Sustainable Organizations

Abstract

We develop a theory of sustainability-driven stakeholder governance to study how stakeholders with pro-social preferences influence organizations' sustainability—their social outcomes. While stronger pro-social preferences render a stakeholder's project choice more sustainable and increase her incentives to control it, other stakeholders respond by limiting her control rights when conflicts of interest become too severe. This response can lead to an overall decline in organizations' sustainability even when stakeholders become more pro-social.

Keywords: Sustainability, ESG, stakeholders, delegation of authority, corporate governance.

JEL Classification: D23, G30, L20, Q56.