Governance of Sustainable Development: Co-Evolution of Corporate and Political Strategies

The article proposes a policy framework for analysing corporate governance toward sustainable development. The aim is to set up a framework for analysing market evolution toward sustainability. In the first section, the paper briefly refers to recent theories about both market and government failures where some scepticism about setting the framework conditions for market actors becomes visible. For this reason, multi-layered governance structures seem advantageous if new solutions are to be developed in policy areas concerned with longterm change and stepwise internalisation of externalities. The paper introduces the principle of regulated self-regulation. With regard to corporate actors’ interests it presents recent insights from theories about the knowledge-based firm where the creation of new knowledge follows from absorbing societal views. This is why some scope for an endogenous internalisation of externalities emerges, which leads to a variety of quite different corporate strategies. Because governance ought to set incentives for quite a diverse set of actors in their daily operations, the paper finally discusses innovation-inducing regulation. In both areas, regulated self-regulation and innovation inducing regulation, corporate and political governance co-evolve. The paper concludes that these co-evolutionary mechanisms may assume some of the stabilising and orientating functions, which have previously been exercised by framing activities of the state. In such a view, the governments’ main function is to facilitate learning processes, thus departing from the states’ function as known from welfare economics.