable economy — a risky assumption, given that the economy staved off crashes in 2008 and 2020 only through the injection trillions of dollars of government funds — it is inevitable that those rules will change. The need for such change is already visible, and the call for such change has already begun. COVID exposed a smallness of imagination in the business and investing world respecting sustainability, an undue and undeserved respect for the ability of markets to address systemic risk:

Institutional investors can use diversification to address portfolio risk — but not systemic risk like a pandemic.

Operating companies can use sustainability strategies to address company-specific risk, which is helpful company by company — but not systemic risk.

For “sustainability” to be an effective macro-economic strategy, then the private sector and the public sector will ultimately need to collaborate to rethink at least some of the rules of capitalism. The benefits to individual companies or investors from piecemeal company-by-company efforts can still be undermined by collective risks that exist at global scale.

Keywords: ESG, sustainability, global risk, systemic risk, collective risk, COVID

JEL Classification: K22, G01, G30, G38, H23, O16,