Various kinds of sustainable finance have grown rapidly after the 2015 Paris Agreement. But whether this allegedly “sustainable” way of investing can actually fulfill the crucial task of facilitating the mitigation of climate change depends very much on the concrete business schemes and investment practices that are adopted. This chapter conceptualizes ESG (environmental, social, and governance) as the infrastructure that underpins “sustainable” investing. It argues that ESG constitutes a particular set of market devices – data, ratings, and indices – that define the logic, structure, and outcomes of sustainable investing. Having historically emerged as market-driven private standards for governing how to invest “sustainably,” ESG investing was, as this chapter demonstrates, guided by the ways in which a small set of private actors defines its infrastructural arrangements. Consequently, a preference for a market-friendly and one-sided conception of sustainability exclusively focused on risks to investors’ portfolios (“single materiality”) was implemented by the actors that defined de facto standards. This setup of ESG creates what can be called an “infrastructural lock-in,” whereby this particular conception of “sustainable” investing – which is not utilizing all available transmission mechanisms to actively advance sustainability – becomes the baseline and the common standard for “sustainable” finance.

In the aftermath of the Supreme Court’s decision in Dobbs v. Jackson Women’s Health Organization, several corporations signaled their support for reproductive rights by announcing expanded abortion care coverage and/or travel stipends for employees who are forced to travel out of state to receive care, including abortion care. While such moves may be celebrated and recognized as a commitment to pro-choice politics, these decisions require scrutiny and suspicion. This article details why.

Part I of this paper will discuss the corporate response to Dobbs. It will discuss the type of benefits that corporations offered, and the class of employees these benefits were offered to (for instance, “independent contractors” were mostly excluded from availing of these benefits). Part II will discuss the movement for reproductive rights, some of the harms it reinforced, and the criticisms it received from the Reproductive Justice movement. Against this backdrop, Part III will discuss the possible intentions behind corporations conferring these benefits, including those related to staff retention, microeconomic logics, and DEI efforts. It will review them against large corporations’ histories of (not) providing reproductive supports, including a living wage, paid leave, sick leave, and childcare. It will also analyze some of the evidence in the public sphere that shows the roles some of these large corporations have played in supporting antiabortion agendas and politicians. Part IV will discuss the long-term harms that this new crop of workplace policies and benefits might create. Mainly, it will discuss how the provision of abortion care without other reproductive supports reemphasizes a reproductive rights approach despite its criticisms, which were highlighted by the Reproductive Justice movement. For instance, this section will discuss the expanding role corporations are assuming in providing healthcare, and how that may lead to the exclusion of certain historically marginalized classes of workers and people. It will also discuss the impact of these policies on the deprioritization of certain types of care, which have been overlooked for decades, including gender-affirming care and fertility treatments. Part V will suggest a few steps corporations can take to mitigate the harm created by Dobbs.

We introduce a novel sustainable capital instrument: the skin-in-the-game bond. With features inspired by contingent convertibles (CoCos), this bond is an alternative for the green, social, sustainability and sustainability-linked bonds available on the market. A skin-in-the-game bond is linked to the performance of a benchmark that relates to the broad concept of sustainability in at least one of its pillars, being the environment (E), society (S) or corporate governance (G). When the benchmark hits a preset trigger level, (part of) the bond’s face value is withheld and directed into a government-controlled fund by the issuer. The skin-in-the-game bond offers a higher yield to investors than a standard corporate bond, in order to compensate for the risk of losing out on (part of) the investment. Both issuer and investor have skin-in-the-game; the embedded financial penalty incentivizes the preservation of a favourable benchmark value. In this work, we elaborate on the general concept of a skin-in-the-game bond, as well as on a tailored valuation model, illustrated by two examples: the ESG and nuclear skin-in-the-game bonds.

Chapter 22 analyzes whether and to what extent sustainability can be integrated into EU fit and proper testing for members of the management body of banks, insurers and investment companies. It concludes that (prospective) members should indeed have sufficient knowledge, skills and expertise in sustainability, both as a collective and individually. The extent to which this knowledge is required depends on the institution and the specific role and responsibilities of the director. However, every director must have basic sustainability knowledge and expertise to adequately perform his or her role. It is argued that EU supervisors, including the ECB, should use the fit and proper test, or at least engage in serious dialogue with financial institutions, to ensure that there is sufficient ESG expertise in the management body. This is well within their mandate since core prudential values such as the solidity of the institution and stability of the financial sector may be at stake. To ensure a level playing field within the EU, it is recommended that EU regulators set out more specific requirements regarding ESG expertise in Level 1 or 2 legislation. This would also provide greater legal certainty for financial institutions and (proposed) members of the management body.

