Originally published in Finance and Accounting Monthly, No. 19, 2021
【Abstract】With the increasing demand for ESG information from investors, creditors and other stakeholders, the ESG reports provided by enterprises have shown a rapid growth trend. In the context of ESG reports increasingly becoming an important source of information for evaluating sustainable development, it is necessary to sort out and study the theoretical schools and core essences that underpin ESG. In recent years, there have been more and more works related to ESG, but there are few works that form the theoretical basis of ESG. This paper argues that sustainable development theory, economic externality theory, and corporate social responsibility theory are the three theoretical pillars that jointly support ESG. This article aims to review the core ideas of these three theoretical pillars and analyze their implications for ESG.
【Keywords】ESG; sustainable development theory; economic externality theory; corporate social responsibility theory
Any methodology, without theoretical support, is difficult to be convincing and unsustainable. ESG (Environmental, Social, and Governance) as a methodology for evaluating corporate sustainability is no exception. In recent years, ESG has become an increasingly hot topic and has the potential to change the way economic and social development will be carried out in the future, so it is of great significance to explore its theoretical basis. Although ESG was not formally proposed by a RESEARCH project initiated by the United Nations until 2005 (Huang Shizhong, 2021), the basic theories underpinning ESG have a long history, and the related works are even more numerous. Based on the study of relevant literature at home and abroad, this paper reviews the three theoretical pillars supporting ESG, and analyzes the core ideas of sustainable development theory, economic externality theory and corporate social responsibility theory and their enlightenment significance for ESG.
First, the theory of sustainable development and its implications for ESG
ESG reports are often given the name sustainability reports, not only because ESG reports are designed to provide relevant information that can be used to evaluate corporate sustainability, but also because many of the ideas of ESG reports are derived from sustainability theory. The theory of sustainable development was born in the 1960s and 1970s, formally formed in 1987, and after more than 30 years of development, it has become widely recognized and accepted by the world.
(1) The origin and core ideas of sustainable development theory
The theory of sustainable development is gradually formed by people's continuous reflection on the environmental and social problems brought about by the anthropocentrism mode of thinking in concept, and the vigilance of overindustrialization in action. In its attitude toward the natural world, anthropocentrism holds that human beings are superior to nature and have the sacred right to transform and conquer nature. Hence the anthropocentrism known as Domination Theory. Anthropocentrism can be traced back to Christian doctrine, which requires humans to exert their willpower on nature and surrender to it. This religious idea of human superiority over nature was later intertwined with secular Scientific Rationalism, further fueling anthropocentrism. Scientific rationalists, represented by Bacon, Newton, and Descartes, believed that the planet Earth existed for the well-being and exploitation of mankind (Baker et al., 1997). The invention of the steam engine and electricity greatly increased the productivity of mankind, and Western countries entered the industrial society. In industrial society, the public generally believes that with the development of science and technology, natural resources will be inexhaustible and inexhaustible, and materialism and hedonism are prevalent. In industrialized countries, the continuous improvement of material living standards has become a major pursuit of consumers and politicians, while non-industrialized countries have made it an economic and political demand to strive to catch up with the achievements of industrialized countries. Economic growth, measured in terms of GDP size or GDP per capita, is a litmus test of success.
Anthropocentric mindsets and rapid technological progress have led to the overexploitation and use of natural resources since the Industrial Revolution in order to improve the standard of living, resulting in serious environmental problems such as air pollution, climate change, freshwater shortages and species extinctions. In 1962, the American marine biologist Ms. Rachel Carson published the book "Silent Spring", which is an environmental science work about the great harm of DDT pesticides to birds and the ecological environment, which has aroused public concern about environmental resources, prompted the legislature and regulatory authorities to intervene in the environmental externalities generated by business activities, and spawned the ecocentrism (Ecocentrism) mode of thinking. Unlike anthropocentrism, ecocentrism holds that human beings are not superior to nature, and that humans, like other living things, are an integral part of nature and together form a community of life (1). Since man is only a part of nature, parts cannot and should not dominate the whole. On the contrary, the survival and development of human beings are inseparable from a good ecological environment, and trying to impose the dominant position of human beings on the natural world and subjugate it is not only self-sufficient, but also a harmful act of self-destruction. Ecocentrism also believes that natural resources are not inexhaustible and inexhaustible, and that the predatory exploitation and utilization of natural resources will lead to an imbalance in the ecological environment and a decrease in biodiversity, thus endangering the survival of human beings themselves (2). Excessive industrialization, excessive population growth, and excessive pursuit of material living standards and economic growth will deplete the carrying capacity of the earth's environment. Concern for the limits of the Earth's environmental load prompted a group of intellectuals to form the "Roman Club" and published a study entitled "The Limits of Growth" in 1972. Based on mathematical models, the report predicts that in the next century, with the rapid growth of population and the rapid expansion of economic demand, resource depletion, environmental pollution, ecological destruction, and sharp decline in biodiversity will be inevitable, and the only way out is to curb human greed and maintain moderate economic growth or even zero growth.
