ECGI Conversations - Philip Bond

Dr Tom Gosling interviews Prof Philip Bond, Professor of Finance and Business Economics at the University of Washington on his prize-winning, co-authored paper with Prof Doron Levitt, also from the University of Washington, 
'ESG: A Panacea for Market Power?' This paper which won the 2024 ECGI Finance Prize for the Best Paper in the ECGI Finance Working Paper Series, 2023.

The key discussion points are:

• ESG policies along the “S” dimension can be thought of as policies that commit to paying employees above market clearly rates or charging consumers below market clearing rates
   
• ESG policies can have an anti-competitive effect by contracting the labour demand curve, but when firms have market power, moderate ESG policies can have a pro-competitive effect by overcoming the incentive to take advantage of monopsony / monopoly power
   
• For firms that prioritise shareholder value, this creates an incentive to compete on strengthening ESG policies
   
• However, at a certain point there is an incentive for firms to break ranks and abandon ESG policies altogether, creating an “ESG cycle” as the competitive effect goes into reverse
   
• Purposeful firms are ones that are concerned about both profits and the welfare of their direct stakeholders
   
• Purposeful firms naturally have an incentive to adopt stronger ESG policies than shareholder firms
   
• In the presence of market power, the incentive for competing purposeful firms to break ranks does not arise, due to the loss of stakeholder welfare that would arise
   
• Instead competing purposeful firms adopt ESG policies that exactly counteract the anticompetitive effects of market power
   
• The paper provides practical predictions for the development and impact of ESG policies at firms

We hope you enjoy the conversation. For more interviews in this series, visit this page.