Threshold concepts and ESG performance: teaching accounting students reconceptualized fundamentals to drive future ESG advocacy

ABSTRACT

Whether corporations voluntarily reduce their negative impacts on the environment and society depends upon management advocacy. As future corporate leaders, accounting students will have a critical advocacy role, but they have been taught that shareholder value should not be sacrificed to reduce the externalized environmental and social costs caused by corporations. We believe accounting students are unable to break through the shareholder value maximization doctrine without understanding threshold concepts of corporate externalized costs and revised conceptualizations of corporate ownership and corporate governance. This paper proposes a new Environmental, Social, and Governance (ESG) Learning Model that accounting instructors can employ to understand the threshold concepts. Threshold concepts are reconstitutive and fundamentally change students’ worldviews so that new understandings may emerge and advocating for ESG initiatives becomes possible. The paper concludes with instructional strategies aligned with three pedagogical modalities to help students absorb the ESG threshold concepts.

KEYWORDS:

• ESG
• shareholder value maximization
• externalized costs
• corporate governance
• corporate ownership
• threshold concepts
• pedagogical modalities

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 A Principles for Responsible Investing report estimated that the externalized environmental costs caused by the world’s largest 3,000 corporations in 2008 was $2.2 trillion; equivalent to seven per cent of their revenues (Trucost, 2011).

2 https://unfccc.int/news/climate-commitments-not-on-track-to-meet-paris-agreement-goals-as-ndc-synthesis-report-is-published.

3 http://hdr.undp.org/en/content/human-development-index-hdi.

4 https://financialpost.com/commodities/energy/ex-blackrock-executive-on-larry-fink-greta-thunberg-and-why-esg-wont-save-us.

5 Note that this definition of corporate ESG is becoming accepted in the field of accounting (e.g., Bénabou & Tirole, 2010; Huang & Watson, 2015; Moser & Martin, 2012; O’Dwyer & Unerman, 2020; Unerman et al., 2018).

6 Most American corporations are incorporated in Delaware, which many argue is the most favorable to shareholder interests.

7 General Motors’ (GM) battle with activist investors illustrates this principle. In 2015, GM had $25 bn in cash prompting four activist hedge fund owners, representing 2.1 per cent of its shares, to ask for an $8 bn share buyback to boost GM’s share price. Still restructuring its operations after the financial crises that lead GM to declare bankruptcy in 2009, GM’s board and Mary Barra, GM’s CEO, balked at the activists’ demands. They argued that the $8 bn in cash was needed to develop new vehicles and refresh its current line-up of vehicles: improvements that were necessary if GM was to remain competitive (Lazonick & Hopkins, 2015).

8 Threshold concepts have been identified in other business disciplines, such as responsibility in management (Hibbert & Cunliffe, 2015), situational and shared leadership (Yip & Raelin, 2011), how doing work differs from managing work (Donovan, 2017), and strategy implementation (Lindsay et al., 2018).

9 https://www.globalreporting.org/.

10 https://bcorporation.net/about-b-lab.

11 https://www.climatebonds.net/.

12 https://www.oecd.org/tax/beps/beps-actions/.

13 https://www.epa.gov/toxics-release-inventory-tri-program/tri-data-and-tools.

14 We wish to thank the Associate Editor for suggesting this avenue of research.