An Honorable Harvest: It Is Time for Universal Owners to Take Responsibility for Their Portfolios

16 Pages Posted: 11 Aug 2019

Date Written: August 7, 2019


There is now an established industry dedicated to making business more responsible for its impacts on the environment and society. An alphabet soup of organizations promotes “sustainability,” “corporate social responsibility” and “ESG (environmental, social and governance) integration.” To date, the efforts have been insufficient to the task, as illustrated by our failure to address the climate and water crises, growing political instability and continuing shameful abuses of human rights in supply chains. (This is by no means a criticism of sustainability efforts — things could be much worse without them; it is instead a call to find a path to success for this vital movement.)

This essay argues that current efforts are failing because they require individual companies to make difficult decisions about complex social and environmental issues. However, companies are a poor locus for these decisions because they are in competition with one another to provide a return on equity capital. Even without the pressure of competition, the calculation of optimal returns on equity is incommensurable with the calculation of what businesses must do to maintain a healthy environment and society: there is no rational way for a corporate director to compare a ton of carbon and a penny per share of profit. Businesses respond to this combination of competitive pressure and incommensurability by only implementing those sustainability measures that are compatible with optimizing returns on equity, rather than those necessary to actually solve the sustainability problem.

In an economy based on market competition, we cannot rely on individual businesses to self-impose basic sustainability rules that take priority over profit. By their nature, these critical sustainability boundaries must be implemented collectively in order to be effective. While law and regulation would be the traditional avenues for addressing the broad societal concerns that comprise sustainability, governments themselves suffer from collective action issues in a global economy where jurisdictions compete for jobs and revenue.

The ongoing failure of either business or government to systematically address these issues has created a crisis: business practices are eroding the environmental and social structures that undergird our civilization. If we cannot devise a method for implementing difficult decisions about carbon, inequality and other systemic issues, we will continue to just tinker around the edges of concerns that threaten human thriving, rearranging deck chairs as our global economy sinks.

This essay argues that at this historical moment, the global investor community is the appropriate locus for the collective decision-making necessary for a sustainable economy. The power exerted by institutional investors through allocation and stewardship of equity capital can be used to insist on more sustainable business practices. Because they are diversified across thousands of companies, these investors can bypass the competitive bottleneck for margin and capital that holds sustainability back at the company level.

I urge asset owners to consider these arguments, and to act to begin establishing sustainability parameters for all businesses, as our window of opportunity is rapidly closing.

Keywords: Universal owners, responsible investing, sustainability

Suggested Citation

Alexander, Frederick, An Honorable Harvest: It Is Time for Universal Owners to Take Responsibility for Their Portfolios (August 7, 2019). Available at SSRN: or

Frederick Alexander (Contact Author)

The Shareholder Commons ( email )

Wilmington, DE
United States

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