Sustainable Corporate Governance: The Role of the Law
24 Pages Posted: 2 Nov 2020 Last revised: 28 Jun 2021
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: Suggested Citation