The article ‘Rational Sustainability’ is now published Open Access in the Journal of Applied Corporate Finance, by Professor Alex Edmans.
Edmans proposes an evolution of ESG which has unfortunately become politicised, seen as only for “ESG folks”, and reduced to box-ticking.
He explains, ‘Sustainability refers to the goal – the creation of long-term value rather than the ticking of ESG boxes – which is of interest to all job titles and political leanings. Rational refers to the approach: it recognizes diminishing returns and trade-offs; it is based on evidence and analysis; and guards against irrational sustainability bubbles. Rational Sustainability is not a rebranding or a name change, but a fundamental shift in the practice of ESG to the informed creation of long-term value.’
Rational sustainability can also be explained as the strategic integration of sustainable practices within a business or organization in a way that is both practical and economically beneficial. Unlike symbolic or purely altruistic approaches, rational sustainability is driven by the understanding that sustainable actions can enhance financial performance, improve operational efficiency, and build a stronger social license to operate.
It emphasizes the alignment of sustainability initiatives with core business goals, ensuring that these initiatives provide tangible value, such as cost savings, risk mitigation, and long-term growth, rather than being seen as mere corporate responsibility or branding exercises.
Alex Edmans is Professor of Finance at London Business School. Alex has a PhD from MIT as a Fulbright Scholar, and was previously a tenured professor at Wharton and an investment banker at Morgan Stanley.
