Freedom to Choose: ESG Goals & The Problem of Convenient Values

Economic, social, and political pressures as well as private motivations have led to a growing number of firms pursuing environmental, social, and good governance goals and not ”just” maximizing financial performance. The large number of possible social dimensions – the UN Sustainable Development Goals include two hundred and forty seven indices – creates a problem of organizational attention. Given constraints on organizational capacity, firms must choose a subset of normative dimensions. Here, we consider the possibility that firms choose values that have minimal effect on profits. In a skeletal model, we show that contrary to intuition, firms that adopt convenient values place more weight on dimensions with high mitigation costs. By choosing convenient values,, firms can have it both ways. They can consistently pursue an ESG agenda but with limited impact on their bottom line. In an expanded model that includes externalities between goals, we show that firms with convenient values place less weight on dimensions that are subject to positive spillovers from actions on other dimensions. Finally, we show that net zero constraints can create a substitution effect that reduces actions on other dimensions.

 

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