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

Peter Seele and Marc Chesney

Journal of Sustainable Finance & Investment, 2017, vol. 7, issue 2, 139-146

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.

Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/20430795.2016.1238213 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:jsustf:v:7:y:2017:i:2:p:139-146

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/TSFI20

DOI: 10.1080/20430795.2016.1238213

Access Statistics for this article

Journal of Sustainable Finance & Investment is currently edited by Dr Matthew Haigh

More articles in Journal of Sustainable Finance & Investment from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().