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Toxic sustainable companies: a critique on the shortcomings of current corporate sustainability ratings and a definition of ‘financial toxicity’

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  • Peter Seele
  • Marc Chesney

Abstract

Building on critical literature on corporate sustainability, we add a perspective thus far only scarcely addressed: the toxicity of financial practices and products generating systemic risk. We start with illustrative examples setting the stage for defining toxic assets and practices as revealed after the onset of the financial crisis precipitated by the collapse of Lehman Brothers. To illustrate corporate toxicity we use the ‘Global 100 Index’ from ‘Corporate Knights’ to show which (mostly financial) scandals or bailout cases were detected at corporations awarded a position in this prestigious sustainability rating. Next, we present examples of toxic products (Naked Credit Default Swaps and structured products) and practices (securitization and ratings). Based on the examples we derive the concept of ‘financial toxicity’ adopted from pharmacology as a meta-criterion, which, as we argue, should be added to the ESG (environment, society, governance) universe as well as to corporate social responsibility and Corporate Sustainability. We define financial toxicity as ‘the degree to which financial products can systematically harm their buyers and, on a large scale, the extent to which these products or financial practices generate systemic risk’. We discuss implications for theory development and the overall credibility of corporate sustainability ratings.

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  • Peter Seele & Marc Chesney, 2017. "Toxic sustainable companies: a critique on the shortcomings of current corporate sustainability ratings and a definition of ‘financial toxicity’," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 7(2), pages 139-146, April.
  • Handle: RePEc:taf:jsustf:v:7:y:2017:i:2:p:139-146
    DOI: 10.1080/20430795.2016.1238213
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    References listed on IDEAS

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    1. Yves Gendron, 2013. "Learning from mistakes: can the Global Financial Crisis translate into social progress?," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 3(4), pages 333-343, October.
    2. Steve Waygood, 2011. "How do the capital markets undermine sustainable development? What can be done to correct this?," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 1(1), pages 81-87, February.
    3. Sarah Adams & Roger Simnett, 2011. "Integrated Reporting: An Opportunity for Australia's Not-for-Profit Sector," Australian Accounting Review, CPA Australia, vol. 21(3), pages 292-301, September.
    4. Olaf Weber, 2014. "The financial sector's impact on sustainable development," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 4(1), pages 1-8, January.
    5. Ole Alexander Jensen & Peter Seele, 2013. "An analysis of sovereign wealth and pension funds' ethical investment guidelines and their commitment thereto," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 3(3), pages 264-282, July.
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