Sustainable Corporate Governance: The Role of the Law

24 Pages Posted: 2 Nov 2020 Last revised: 28 Jun 2021

See all articles by Alessio M. Pacces

Alessio M. Pacces

Amsterdam Law School / Amsterdam Business School (ACLE); European Corporate Governance Institute (ECGI)

Date Written: September 30, 2020


The debate on sustainable finance seldom includes the perspective of shareholders. However, shareholders are important for the governance of publicly held corporations today, because their holdings are concentrated in the hands of few institutional investors. Institutional investors can therefore have an impact on the sustainability of the largest companies in the world, as they often claim they do – particularly in communications with their beneficiaries.

Whether institutional investors actually have such an impact is an open question. Recent changes in EU financial regulation will bring more clarity on this matter. For instance, the revised Shareholder Rights Directive requires companies, on a comply-or-explain basis, to disclose voting policies and behaviours concerning sustainability. Moreover, the EU soon will be the first jurisdiction in the word to supply standard definitions of sustainable investment, to be used in institutional investors’ mandatory disclosure to their beneficiaries. This essay discusses whether this legislation can align the incentives of institutional investors to pursue sustainable corporate governance with the prosocial preferences of their beneficiaries.

Keywords: negative externalities, corporate governance, institutional investors, exit v. voice, sustainable finance, investor preferences, disclosure, EU Taxonomy Regulation

JEL Classification: G38, K22, L21, Q56

Suggested Citation

Pacces, Alessio Maria, Sustainable Corporate Governance: The Role of the Law (September 30, 2020). European Corporate Governance Institute - Law Working Paper No. 550/2020, Amsterdam Law School Research Paper No. 2020-66, Amsterdam Center for Law & Economics Working Paper No. 2020-05, Available at SSRN: or

Alessio Maria Pacces (Contact Author)

Amsterdam Law School / Amsterdam Business School (ACLE) ( email )

Roetersstraat 11
Amsterdam, 1018 WB


European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

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