Climate Risk is Investment Risk

36 J. Env't Law and Litigation 1 (2021)

38 Pages Posted: 13 May 2021

See all articles by Melissa K. Scanlan

Melissa K. Scanlan

UW-Milwaukee School of Freshwater Sciences; UW Law School

Date Written: May 12, 2021


In January of 2020, BlackRock, the world’s largest asset manage with over seven trillion dollars under management at that time, announced it was placing environmental sustainability at the center of its investment approach because it had concluded that climate risk was investment risk. It warned of a very rapid movement of capital toward “sustainable” businesses. The coronavirus pandemic has intensified the appeal of sustainable investing. There is a push in the United States and the European Union to rethink the purpose of investor-owned corporations in light of the unprecedented need to deeply decarbonize the global economy and meet the Sustainable Development Goals on a very short timeframe. Without making substantive legal reforms, a common ground in this debate appears to be to reduce risks by promoting transparency and accountability. These values are aided by accurate and thorough reporting of a corporation’s environmental and social impacts, which facilitates investors’ ability to manage risk, and can inform broader public policy. Sustainability reporting also serves an internal purpose for boards of directors, alerting them about the effect the business is having on the environment and society, systemic risks, and ability of the company to achieve success in the long term. There is a growing awareness that a well-run company should have long-term plans charting its way toward environmental, social, and economic sustainability: the triple bottom line. One step in the direction of this call for transparency and accountability occurred in 2017 when the EU Non-Financial Reporting Directive became effective. This new law requires EU publicly traded corporations and financial and insurance institutions with more than 500 employees to report on environmental, social, and governance metrics. Strategically increasing access to information holds promise because it moves corporate social responsibility out of the voluntary realm; but early results already indicate areas where the law needs to be improved. This Article will explain how the climate crisis places a new focus on the purpose of the corporation; private governance and voluntary sustainability reporting; and the new mandatory reporting approach in the EU, its limitations and potential reforms, and possible replication in the United States.

Keywords: climate change, investment, ESG, European Union, Non-financial reporting directive, corporate boards, sustainability reporting, Sustainable Development Goals, Paris Agreement, IPCC

JEL Classification: E00, F00, G00, K20, K22

Suggested Citation

Scanlan, Melissa K., Climate Risk is Investment Risk (May 12, 2021). 36 J. Env't Law and Litigation 1 (2021), Available at SSRN:

Melissa K. Scanlan (Contact Author)

UW-Milwaukee School of Freshwater Sciences ( email )

School of Freshwater Sciences
600 E. Greenfield Ave.
Milwaukee, WI 53204
United States

HOME PAGE: http://

UW Law School ( email )

975 Bascom Mall
Madison, WI 53706
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics