Myopic Madness: Breaking the Stranglehold of Shareholder Short-Termism to Address Climate Change and Build a Sustainable Economy

Abstract

This paper analyzes the impact of short-term shareholder profit maximization on environmental issues. The obsessive focus on quarterly returns at the expense of long-term investments produces perverse outcomes. These negative outcomes include often discussed economic issues such as increased income inequality and a lack of investment in research and development. Short-termism, however, also drives negative environmental externalities and prevents companies from adequately investing in reducing their environmental footprints. Finding that shorttermism constitutes one of the primary impediments to building a sustainable economy, the author recommends three reforms to corporate and securities law: (1) require all businesses to become social benefit corporations, (2) mandate climate stress testing, and (3) allow new classes of shares that reward long-term investors.