Shareholder Voting Must Account for Systemic Risk

The most recent ECGI Blog featured a post from TSC CEO Rick Alexander arguing that investor decisions must evolve to account for systemic risks like climate change, inequality, and the erosion of democratic norms. These risks may not show up on a firm’s balance sheet, but they threaten the long-term performance of investor portfolios.

The piece shows how the tension between company value and systemic impact can create a kind of market deadlock: many companies can expand their margins by externalizing social and environmental costs, and executives are often rewarded for doing so. These rewards reinforce strategies that are rational at the company level, but catastrophic from a systemic perspective; current market structures create a dead-end equilibrium that undermines long-term value creation and leaves nearly everyone worse off–a classic prisoner’s dilemma.

Read the full post here.