Is profit important in the era of ESG?

Abstract

The article discusses changes in the basic market economy paradigm related to the role of profit in the expansion and competitive selection of enterprises. The “ESG-revolution” affects the behavior of enterprises that allocate available financial resources to produce both private and public goods. Ceteris paribus, an increase of spending in the latter direction reduces the firm’s potential for short-term expansion and, accordingly, the long-term competitive advantage. Due to the effects of information asymmetry and other market failures, this loss can be only partially compensated by using preferential terms of the responsible financing instruments available mainly for the financialized enterprises. To produce such a reimbursement, an idea of integrated profit tax deductions for sustainable development projects is put forward. This approach could play a catalytic role in spreading responsible behavior practices and optimizing the regulatory burden in the field of ESG, and reduce the distortions of the key reproduction role of profits in general.