In this chapter, I analyse the main trade-offs between the economic value of the firm and its social value, exploring how they are solved through corporate governance and regulatory constraints. To begin with, I show how firms generate social value while also increasing their long-term value under the enlightened shareholder value approach. Thanks to organizational and technological innovation, firms are led to change their business models and organization to enhance environmental and social sustainability and increase long-term profitability. In addition, managers promote their firms’ sustainability in compliance with ethical standards which are part of corporate culture. In similar situations, generating social value may determine pure costs to the enterprise. I argue therefore that the perspective of instrumental stakeholderism appears too narrow, for situations exist where non-economic values are also relevant to the firm. The importance of ethics is especially underlined by CSR and stakeholder theory. Moreover, management studies emphasize the role of corporate governance and organizational theory in the promotion of social value. The board of directors should identify the ethical and cultural values of the firm and monitor their application at all levels. In addition, organizational purpose plays a fundamental role for the ‘intrinsic’ motivation of people in corporations. The international soft law on corporate due diligence further contributes to the design of corporate purpose and to the motivation of managers and employees. Once corporate due diligence is recognized by European hard law through the proposed Directive, specific obligations will arise for companies which will impact their governance and could become a source of civil liability. As a result, the corporate purpose orientation to sustainability will be reinforced by the regulation of environmental and human rights externalities and by the due diligence obligations deriving from it.

Toward Sustainability and Responsible Organizations addresses the purpose of business and social and environmental sustainability in the complex context of working across boundaries. State capitalism, shareholder capitalism, and stakeholder capitalism are compared. The chronological development of the concepts of sustainability and corporate responsibility is presented. Major corporate sustainability frameworks are identified. The United Nations’ 17 SDG’s, the Global Reporting Initiative, and the sustainable value framework are discussed. The relationship between ESG and financial performance is addressed. Involving and communicating with internal and external stakeholders are important aspects of navigating paradoxes associated with sustainable transformation. The common stakeholder–shareholder paradoxical tension that exists in sustainability management is discussed with an example.

Shareholder engagement is pivotal in corporate governance, evolving beyond formal resolutions to impact business decisions. This chapter unveils the typically undisclosed dynamics of board-shareholder engagement through a survey of 171 SEC-registered corporations, targeting corporate secretaries, general counsel, and investor relations officers. The survey was complemented by a review of the disclosure on shareholder voting and engagement included in proxy statements filed by Russell 3000 companies during the 2018–2022 meeting seasons. Larger and mid-sized companies more frequently engage than smaller organizations. Engagement, often with major asset managers, can take a confrontational turn, particularly with hedge funds at smaller firms. Topics include executive incentive plans, ESG metrics, GHG emission reduction, workforce diversity, pay equity, and political spending. The study reveals that engagement significantly influences corporate practices, leading to changes, withdrawal of proposals, alterations in proxy votes, and the inclusion of engaged shareholder-nominated directors in management slates.

Capital market, regulatory and technological developments have created investor appetite and capacity for engagement with public companies. Our paper explores key engagement mechanisms and techniques employed by public company shareholders. First, shareholder-company engagement is a multi-dimensional, evolving phenomenon. Shareholders use a range of techniques including shareholder meetings, behind-the-scenes interactions, public campaigns, and online technologies. Second, shareholders mix and match different engagement techniques to leverage governance influence. Third, shareholders increasingly undertake their engagement activities collectively, highlighting growing capacity to overcome traditional collective action challenges. Finally, the shareholder meeting remains an important engagement mechanism. Its formal, in-person and public nature sets it apart from other mechanisms and gives it unique potential as a forum for scrutiny and accountability. Although low attendance rates indicate that shareholders do not routinely utilise the meeting to maximum effect, it is better conceived as having contingent significance because its potential as an accountability mechanism can prove critical when a company experiences serious governance problems.

Corporate governance debates have undergone a fundamental shift, with environmental,social and governance (“ESG”) issues coming to the forefront of decision-making by boards, executives and shareholders. Across a spectrum ofstakeholders, companies and their boards face pressure to incorporate ESG considerations into their business strategies, including strategies around merger and acquisition (“M&A”) transactions. This chapter addresses how the growth of ESG is poised to affect board and shareholder engagement in M&A. For boards evaluating M&A deals, ESG factors are emerging as critical to all aspects of dealmaking, including selection of targets and buyers, due diligence, governance and integration, and financing. The ESG pressures on M&A deals also influence corporate governance in M&A – implicating board strategy and oversight in M&A, as well as shareholder engagement in M&A. In an ideal world, ESG information can help enhance board and shareholder decision-making around M&A. Yet, whether ESG considerations are likely to do so remains uncertain.

In the last few years, there has been a dramatic increase in shareholder engagement on environmental and social issues. In some cases shareholders are pushing companies to take actions that may reduce market value. It is hard to understand this behavior using the dominant corporate governance paradigm based on shareholder value maximization. We explain how jurisprudence has sustained this criterion in spite of its economic weaknesses. To overcome these weaknesses we propose the criterion of shareholder welfare maximization and argue that it can better explain observed behavior. Finally, we outline how shareholder welfare maximization can be implemented in practice.