"The Limits of Growth" has a strong ecological color, and its academic views that the ecological environment and economic development are incompatible with water and fire, as well as its policy proposition of placing environmental protection as a higher priority than economic growth, have attracted widespread criticism and questioning. In fact, environmental protection and economic growth are not necessarily an either-or conflict, supplemented by market mechanisms and regulatory measures, which can be transformed into a mutually compatible coexistence. This view gives birth to the concept of sustainable development. The term Sustainable Development first appeared in the World Conservation Strategy published in 1980 by the International Union for Conservation of Nature and Natural Resources (IUCN). The conservation strategy proposed by the IUCN aims to achieve the overall goal of sustainable development through the conservation of living resources. The fly in the ointment is that the World Conservation Strategy focuses primarily on the sustainability of the ecological environment and does not organically link sustainability to social and economic issues.
The true theory of sustainable development was formally put forward by the United Nations. In response to the growing environmental and economic problems and to find solutions, the United Nations established the World Commission on Environment and Development (WCED) in December 1983, chaired by The Prime Minister of Norway, Mrs. Gro Harlem Brundtland. After more than three years of unremitting efforts and the support of countries around the world, WCED submitted "Our Common Future" to the United Nations in March 1987, which was debated and adopted by the 42nd session of the United Nations General Assembly and officially published in April 1987. Once published, our Common Future (also known as the Brent Report) was a resounding response around the world, marking the birth of the theory of sustainable development. The report consists of three parts: "Common Concerns", "Common Challenges" and "Joint Efforts", which integrate the concept of sustainable development.
As a political compromise, the WCED report, while adhering to the anthropocentric mindset in general, proposes the Concept of Needs, advocating priority policy objectives to meet basic human needs, especially the needs of the world's poor, but also inherits the rational components of ecocentrism, proposing the concept of limits, acknowledging that it is limited by the level of technological development and the efficiency of social organization. The environment is difficult to meet the needs of the present and the future, and human beings must change their consumption habits to reduce the carrying capacity of the overwhelmed ecological environment.
In chapter II of the report, the WCED defines sustainable development as "development that meets the needs of present generations without jeopardizing the ability of future generations to meet their needs" (WCED, 1987). As can be seen, WCED defines sustainability from the perspective of Intergenerational Equity. Although the definition of WCED is widely recognized and frequently cited, this does not mean that there is a high degree of consensus on the definition of sustainable development in the world. In fact, sustainability can also be defined from the perspective of intragenerational equity, or from the perspective of coordinated social, economic and environmental development. The definition of the latter two angles has also been reflected to a certain extent in WCED's discussion of the concept of sustainable development. WCED's specific elaboration of the concept of sustainable development mainly includes ten aspects: (1) meeting human needs and yearning for a better life is the main goal of development, sustainable development requires meeting the basic needs of human beings and providing opportunities for human beings to aspire to a better life; (2) sustainable development advocates the values of controlling consumption levels within the sustainable range of the ecological environment; (3) economic growth must conform to the basic principles of sustainable development and not exploit others. Sustainable development requires increasing production potential and ensuring equitable opportunities to meet human needs; (4) sustainable development requires that population development be in harmony with the changing ecological and environmental output potential; (5) sustainable development requires curbing the overexploitation of resources that jeopardize future generations' basic needs; and (6) sustainable development requires that human beings not harm the natural systems that support life on Earth, including the atmosphere, water, soil and organisms ;(7) Sustainable development requires countries around the world to ensure equitable access to limited resources and to alleviate resource pressure through technological means; (8) sustainable development requires the rational use of renewable resources, prevents overexploitation and utilization, and controls the development rate of non-renewable resources so as not to endanger the development of future generations; (9) sustainable development requires the protection of plants and animals to avoid the reduction of species diversity affecting the choice of future generations; (10) sustainable development requires that human activities be directed to the air, Negative impacts on water and natural elements are minimized to maintain the integrity of ecosystems.
