The Role of Board Directors in Promoting Environmental Sustainability
Company Law and Sustainability: Legal Barriers and Opportunities, Beate Sjåfjell and Benjamin J. Richardson (eds), Cambridge University Press, 2015
Posted: 22 Sep 2015
Date Written: September 21, 2015
This chapter describes how the role of the board at national and EU level has been developed not primarily through legislative reform but through revisions to corporate governance codes. These codes emphasise the importance of the board in monitoring and in strategic decision making. It is submitted that in fulfilling both of these functions, directors must engage with the question of environmental sustainability. This is the case, not just for companies which adopt a broad pluralistic interpretation of corporate social responsibility but also for those whose focus is on maximising shareholder returns over the long term. There is some evidence that this engagement improves financial performance. In addition, it is clearly an essential component of any effective risk management exercise diminishing the potential for regulatory sanctions and reputational damage to the company. Having set out what the board needs to do in this context, the chapter then examines the evolution of rules on board composition in order to determine whether directors are equipped to carry out this task. Whilst, this is also a matter left to soft law and corporate governance codes, the provisions in this respect have become more detailed and prescriptive. It is argued that this is a positive development in terms of the sustainable agenda. Based on existing empirical research, the new rules on independence, diversity, knowledge and character are likely to lead to the appointment of boards capable and more willing to engage with environmental issues proactively.
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