Ownership structure changes, like capital concentration in funds, theoretically shouldn’t alter passive incentives, given fee competition and single-company engagement costs. Free rider problems also contribute to passivity. Despite these, recent factors boosting involvement include: (i) the influence of major investment funds, (ii) growing use of proxy advisors by institutional investors, (iii) political pressure and stewardship considerations, and (iv) collaboration, especially among hedge funds. ESG investing could be a game changer due to millennial demand, systemic risk reduction, and fee opportunities. This prompts institutional investors to shift from passive to active engagement, fostering collaboration. New collaboration forms include: (i) among major funds, (ii) between hedge and ESG funds (wolf pack activism), (iii) among non-activist institutional investors, and (iv) on new platforms like Climate Action100+ and PRI. Legal risks and obstacles, such as acting in concert, insider trading rules, and antitrust laws, are explored, with suggestions to enhance collaboration opportunities and ways of bolstering opportunities for collaboration.

In the United States, institutional investors, such as BlackRock, Vanguard, and State Street, have been instrumental in advancing ESG and related stakeholder concerns. Through open letters and active engagement, these investors have outlined their expectations regarding ESG practices, while providing guidance on disclosure practices that ensure corporations appropriately address ESG. Institutional investors also have utilized the shareholder proposal process to encourage corporations to address critical ESG concerns. Nonetheless, critics argue that linking ESG and stakeholder interests to investors’ profit motives may hinder progress, limiting any focus on ESG solely to issues that can be linked to measurable economic benefits. This chapter offers a more optimistic perspective. It argues that shareholders have been strong advocates for stakeholders, moving the needle around several critical ESG issues including disclosure, board oversight, and increased corporate commitment to specific ESG goals. This chapter further argues that shareholders may be best positioned to ensure that corporations maintain a long-term focus on ESG and other stakeholders. Thus, rather than hindering progress, this chapter posits that the connection between ESG and financial returns may enhance corporate focus on ESG.

In recent years, shareholder driven climate activism has focused attention on “universal owners and managers” – asset owners and managers with significant stakes in all or nearly all public companies. Advocates push these asset managers to prioritize enhancing overall portfolio value over maximizing individual company value, promoting "systemic stewardship" even when it involves sacrificing individual firm value for the benefit of the overall portfolio. This chapter assesses whether universal owners can and should pursue such a strategy. Our analysis is pessimistic for three main reasons. First, inducing individual portfolio firms to reduce their carbon output to address environmental concerns may trigger a competitive response that will reduce gains for other portfolio companies. Second, current corporate law has a "single firm focus" that conflicts with the potential "multi-firm focus" of large portfolio investors and exposes corporate fiduciaries to potential liability if they sacrifice firm value for the benefit of investors’ other holdings. Third, universal owners, managing diverse portfolios for various clients, face conflicts with fiduciary duties and their multi-client business model when implementing a tradeoff strategy. Given these challenges, systemic stewardship strategies that entail substantial tradeoffs are unlikely to have any significant impact on mitigating climate change.

This introductory chapter provides the reader with data on institutional investors’ role in the governance of listed companies in the US and Europe. Drawing from various databases, we sketch out the phenomenon of share ownership reconcentration in the hands of institutional investors across jurisdictions, tracking the nationality and ownership of the largest asset managers and draw some implications therefrom. In particular, we look into whether divergence in ownership patterns (the presence vs absence of a controlling shareholder) and the identity and characteristics of asset managers may lead to divergence in the incentives structure for, and the focus of, shareholder engagement on the two sides of the Atlantic. Finally, we provide the reader with a roadmap of the book contents.

In critiquing Prosperity, Paul Davies raises five objections. These are: (a) inclusion of social objectives in mandatory business purpose statements; (b) the assertion that the envisaged adoption of purpose statements is “embarrassingly simple”; (c) use of the law to shield directors from adverse reactions from their shareholders; (d) the entity and managerial conception of the company; and (e) regulatory or court approval of corporate purposes. These objections are contrary to what Prosperity is advocating – a strengthening not weakening of board accountability to shareholders; a proprietary not entity view in which firm objectives are aligned with, not divergent from, those of shareholders; and freedom of choice and plurality of purposes unconstrained by regulatory, court or government intervention. Davies erroneously believes that Prosperity seeks to promote communal or social objectives. On the contrary, purpose statements assist companies with making their commitments credible.  They are enabling not prescriptive or restrictive. They apply equally to private as well as communal or social objectives and they are potentially as significant in enhancing value for shareholders as other parties. Davies himself sets out how companies can make their purpose statements legally binding in an “embarrassingly simple” way without requiring any change to company law.

This chapter explores the legal framework for ESG investor engagement and, in so doing, favours a market-led approach over prescriptive regulatory intervention. I argue that investor initiatives and engagement are and should be the primary tool to promote sustainability orientation in the market. Legislative measures are deemed most effective when empowering investor engagement, enhancing transparency in sustainability criteria, and addressing greenwashing concerns. The need to build coalitions and to convince fellow investors of an initiative can then act as an in-built “filter”, which would help mitigate the pursuit of merely idiosyncratic motives and would give support to only those campaigns that are supported by a majority of investors. In particular, institutionalised investor platforms have emerged over recent years to coordinate investor campaigns and to share costs. Accordingly, I conclude with the policy implication that lawmakers should take a supportive and facilitative approach that supports investor engagement and private ordering. By doing so, static and interventionist legal policies would become less justified.