WCED's policy ideas have been widely recognized by international organizations such as the United Nations, the World Bank, the European Union and most United Nations member states, and have become an important cornerstone of sustainable development theory. Thanks to the research of WCED and other international organizations, the United Nations held a sustainable development summit at its headquarters in New York in September 2015, at which 193 member countries adopted the United Nations 2030 Agenda for Sustainable Development, proposing 17 Sustainable Development Goals (3) designed to guide member states in addressing environmental, social and economic issues between 2015 and 2030, as shown in Figure 1.
From the above analysis, it can be seen that the theory of sustainable development proposed by the United Nations and its subsidiaries has become the mainstream, and its core idea embodies the concept of inclusive development, which requires an integrated consideration of social, economic and environmental sustainable development issues, as shown in Figure 2. The concept of inclusive development requires that in the context of sustainable social development, uphold the anthropocentric view, advocate equity is not only an important prerequisite for the realization of economic growth and environmental protection goals, but also a policy goal of social development, that is, to build a fair social environment aimed at eradicating poverty and hunger, creating education and job opportunities, resisting racial and gender discrimination, providing clean drinking water and sanitation facilities, and building a harmonious society. The concept of inclusive development requires that in terms of sustainable economic development, it is necessary to advocate both anthropocentrism and ecological centrism, emphasizing that economic growth should not be ignored on the grounds of environmental protection, nor should economic growth be pursued unilaterally at the expense of the ecological environment, so as to maintain the vitality of economic development forever. In addition, high-quality economic growth should be a low-carbon, green development model, and the method of evaluating the quality of economic development should be appropriately changed to take into account environmental costs such as energy consumption, emissions and pollution. The concept of inclusive development requires the adoption of a modified ecological concept in terms of sustainable environmental development, calls for social development and economic growth to fully consider the carrying capacity of environmental resources, must resist excessive economic and social development and predatory exploitation of natural resources without regard to the carrying capacity of environmental resources, encourages the ecological environment while economic and social development, and increases investment in the restoration and protection of the ecological environment.
(2) The enlightenment significance of sustainable development theory to ESG
Looking at the ESG initiatives and propositions put forward by different international organizations, it can be found that most ESG reporting frameworks provide information that helps stakeholders assess the risks and opportunities for sustainable development of enterprises as the main goal of ESG reporting, and the far-reaching impact of sustainable development theory on ESG can be seen. In addition, many ESG reporting frameworks draw on the essence of sustainable development theory in the design of indicator systems, especially in terms of social and environmental sustainable development. In the four-module guideline system of the Global Reporting Initiative (GRI), the three modules of economic, environmental and social issues are designed to be in line with the sustainable development concept of social, economic and environmental trinity. In the Sustainable Development Accounting Standards Board's (SASB) five-dimensional reporting framework, 11 of the 17 indicators in the three dimensions of environmental protection, social capital and human capital contain the concept of social and environmental sustainability. The World Economic Forum's (WEF) four-pillar reporting framework aligns with the United Nations' 17 Sustainable Development Goals (SDGs) – protecting the planet, benefiting people and creating prosperity. The Four-Factor Climate Disclosure Framework of the Working Group on Climate-Related Financial Disclosures (TCFD) and the Environmental and Climate Change Disclosure Framework of the Climate Disclosure Guidelines Council (CDSB) focus on environmental sustainability and do not address sustainable economic and social development, but their environmental claims and disclosures are also highly consistent with sustainable development theory.
It is worth noting that economic issues in the theory of sustainable development are not reflected in most ESG reporting frameworks, with the exception of the GRI's four-module guideline system and the WEF's four-pillar reporting framework. The reason for this is most likely that the designers believe that the ESG report is complementary to the financial report, which is the best vehicle for evaluating economic issues. In the author's view, although this view is understandable, it is not necessarily reasonable, because the ESG report and the financial report evaluate the operating performance and sustainability of the enterprise from a different perspective, the former focusing on evaluating the operating performance and sustainability of the enterprise from a macro (stakeholder) perspective, and the latter mainly evaluating the operating performance and sustainability of the enterprise from the micro (shareholder) perspective.
Another point that must be noted is that the G (governance) in the ESG reporting framework is not corporate governance in the usual sense, but requires environmental and social issues to be included in the governance system, governance mechanism and governance decision-making, so as to avoid excessive focus on economic issues and ignore environmental and social issues. Sustainability theory generally does not directly address specific corporate governance issues, but its policy recommendations often require governments or other institutions to pay attention to changes and innovations in institutional arrangements to ensure that the governance layer addresses social, economic and environmental sustainable development issues through appropriate procedures and methods. In this sense, the G in the ESG report can be seen as a mechanism for implementing the policy recommendations of the theory of sustainable development.
Second, the theory of economic externalities and its implications for ESG
Externality, also known as external effects and spillover effects, is an important research object of economics, providing a theoretical basis for the government to regulate business activities and information disclosure (including information disclosure of financial reports and ESG reports) outside the market mechanism. Compared with the theory of sustainable development, the theory of economic externalities has a long history and is widely used in the E (environment) aspect of ESG, and the collection of sewage charges, the trading of carbon emission rights, and subsidies for new energy vehicles all contain the ideas of economic externality theory to varying degrees.
(1) The origin and core ideas of the theory of economic externalities
Adam Smith, the originator of the market economy, believes that the free economic system encourages and allows individuals to pursue their own interests, and each individual cares about and pursues the maximization of their own interests, which will eventually form the best outcome for society as a whole (Huang Shizhong, 2019). In other words, the "invisible hand" of the market mechanism can efficiently coordinate economic activities, automatically adjust the interests of all parties, and maximize the interests of society as a whole. However, market mechanisms are not perfect, as evidenced by economic externalities that cause market prices to fail to reflect the marginal social costs and marginal social benefits of production, thus triggering market failures. Economic externalities show that it is difficult to achieve the optimal allocation of resources and the maximization of social benefits by relying solely on market mechanisms.
Academic literature generally divides the development of the theory of economic externalities into three major milestones and links them to the three greatest contributors, Alfred Marshal, Arthur Cecil Pigou, and Ronald H. Coase. The writings of these three economists in different periods have laid a solid foundation for the enrichment and development of the theory of economic externalities.
In 1890, Marshall pioneered the concept of external economy in Principles of Economics. Marshall points out that we can divide the economies that originate from the scale of production of any one product into two types: economies that depend on the general development of the industry (4); economies of scale that depend on the resources of the organization and the efficiency of management. We can call the former the external economy and the latter the internal economy (Adam, 2005). Although Marshall only proposed the concept of external economy and did not explicitly put forward the concept of externality, the economic community generally regarded the external economy as the prototype and source of externality.
In 1920, Marshall's disciple Pigou published The Economics of Welfare, which proposed economic externalities on the basis of Marshall's external economy, shifting the study of externalities from the effect of external factors on enterprises to the effects of enterprises or residents on other enterprises or residents (Shen Manhong, He Lingqiao, 2002), marking the formal birth of the theory of economic externalities. Pigou believed that economic externalities would arise as long as marginal private net output and marginal social net output diverged from each other. To paraphrase the terms of marginal costs and marginal benefits, when the cost of marginal private (including individuals and enterprises) is less than the marginal social cost, there will be negative externality, that is, other social entities bear the costs that should be borne by the private individuals themselves, such as the environmental protection standards of the chemical plant that do not meet the standards to cause air pollution to surrounding enterprises and individuals, and the latter cannot get compensation from the chemical plant; when the marginal private benefit is less than the marginal social benefit, There will be positive externality, that is, other social entities enjoy the benefits that should be exclusively enjoyed by private individuals free of charge, such as the spillover of technological innovation achievements of enterprises, so that the technological level of other enterprises can be improved as a whole. To this end, Pigou advocated taxing enterprises whose marginal private costs were less than marginal social costs, and subsidizing enterprises with marginal private benefits less than marginal social benefits. Through this form of taxation and subsidy, the internalization of external effects can be achieved (Xu Guihua and Yang Dinghua, 2004) and the allocation of resources can be as optimal as possible in Pareto. This policy proposition of Pigou came to be known as the Pigouvian Tax. The collection of sewage charges, the introduction of environmental protection taxes, and the subsidies for zero-emission vehicles can all be regarded as Pigou taxes, and theoretical basis can be found from Pigou's economic externalities.
Pigou's views on economic externalities are also questionable, with the biggest challenge coming from Kos. In 1960, Coase published "The Problem of Social Cost" on economic externalities, which pointed out the drawbacks of the Pigou tax. The article uses the example of two farmers to illustrate that in the case of clear property rights, the problem of externalities between two farmers and food farmers can be resolved through voluntary negotiation between two farmers (Coase, 1960). On this basis, economists distilled Coase's argument into Coase Theorem (5). Coase's theorem states that economic externalities are not an inevitable consequence of market mechanisms, but rather that property rights are not clearly defined. As long as property rights are clear, the issue of economic externalities can be resolved through the signing of contracts between the parties or through voluntary consultation. Coase argues that the Pigou tax is not necessarily the best policy solution to economic externalities. With zero transaction costs and clearly defined property rights, the parties to the transaction can achieve optimal resource allocation through voluntary negotiation, and there is no need for the Pigou tax. In the absence of zero transaction costs, the resolution of externalities requires recourse to administrative intervention based on cost and benefit analysis, at which point the Pigou tax may be an efficient institutional arrangement or an inefficient institutional arrangement. If the cost of administrative intervention used is less than the benefit, the Pigou tax is an efficient institutional arrangement to solve the economic externalities, while the Pigou tax is an inefficient or even ineffective institutional arrangement. Of course, Coase's theory of economic externalities also has two obvious shortcomings: (1) The assumption that zero transaction costs are idealized and often do not hold true in the real world. (2) The clear definition of property rights is an important prerequisite for Coase's theorem, but property rights are often unclear in terms of ecological and environmental aspects, in which case it is unrealistic to try to solve the economic externalities of the ecological environment through contract signing or voluntary negotiation.
(II) The enlightening significance of economic externality theory to ESG
The most direct enlightenment of the theory of economic externalities to ESG is that ecological and environmental resources, as a public goods with unclear property rights, cannot be solved entirely by market mechanisms, but need to be intervened and regulated by the government. Intervention and regulation can be either purely administrative, such as the introduction of resource taxes, the collection of sewage or discharge fees, the issuance of emissions or emission allowances, or quasi-market-based, such as the establishment of carbon emissions trading markets. Whether it is purely administrative intervention and control, or quasi-market-oriented intervention and control, it is inseparable from the full disclosure of environmental information by market entities, and ESG reporting is undoubtedly an important policy option to promote enterprises to fully disclose environmental information. The information provided by the ESG report can not only provide a basis for decision-making on administrative intervention and control, but also significantly reduce the transaction costs of administrative intervention and control.
The second implication of the theory of economic externalities for ESG is that ESG reports should not only disclose the negative externalities derived from the business activities of the enterprise, but also the positive externalities generated by the business activities of the enterprise. The two must not be abandoned, otherwise, the optimal allocation of resources will become empty talk. From an economic point of view, the implementation of punitive policies for negative externalities of enterprises can certainly correct the externalities of enterprises in terms of the environment, but the cost of supervision is often very high, and the adoption of incentive policies for positive externalities of enterprises can more effectively guide enterprises to low-carbon development and green transformation, and the cost of supervision is usually insignificant.
The third implication of the economic externality theory for ESG is that the spatial scope of environmental externalities must be clearly defined so that ESG reports can fully and accurately disclose greenhouse gas emission information. In other words, the ESG reporting standards should clarify whether to disclose only the direct greenhouse gas emissions generated by the company's own business activities, or to extend the scope of disclosure to the entire supply chain, covering the direct and indirect greenhouse gas emissions generated by the company's business activities. Limiting greenhouse gas emissions to the scope of the enterprise is easier to operate, less expensive to disclose and easy to verify, but may underestimate the greenhouse gas emissions from the company's business activities. Conversely, extending greenhouse gas emissions to the entire supply chain provides a more accurate reflection of greenhouse gas emissions associated with corporate activities, but is less operational, expensive to disclose, and difficult to verify.
Third, the theory of corporate social responsibility and its enlightenment to ESG
Corporate Social Report (CSR) has a much older history than ESG. Although ESG and CSR differ in concept and focus, there is also overlap and overlap in the two, and the ESG report is heavily influenced by csr responsibility theory. Therefore, this paper regards the theory of corporate social responsibility as the third theoretical pillar supporting ESG.
