Sustainable Corporate Finance

Question 1

What is sustainable corporate finance?

Answer 1

• multi attribute approach in which financial, social and environmental elements are interrelated and integrated, with an explicit connection between present and future generations

Question 2

Describe traditional finance?

Answer 2

• owners are stockholders
• goal is maximise shareholder wealth
• actors are home economicus (purely self interested )
• no consideration to social or environmental factors
• Utilitarian - only focus is on maximising utility

Question 3

What are the pros and cons of traditional finance?

Answer 3

Pros
- enhances operational efficiency and theoretical simplicity

Con
- oversimplifies human behaviour

Question 4

Describe sustainable finance

Answer 4

• extends goal of corporation to include social and environmental factors
• company has moral responsibility
• adopts more realistic human nature (moral economic man)
• owners are shareholders as well as multi stakeholders
• put emphasis on ethics and morals

Question 5

What are the pros and cons of sustainable finance?

Answer 5

Pro
- encourages empirical approach which deducts normative human and economic guidelines

Con
- complicates financial modelling

Question 6

Describe the evidence on performance and sustainable finance?

Answer 6

• studies are conflicting
• some show positive relationship, other a negative relationship and some no relationship