Equator Principles: Bridging the Gap between Economics and Ethics?

• Published date: 01 June 2015
• Author: Manuel Wörsdörfer
• DOI: http://doi.org/10.1111/basr.12054
• Date: 01 June 2015

Equator Principles: Bridging

the Gap between Economics

and Ethics?

MANUEL WÖRSDÖRFER

ABSTRACT

The hypothetical conflict between self-interest, corporate

interest, and the common good is one of the hottest

debated issues in business ethics. This article focuses on

a particular corporate social responsibility approach

within the field of sustainable (project) finance, which

has the potential—given that certain reform measures

are adopted—to overcome the alleged trade-off between

self-interest and the common good. The approach is

labeled as the Equator Principles (EPs) framework, which

celebrated its tenth anniversary and the formal launch of

the third generation of the EPs (EP III) in 2013. The

article shows how companies can theoretically be both

profitable and socio-environmentally responsible by

adhering to the EPs. The article proceeds as follows:

Before moving on to the EPs, section 2 defines the key

terms self-interest and common good. Section 3 then

analyzes the EPs from a business ethics perspective.

Section 4 shows how the EPs can help in solving the

Manuel Wörsdörfer is a Postdoctoral Research Assistant of the Cluster of Excellence ‘The

Formation of Normative Orders’, Goethe-University Frankfurt, Theodor-W.-Adorno-Platz 4,

60629 Frankfurt am Main/Germany. E-mail: woersdoerfer@wiwi.uni-frankfurt.de.

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Business and Society Review 120:2 205–243

© 2015 Center for Business Ethics at Bentley University. Published by Wiley Periodicals, Inc.,

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potential trade-off between self-interest and the common

good—provided that the EPs are substantially revised.

These required reform steps are discussed in section 5.

The article ends with a summary of the main findings.

INTRODUCTION

The hypothetical conflicts between individual self-interest,

corporate interest, and the common good are among the

hottest debated issues in business ethics, environmental

ethics, ecological economics, and social economics. Examples

concerning planet earth ecology include air and water pollution,

overfishing, the clearing of rain forest for agriculture, animal habit

destruction, overexploitation of natural resources, carbon emis-

sions and the burning of fossil fuels, the overuse of nonrenewable

energy resources, and consequential global warming. Trade-off

examples taken from the economic realm include privilege- and

rent-seeking; lobbyism of special interest groups; corruption;

gambling or speculation on the stock exchange; insider dealings;

market manipulation; greed, avarice, and other forms of morally

dubious behavior; near-sightedness of management and “thinking

in quarterly periods”; and short-term oriented incentives and

bonus payment systems.

The examples illustrate the potential clash between individual

self-interest, corporate (self-)interest, and the common good as

well as the prisoner’s dilemma-like situations that might occur in

several contexts: Individual, corporate, and public interests may

conflict, so may short-term and long-term oriented perspectives.

In particular, the mentioned phenomena show how individual and

corporate self-interest may be at odds with the broader and

long-term interests of legitimate stakeholders such as customers,

suppliers, employees, local communities, civil society organiza-

tions, and the general public. In addition, the examples men-

tioned above illustrate how the rational pursuit of self-interest

may lead to collectively self-defeating results, hence, the term

rationality trap or social dilemma. Hardin (1968) summarized

these phenomena under the heading tragedy of the commons—

given their lack of economic, social, and environmental

sustainability.

206 BUSINESS AND SOCIETY REVIEW

Some commentators claim that self-interest has gained the

upper hand in recent times, that there is a tendency away from

the common good towards self-interest and egoism, and that a

primacy of self-interest in the current ‘neoliberal’ regime prevails.

This article does not deal with these questions in particular, nor

does it deal with the question whether we are living in an era of

self-interest, in a self-society, or within a “Homo oeconomicus”

regime. The article, therefore, does not approach the topics of

self-interest and the common good from a “neoliberal”–critical

perspective. Nor does it condemn the pursuit of self-interest per

se. Instead, the article focuses on a particular corporate social

responsibility (CSR) approach within the field of sustainable

(project) finance, which has the potential—given that certain

reform measures are adopted—to overcome the alleged trade-offs

between self-interest, corporate interest, and the common good.

The approach, which is at the core of this article, is labeled as

the Equator Principles (EPs) framework, which celebrated its

tenth anniversary and the formal launch of the third generation

of the EPs (EP III) in June 2013. The aim of the article is to

analyze the strengths and weaknesses of the EPs; their potential

in terms of bridging the gap between self-interest and the

common good is shown as well as the current de facto gap

between theory and practice, that is, the problems of noncom-

pliance and practical failure (e.g., in the sense of financing “dirty

projects” or “dodgy deals”). The article, in particular, critically

evaluates the EPs’ potential with regard to environmental stew-

ardship and the protection of human rights. The article also

offers politico-economic recommendations and suggests reform

measures that should be adopted in order to bridge the gap

between ethics and economics.

The remainder of the article is structured as follows: Before

moving on to the EPs themselves, section 2 defines the terms

self-interest, corporate interest, and the common good by distin-

guishing between (individual/corporate) self-interest, greed, and

egoism as well as between the common good, benevolence, and

altruism. Section 3 then analyzes the key characteristics of the

EPs. Section 4 shows how the EPs can help in solving the poten-

tial trade-off between self-interest and the common good—given

that necessary reform steps are implemented. These reform

measures that could help in overcoming the main institutional

207MANUEL WÖRSDÖRFER