Those of us who have worked on sustainability issues for some time have witnessed varying levels of engagement among different audiences. Until a few years ago, many—both in academia and in business—were rather skeptical, if not openly resistant, to the topic. More recently, however, there has been a gradual shift, with greater acceptance and, in many cases, even a degree of enthusiasm.
This evolution has been driven, in part, by regulatory progress, particularly within the European Union, by sustained diplomatic efforts (including the Conferences of the Parties, or COP), and by rising awareness across broad segments of society. Notably, this trend is not confined to the developed world, but is observable across a wide range of regions. Such developments are, of course, to be welcomed. New terms are coined, acronyms proliferate, initiatives are launched, and commitments are made. At the same time, however, a degree of confusion persists, alongside emerging signs of fatigue—and, in some cases, even backlash. More problematically, several debates tend to overlap, blurring conceptual boundaries.
To take one example, Germany’s Energiewende strategy—now under renewed scrutiny in light of shifting geopolitical realities—has embodied multiple, and sometimes competing, objectives: decarbonizing energy production, phasing out nuclear power, and maintaining affordability for households. These are all legitimate environmental and social goals, yet they can at times pull in different directions. As a result, it is not always clear what precisely is being debated, where the boundaries of discussion lie, or indeed how much constitutes genuine progress as opposed to greenwashing.
This essay seeks to offer some clarifications, with the aim of providing readers with a clearer framework for understanding the processes currently underway, in what the United Nations has termed the “Decade of Action.” As a professor in a business school, I adopt a business-oriented perspective, grounded in the view that the environmental transition will ultimately take place at the level of companies and citizens. I therefore propose seven key issues related to this transition, which I will examine in turn. While not exhaustive, these issues represent central themes that are likely to remain critical in the years ahead.
7 Key Themes
First, the nature of the firm—what a company fundamentally is. At first glance, this may appear to be an “academic” topic, perhaps not the most appropriate for a publication aimed at public policymakers and business leaders. Yet it is, in fact, a highly concrete issue with significant practical implications.
We may recall Milton Friedman’s well-known provocation: “the social responsibility of business is to increase its profits.” This is clearly a simplified and reductive view, one that presents the firm merely as the property of its shareholders. In contrast, a number of alternative perspectives have emerged. Perhaps the most influential is that of Edward Freeman, who, among others, conceives the firm as a community of stakeholders—various interested parties, among whom shareholders are important, but not the sole point of reference.
While investors may fund the firm, this does not necessarily make them its exclusive owners. This idea aligns with current discussions about corporate purpose—the reason for a firm’s existence beyond profit generation, such as producing goods or providing services that benefit society. The shareholder–stakeholder debate (often framed as “Friedman vs. Freeman”), despite its simplifications, highlights different—yet complementary—ways of understanding the firm. In essence, a company must be profitable and serve its shareholders, while at the same time addressing the interests of key stakeholders. Striking this balance remains a central challenge for managers.
This brings us to the second issue. Our understanding of the nature of the firm directly shapes how we represent it in financial reporting. A shareholder-centered view naturally privileges the income statement as the primary representation of corporate activity. We tend to think of the profit and loss statement as a kind of cascade that ultimately flows into the bottom line, which accrues to shareholders. While this representation may seem intuitive, it is nonetheless somewhat biased, as it implicitly positions the bottom line as the ultimate objective of management—a perspective aligned with shareholder primacy.
An alternative approach is offered by the value-added statement, which details how economic value is created and distributed among different stakeholders: employees, the state, shareholders, and reinvestment. This form of reporting may better reflect the idea that companies contribute to a broader set of actors, not only shareholders, by making visible each party’s share in economic activity. To be clear, the value-added statement is not intended to replace the conventional profit and loss statement, but rather to complement it with a perspective more explicitly oriented toward stakeholders. While not yet standard practice, it has been adopted voluntarily by many firms and is mandatory in Brazil for publicly listed companies.
The third issue may be described as a “war of standards.” At the time of writing, the most widely used framework for sustainability reporting remains the Global Reporting Initiative (GRI). However, it is far from being the only one. Other international frameworks include the Sustainability Accounting Standards Board (SASB) and the European Union’s Corporate Sustainability Reporting Directive (CSRD). Additional initiatives—such as ISO 26000, the UN Global Compact, and various national regulations—further contribute to a dense and evolving landscape. What we observe, therefore, is a growing level of regulation in sustainability, whether through soft law (voluntary frameworks) or binding legislation.
This trend toward increased regulation is not inherently problematic; indeed, it likely reflects progress. The challenge arises when sustainability becomes equated with compliance to a particular standard or framework. This occurs frequently. A company’s leadership may decide to align with a given standard, hire competent advisors, establish a sustainability department, and eventually publish its first report or obtain certification. Yet in many cases, this amounts to little more than compliance. The effort remains external and peripheral, with no substantive changes to the organization’s core operations or business model—and, often, no meaningful reduction in its environmental or social impact.
To be clear, compliance is necessary, as is the role of advisors and specialists. The problem arises when sustainability is reduced to compliance alone. Compliance is necessary—but not sufficient. Companies must go further: understanding sustainability risks, identifying new opportunities, and, where necessary, rethinking their business models. Ultimately, sustainability must be embedded in corporate strategy—something no standard or framework can achieve on behalf of business leaders.
