The Need for Amendment of Section 172 of the Companies Act 2006 Due to Game Changer ESG: Double Enlightened Shareholder Value Approach for Sustainable and Purposeful Companies

Abstract

The spectacular rise of ESG usage in investment decision-making made public companies’ environmental and social attitudes critical more than ever as their shares are sold and bought in stock exchanges. Even though the enlightened shareholder value approach (ESV) by Section 172 (S172) of the Companies Act 2006 requires directors to pay regard to their decisions’ environmental and social impacts, UK public companies continue to commit environmental and social violations. Besides, the UK relied on soft laws instead of a radical reform that is in demand among UK companies and British community. This dissertation argues that it is time to amend S172 with second enlightenment by integrating the Purposeful Company Model (PCM) that aims to create a sustainable future by requiring companies to have a sustainable purpose, which blocks directors from pursuing shareholder wealth maximisation at the expense of non-shareholders. By the end of the research, the double enlightened shareholder value approach (D-ESV) is proposed with inspiration from PCM and its example in French law, which leads to higher ESG scores for better investment opportunities for UK public companies and a sustainable future for all.

Keywords: ESG, Section 172, Enlightened Shareholder Value, Purposeful Company Model, Colin Mayer, Environmental Social Governance Factors, Better Business Act, French Civil Code Article 1835 Article 1833, UK Companies Act 2006, Double Enlightened Shareholder Value, Sustainability, Sustainable Companies

JEL Classification: K19, K29, K32, K39, Q01, Q28, Q56, Q57, Q58, G11, G14, G18, G3, G31, G32, G38, G39