BYU Law Review
Abstract
In times of heightened environmental consciousness and a global call for urgent action, corporations are playing a critical role in addressing pressing environmental challenges. As concerns about climate change, resource depletion, and ecosystem degradation intensify, businesses are under mounting pressure to align their strategies with sustainable practices. Despite that, there is strong evidence of underinvestment in sustainability and environmental efforts by corporations. In this Article, we first define the eco-agency problem—the special conflict of interest between the corporate officers who focus on short-term profitability and the other stakeholders who seek long-term profitability and sustainability—and then discuss existing coping measures, such as green bonds, CoCo bonds, and ESG compensation metrics. To assess the extent of the eco-agency problem, we conducted an experimental study of both professional and nonprofessional investors. According to our findings, both groups exhibit statistically significant preferences for sustainable investments. Revealing the preferences of investors toward sustainability can inspire corporate officers to embrace their role as sustainability advocates, encouraging them to align their decisions with investor preferences and drive positive change both within their organizations and across industries. To mitigate the eco-agency problem, we claim, on the basis of our study, that a unique environmental disclosure is required. By embracing transparency as a strategic advantage, corporations can transcend traditional reporting boundaries, heralding a new era in which investors implement their ecological preferences in the capital market pricing mechanism.
Rights
© 2024 Brigham Young University Law Review
Recommended Citation
Moran Ofir and Tal Elmakiess,
The Eco-Agency Problem and Sustainable Investment,
49 BYU L. Rev.
1675
(2024).
Available at: https://digitalcommons.law.byu.edu/lawreview/vol49/iss6/8