The Inside Information Regime of the MAR and the Rise of the ESG Era

Abstract

The rise in ESG investing has been characterized as an “investor revolution” and a manifestation of “social change”. The current coronavirus pandemic will arguably intensify the impact of such social change, with the “S” and “G” components of ESG, in particular, having been brought into sharper focus during the crisis. The issue of the extent to which ESG factors are (currently) of considerable importance – and, in particular, are likely to become even more so in the future – for the performance of share prices remains a highly controversial one in financial economics. However, where an empirically substantiated effect of ESG-related information on the prices of financial instruments can be shown, the question of whether such information is also of relevance to the inside information regime of the Market Abuse Regulation (“MAR”) arises and must be answered. This article explores the potential effect of ESG-related information and an increase in ESG-compliant investments on the prohibition on insider dealing and the obligation to publicly disclose inside information. We believe that the ESG preferences of a critical mass of real-life investors and, as a corollary, ESG-related information, are and will continue to be of great importance to the inside information regime. However, the intense debate regarding the precise depiction of the ‘reasonable investor’ within the meaning of Art. 7 MAR indicates that the relevance of ESG-related information to the inside information regime of the MAR is by no means clear. In light of these uncertainties, and given its efforts to promote sustainable finance, the EU legislature would be well advised to further specify the concept of inside information with a particular focus on ESG-related information.

Keywords: ESG, sustainable finance, investor preferences, market abuse regulation, insider dealing, inside information, reasonable investor, materiality

JEL Classification: G30, G32, G41, K22, Q51.