(1) The genre and core ideas of corporate social responsibility theory
From the perspective of who should be responsible for enterprises and what social responsibilities they should assume, csrcity theory can be roughly divided into two major schools: shareholder supremacy and stakeholder doctrine. Combing through the academic literature of the past few decades, it can be found that shareholder supremacy has undergone a process of prosperity and decline, and after the 1980s, shareholder supremacy has continued to decline, and stakeholderism has risen strongly.
Shareholder supremacy advocates that enterprises should be responsible only to shareholders, and that the only social responsibility of enterprises is to strive to maximize profits or maximize shareholder value. The basic logic of shareholder supremacy is that only shareholders who provide equity capital for the enterprise enjoy the residual control and residual income rights of the enterprise, and have the right to participate in the major business decisions and distribution decisions of the enterprise as the "master" of the enterprise. As a result, the enterprise is not liable to stakeholders other than shareholders. Adolf A. Berle, Olive Hart and Milton Friedman are representative figures of shareholder supremacy. Burr believes that the sole purpose of the existence of the enterprise is to make profits for the shareholders, as the trustee of the shareholders, the management of the enterprise must and can only be responsible to the shareholders, requiring the management of the enterprise to be responsible for other interest groups other than the shareholders, which fundamentally violates the legal basis of the company law, and may lead to the loss of focus of the enterprise, damage the interests of shareholders, and in the long run is not conducive to the promotion of the overall interests of society. Hart mainly argues that shareholder supremacy fits the property rights system arrangement that matches power and obligations from the perspective of property surplus claims and decision-making residual control rights. Friedman was one of the biggest proponents of shareholder supremacism, and in 1970 he published an article in the New York Times titled "Corporate Social Responsibility Is To Increase Profits," which was seen as a pro-shareholder supremacist essay. Friedman pointed out that in the private property and free market system, there is only one social responsibility for enterprises, that is, to use their resources within the framework of social rules (including laws, regulations and ethics) to make as many profits as possible for shareholders. In Friedman's eyes, those who advocate corporate social responsibility are in fact nakedly supporting socialism and damaging the cornerstone of the free market (Shi Donghui, 2018).
The blessing of Michael C. Jensen and William H. Meckling, the representative figures of the Contract School, made shareholder supremacy more academic. Like Coase, Jensen and Maclean agree that contractual relationships are the essence of business. In The Theory of the Enterprise: Management Behavior, Agency Costs, and Ownership Structures, they defined the enterprise as an organization of legal Fictions whose function was to act as a link for a set of contractual relationships between individuals (6) (Jensen and Meckling, 1976). The individual here includes both the owners of various factors of production of the enterprise and the consumers of the output. In their paper, they argue that if the enterprise is regarded as a link in contractual relationships, too much attention should not be paid to whether the enterprise should bear social responsibility, otherwise it will be seriously misleading. Because the enterprise is only a legal fiction, through complex procedures, it promotes the equilibrium of individuals with conflicting goals in the framework of contractual relations. Therefore, Jensen and Maclean argue that in the case of the separation of ownership and operating rights, as the remaining claimant of the company's income and property, the shareholders hire managers as the principal to represent the operation and management of the enterprise, and the responsibility of the enterprise management who plays the role of the agent is to maximize the shareholder value. It can be seen that Jensen and Maclean give shareholder supremacy a new theoretical basis from the perspective of principal-agent relationship.
Shareholder supremacy exacerbated the tense labor relations in western developed countries in the 1980s, granted huge stock options to enterprise management in the name of maximizing shareholder value, further expanded the gap between rich and poor, and the one-sided pursuit of corporate interests and disregard for ecological environmental protection caused severe criticism from the public, leading to deep reflection on shareholder supremacy, and ultimately promoting the rise of stakeholderism. It can be said that stakeholderism arose in a debate with shareholder supremacy. Stakeholderism argues that shareholder supremacist values are too narrow, overemphasize capital wage labor, and fundamentally deny the important contribution of stakeholders other than shareholders, especially human capital, to corporate value creation (7). Stakeholderism insists that, both ethically and sustainably, management should be accountable to other stakeholders in addition to its fiduciary responsibility to shareholders to create value.
