Recently, on a radio show looking at oil company behavior and high gas prices, a senior economist at the American Petroleum Institute, an industry trade association, made the claim that oil companies are regulated not only by their customers, but also by those who hold stock in the companies. True.

The economist went a bit further to say that the federal government need not broaden oversight of oil company practices because those companies are already accountable to the American public, mostly because the American public are shareholders in oil companies. False.

While this oil industry economist’s opinion is a good reminder of the increasing role that sustainable investing and shareholder activism should play in the corporate accountability movement, it is also a reminder that a corporation needs to be accountable to all of its stakeholders, not just the ones who are fortunate enough to own shares of the company. This is particularly true when a business argument cannot be made for improved social responsibility.

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Traditional financial management curicula establish that a corporation’s primary objective is to maximize the value of the firm and, in turn, maximize shareholders’ return. Advocacy groups and the socially responsible investing (SRI) community have nothing against companies that strive to increase earnings — so long as profits aren’t maximized at the expense of local communities, employees, and the environment.

What’s been difficult, though, is making the link between environmental, social and governance (ESG) issues and financial performance. Over the years, dozens of studies have reported on how well corporate citizens perform from a financial standpoint.

My financial textbook, as well as some SRI skeptics, argues that companies that spend resources pursuing “extra-financial” objectives are at an inherent financial disadvantage to their competitors that instead devote those resources to seeking lower cost production, developing new products, and maximizing sales.

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