For kindred spirits, corporate social responsibility (CSR) champions seldom look to the Chamber of Commerce. But in the case of worrisome trends in the capital markets, the two find much in common — high anxiety over the effects of short-termism on longterm competitiveness, engineered quarterly earnings to meet analysts’ expectations, and the sacrifice of long-term wealth creation in terms of human, natural and technological capital in favor of near-term profit maximization.
This paper explores why and how capital markets undermine CSR, and what is being done, and should be done, to enlarge the pool of “patient capital.” To be sure, CSR is by no means the only victim of impatient capital. A group of senior executives and trustees of large UK institutional investors, collectively known as the Marathon Club, recently lamented the injurious effects of market short-termism. They cite too many investment decisions based on outcomes that cannot be reliably forecast, allocation of capital to value-destroying projects to meet near-term earnings expectations, and valuation of companies that fail to incorporate intangibles, which are powerful drivers of long-term value. “It is not enough to secure an individual’s pension and then fail to consider our collective impact on the factors affecting the quality of that pensioner’s retirement.”
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