Focuses on firms’ development of a strategies to create and deliver value in the short as well as the long term, minimize or mitigate systemic risks and negative externalities as relevant, and avoid controversial business practices.
Economic sustainability (and sustainable business practices in general) inherently involves a long-term perspective, in particular accounting for positive and negative externalities. While there is no general agreement about what constitutes ‘long-term’, in finance it is generally taken to be five years; however in terms of sustainability parameters it is generally perceived as substantially longer, ten to twenty years at a minimum. Long-term return or value creation is not the same as maximizing shareholder return. Maximizing sustainable shareholder value means creating and maintaining a sustainable firm (high quality products and services; loyal customers; robust financial and operational planning and the like). A sustainable business model needs to take these factors into account. It implies that sustainable long term value needs to optimize value rather than maximize it. Optimization involves the balancing of value-adding factors.
Long-term value creation and maintenance requires (at least) three forms of capital: financial, human, and natural. Attempts to maximize financial value can minimize (or at worst destroy) the other two forms of capital. Optimizing for all three is a different task entirely, and is a prerequisite for the long-term sustainability of the firm’s ability to create long-term value and returns.