The term stakeholder was first coined by the Stanford Institute in 1960, but it was R. Freeman who systematically discussed the theory of stakeholders. Edward Freeman）。 In 1984, Freeman published a high-impact monograph, Strategic Management: The Stakeholder Act, which defines a stakeholder as any group or individual capable of influencing or influencing the achievement of an organization's objectives and its processes (Freeman, 1984), including three categories: owner stakeholders (e.g., shareholders and directors and managers holding shares), economically dependent stakeholders (e.g., employees, creditors, suppliers, consumers, competitors, communities, etc.) and social stakeholders (e.g., government, media, special interest groups, etc.). In 2010, Freeman et al., in their monograph Stakeholder Theory: Recent Developments, reduced stakeholders to two categories: primary and secondary stakeholders (Freeman et al., 2010), as shown in Figure 3.
The freeman and other stakeholder schools believe that the enterprise is a collection of interests of different stakeholders, and the management of the enterprise should take into account the interests of shareholders and other stakeholders at the same time, and should be responsible not only to the shareholders of the main provider of capital, but also to stakeholders such as other element providers and product consumers. Liability to stakeholders other than shareholders should be incorporated into the overall fiduciary responsibilities of corporate management and constitute corporate social responsibility in a broad sense. Fulfilling social responsibility is not only the moral responsibility of the enterprise, but also the inherent need of the enterprise to attract and maintain strategic resources, only the capital investment of shareholders, without the input of other stakeholders and the full support of consumers, it is impossible for enterprises to create value for shareholders in the way of continuous operation.
As government regulation of the environment has strengthened and public attitudes toward shareholder supremacy have changed, stakeholderism has become increasingly mainstream, and the business community has been forced to change its stance and claim support for corporate social responsibility. This can be seen in the Business Roundtable's embrace of shareholder supremacy in 1997 to its shift towards the embrace of stakeholderism in 2019. In its statement, the 1997 Business Roundtable stated that the primary responsibility of corporate management and the board of directors was to serve shareholders and that the interests of other stakeholders were derivative responsibilities. At the August 2019 Business Roundtable, ceminos of more than 200 large companies put their responsibilities to shareholders last in five commitments (creating value for our customers; investing in our employees; dealing with suppliers in a fair and ethical manner; supporting the communities in which we work; and creating long-term value for shareholders), and the attitude shift was intriguing.
Although stakeholderism advocates that enterprises should also assume social responsibility to stakeholders other than shareholders, it does not touch the boundary issue of corporate social responsibility, that is, what specific responsibilities enterprises should bear. Thankfully, the research of other scholars has filled these gaps. On the issue of corporate social responsibility boundaries, some of the more representative views include Archie B. Carroll's 1991 Pyramid of Corporate Social Responsibility theory and John Elkington's Triple Bottom Line theory in 2004. According to the CSR pyramid theory, corporate social responsibility includes four aspects: economic responsibility for profit making; legal responsibility for law-abiding operations; ethical ethical responsibility; and charitable responsibility for charity (Carroll, 1991), as shown in Figure 4.
The triple bottom line represents Profit (profit, i.e., financial performance), People (human capital), and Planet (planet, i.e., ecological environment). Traditionally, the management of enterprises only cares about the bottom line of operating profits, and does not care enough about the two bottom lines of human well-being and planet protection, which is neither ethical nor conducive to the sustainable development of enterprises. Therefore, the triple bottom line theory believes that financial performance, human capital and the ecological environment should all become corporate social responsibilities. Only by focusing on this triple bottom line at the same time can we ensure corporate sustainability (Elkington, 2004).
(2) The enlightenment significance of corporate social responsibility theory to ESG
The theory of corporate social responsibility is of great enlightenment significance to ESG. First of all, the trend of corporate social responsibility has shifted from shareholder supremacy to stakeholderism, which has laid a solid theoretical foundation for the popularization and development of the ESG concept, prompted enterprises to pay more attention to environmental issues, social issues and governance issues, provided a good social atmosphere for the development of ESG reports, and helped enterprises to take into account corporate and social benefits, and strive to become good corporate citizens. Second, the growing prevalence of stakeholderism, which has led to an unprecedented attitude of corporate governance and management to take into account the needs of shareholders and other stakeholders, may lead to changes in the corporate governance structure, and in the future, more members of corporate boards will be from non-shareholder stakeholders, such as employee representatives, environmentalists and consumer protectionists. Finally, the rise of stakeholderism has forced companies to prepare and deliver stakeholder-centric ESG reports in addition to financial reporting to meet the information needs of stakeholders to evaluate whether companies are effectively fulfilling their social responsibilities.
