In Conversation with Prof. Philip Bond

Dr Tom Gosling interviews Prof Philip Bond, Professor of Finance and Business Economics at the University of Washington on his prize-winning, co-authored paper with Prof Doron Levitt, also from the University of Washington, 
'ESG: A Panacea for Market Power?' This paper which won the 2024 ECGI Finance Prize for the Best Paper in the ECGI Finance Working Paper Series, 2023.

The key discussion points are:

• ESG policies along the “S” dimension can be thought of as policies that commit to paying employees above market clearly rates or charging consumers below market clearing rates
   
• ESG policies can have an anti-competitive effect by contracting the labour demand curve, but when firms have market power, moderate ESG policies can have a pro-competitive effect by overcoming the incentive to take advantage of monopsony / monopoly power
   
• For firms that prioritise shareholder value, this creates an incentive to compete on strengthening ESG policies
   
• However, at a certain point there is an incentive for firms to break ranks and abandon ESG policies altogether, creating an “ESG cycle” as the competitive effect goes into reverse
   
• Purposeful firms are ones that are concerned about both profits and the welfare of their direct stakeholders
   
• Purposeful firms naturally have an incentive to adopt stronger ESG policies than shareholder firms
   
• In the presence of market power, the incentive for competing purposeful firms to break ranks does not arise, due to the loss of stakeholder welfare that would arise
   
• Instead competing purposeful firms adopt ESG policies that exactly counteract the anticompetitive effects of market power
   
• The paper provides practical predictions for the development and impact of ESG policies at firms

We hope you enjoy the conversation. For more interviews in this series, visit this page. 

ECGI Conversations is an interview series aimed at uncovering valuable insights, ideas, and perspectives from cutting-edge academic research. 

Hosted by ECGI Executive Fellow, Dr. Tom Gosling, this series delivers engaging discussions with leading experts in the field.

The ECGI Conversation Series is part of the Responsible Capitalism initiative.