The fifth issue concerns corporate philanthropy. This remains one of the most common ways in which firms seek to contribute to society. Reference is often made to the pioneering example of Andrew Carnegie, the nineteenth-century American industrialist. After selling U.S. Steel, the company he had founded, Carnegie embarked on a second career as a philanthropist, implementing the vision outlined in his essay “The Gospel of Wealth.” Following an initial phase of wealth accumulation, he distributed his fortune according to a structured program, acting with the same discipline that had characterized his business career. Modern parallels can be found in figures such as Bill Gates and Warren Buffett. In these cases, there is a clear distinction between the company—focused on profit generation—and the personal philanthropic activities of its owners. A similar separation is observed in corporate foundations, which operate independently of the firm’s core business.
In recent years, however, this distinction has become less clear. Corporate philanthropy is increasingly aligned with business strategy, with firms seeking synergies between their social initiatives and their commercial interests. For instance, an industrial company may fund a university that trains its future workforce, or support research that enhances its competitive position. This represents a significant shift: it is now the company itself—not individual owners—that undertakes such initiatives, often with an expectation of indirect returns, such as reputational gains or improved stakeholder relations. This development calls for further reflection to ensure that such activities genuinely serve the common good, rather than becoming merely an extension of corporate strategy.
The sixth issue relates to scale. Sustainability challenges are typically large-scale—often global in nature, such as climate change—yet most of our tools and modes of thinking remain focused at the level of the individual firm. While the 17 Sustainable Development Goals (SDGs) are defined and measured at a global level, companies can at best align portions of their activities with selected goals. Many sustainability reports, for example, seek to link corporate initiatives to specific SDGs. Yet these connections often remain conceptual, as firms rarely have the capacity to quantify their actual impact in a rigorous way.
Besides, only a limited number of companies have a sufficiently large or concentrated footprint to generate a measurable systemic impact on their own. In exceptional cases—such as very large firms operating in relatively contained geographic or industrial contexts—it may be easier to assess environmental impact within a defined ecosystem. More commonly, however, there is a substantial gap between the firm level, where business leaders operate and make decisions, and the global level, where policymakers design and measure outcomes.
Finally, there is the relationship between sustainability and financial performance. This is a long and complex debate, and likely the one of greatest interest to a business audience. Some economists have traditionally viewed sustainability and philanthropic activities as a zero-sum game: every euro allocated to such initiatives is one less euro available to shareholders.
Over time, numerous studies have sought to examine the relationship between sustainability and shareholder value. Some have focused on the impact of specific—often negative—events, such as oil spills, on share prices. Others have compared the performance of portfolios constructed on the basis of sustainability criteria with broader market indices. Considerable effort has been devoted to this question. Yet the results remain inconclusive, neither clearly positive nor definitively negative.
A more balanced interpretation suggests that sustainability policies are not necessarily detrimental to shareholder value—but neither do they systematically generate additional returns. In other words, firms can pursue sustainability initiatives without necessarily harming shareholder interests, contrary to Friedman’s concerns, but without any assurance of creating additional value either.
While the studies mentioned above primarily explore correlations, establishing a clear cause-and-effect relationship between sustainability and financial performance remains even more challenging. A clarification is therefore needed. The correlation between sustainability and financial performance is, of course, of particular interest to investors. If such a relationship were consistently positive, it could serve as a useful signal for stock selection.
But, in many cases, it is difficult to determine the direction of causality. We do not know whether a firm is more profitable because it is more sustainable, or whether, being more profitable, it simply has greater capacity to invest in sustainability initiatives. For investors, this distinction is not especially critical, as their primary concern is identifying reliable indicators to guide investment decisions.
For business, however, the question of causality is essential. When deciding whether to adopt sustainability policies, managers must be able to assess whether such initiatives are likely to be economically viable and strategically justified.
The Stakeholder Transformation
In sum, the stakeholder perspective should not be seen as a passing trend or a mere rhetorical shift, but rather as a fundamental transformation in how we understand the firm. In practical terms, this implies a renewed focus on the relationship between the company and its various stakeholders, beyond shareholders alone. Shareholders will, of course, remain important—but it is becoming increasingly difficult, if not impossible, to manage a firm solely in their interest. In this context, revisiting the value-added statement may offer a simple yet powerful tool for better understanding—and potentially accounting for—the tensions and synergies between the firm and its stakeholders.
Furthermore, the growing importance of sustainability reflects both the rising influence of stakeholder expectations and, in some cases, evolving regulatory frameworks. It is becoming increasingly clear that mere compliance with regulations is unlikely to suffice, as stakeholder demands for sustainability often extend beyond legal requirements. At the same time, the causal relationship between sustainability and financial performance remains difficult to establish—particularly in the short term—thereby complicating the economic case for sustainability initiatives.
Moreover, in most instances, it remains challenging to link a firm’s actions directly to global objectives such as the SDGs beyond a largely conceptual level. A more precise understanding of how companies contribute to these goals would likely enhance dialogue with stakeholders and civil society. Finally, the coexistence of multiple sustainability reporting standards—often difficult to compare and continuously evolving—can itself become a source of confusion. Greater clarity, and possibly stronger integration across sustainability standards globally, will therefore be essential.