It must be pointed out that the social responsibility emphasized by the theory of corporate social responsibility is a broad concept, which includes both the responsibility that enterprises should bear to society and the contributions made by enterprises to society. Therefore, ESG reports should both disclose corporate social responsibility and reflect the company's social contribution, but the evaluation of the company's social contribution must go beyond the narrow revenue determination model in financial reporting. Traditionally, the operating performance of enterprises is evaluated using the micro income statement formula of "income - cost - wage - interest - tax = profit", which is a revenue determination model with strong shareholder supremacy, which aims to maximize the profit attributable to shareholders, which may sacrifice the interests of other factor providers. The stakeholder-oriented CSR theory requires companies to re-examine their value creation and distribution to society from a more macro perspective. In the article "Decoding Huawei's "Knowledgeism" - Based on the Perspective of Financial Analysis", the author pointed out that the income statement is divided into micro and macro, the former reflects the value created by the enterprise for shareholders, and the latter reflects the value created by the enterprise for the society. By shifting the micro income statement formula, you can derive a macro income statement formula that reflects value creation and value distribution: income - cost = wage expense + interest expense + tax expense + after-tax profit. The left side of the formula, that is, income minus all costs and expenses other than wage expenses, interest expenses and tax expenses, represents the total amount of value created by the enterprise for society in a certain accounting period, and the right side of the formula represents how the total amount of value created by the enterprise for society is distributed among human capital providers, debt capital providers, public service providers, and equity capital providers (Huang Shizhong, 2020). This view is similar to the WEF's four-pillar reporting framework. In the "Create Prosperity" pillar, the WEF requires that the net economic contribution of enterprises be reflected in the ESG report, which is defined as direct and indirect value created and its distribution, such as operating income, operating costs, employee wages and benefits, interest and dividends paid to capital providers, taxes paid to the government less government subsidies.
In short, as a new concept and new method, ESG needs both applied research at the technical level and theoretical construction at the academic level to ensure its sustainable development. The theory of sustainable development, economic externality and corporate social responsibility are in line with the ESG concept of advocating business for good and capital for good, and are the theoretical basis for ESG to draw rich ideological nutrients from it. It is imperative to accelerate the development of a logically consistent conceptual framework for ESG reporting to guide the development and implementation of ESG reporting guidelines. In the long run, it is necessary to absorb new ideas and new thinking from the broad and profound disciplines of economics, sociology, ethics, environmental science and other disciplines, and strive to build a set of theoretical systems suitable for ESG.
exegesis
(1) General Secretary Xi Jinping pointed out in his speech at the seventh meeting of the Central Financial and Economic Commission on April 10, 2020 that man and nature are a community of life, and human beings must respect nature, conform to nature, and protect nature.
(2) General Secretary Xi Jinping pointed out in his speech at the United Nations Biodiversity Summit on September 30, 2020 that the current global rate of species extinction is accelerating, and biodiversity loss and ecosystem degradation pose major risks to human survival and development.
(3) On August 12, 2021, the Information Office of the State Council issued a white paper entitled "Building a Moderately Prosperous Society in An All-round Way: A Brilliant Chapter in the Development of the Chinese Rights Cause", pointing out that China has achieved the poverty reduction goals of the United Nations 2030 Agenda for Sustainable Development 10 years ahead of schedule and made significant contributions to the development of global poverty reduction and human development.
(4) For example, the reason why Shenzhen's electronic information industry leads the country is largely due to its complete electronic information industry chain, thereby greatly reducing the production and operation costs of practitioners. In order to enjoy lower production and operation costs, electronic information enterprises across the country have a stronger willingness to invest in Shenzhen and set up factories, thus forming a virtuous circle. It can be seen that Shenzhen's electronic information industry has an external economy as Marshall said.
(5) Coase himself admits that Coase's theorem was not proposed by him, but was distilled by many economists, especially Nobel laureate in economics Joseph E. Stiglitz, based on coase's "The Problem of Social Costs" and other works.
⑥原文为：a nexus for a set of contracting relationships among individuals.
(7) This problem is particularly prominent in the new economic era. Unlike asset-heavy and financially capital-intensive industrial enterprises, new economy enterprises have the salient characteristics of light assets and smart capital intensive, and human capital plays a far greater role in the value creation of new economy enterprises than financial capital.
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