Beyond Climate Risk: Integrating Sustainability into the Duties of the Corporate Board

Finding out how business can be a part of the shift to sustainability has never been more crucial. This article starts out by presenting the results of a multi-jurisdictional comparative analysis of corporate law, seeking to investigate the barriers, to and possibilities for, sustainable business in the dominant business form — the corporation. The social norm of shareholder primacy is identified as a major barrier to sustainability. Shareholder primacy has taken over the space that corporate law leaves open for the discretion of the individual corporate board

Stewardship Norwegian-Style : Fragmented and State-Dominated (but Not without Potential?)

An important part of the current corporate governance trend is shareholder ‘empowerment’, a policy shift making corporate managers accountable to the shareholders as perceived ‘owners’ of the company. According to this policy thinking, the corporate boards should focus on monitoring on behalf of the shareholders, rather than managing the company independently. Shareholders should ‘engage’ with companies on issues ranging from strategy to corporate responsibility, issues that company law assigns to the board. This trend has been reflected not only in corporate governance codes, listing rules, company legislation, European Union directives and transnational regulatory standards but also as a ’stewardship trend’, which we have seen in the 2017 reform of the 2007 European Union Shareholders’ Rights Directive (SHRD II). A number of European jurisdictions have seen the emergence of specific ’stewardship codes’. According to the arguments behind the codes (and also in stewardship regulation such as SHRD II), encouraging shareholders to act as ‘stewards’ is a way forward not only towards better corporate governance in the mainstream, economics-focused sense, but also towards more sustainable and responsible companies in light of the environmental and social challenges we as a global community face. The stewardship concept is widely connected to institutional investors, referring to the actions that asset managers can take in order to enhance the value of the companies that they invest in on behalf of their own beneficiaries. However, the nature of stewardship varies from jurisdiction to jurisdiction based on shareholder structures. In the Nordic region (similar to many Asian jurisdictions), the role of states, sovereign holding companies and wealth funds, other public market actors such as public pension funds, families, family-controlled investment companies and family-based foundations is significant compared to (other) national and international institutional investors. In this paper, we discuss the peculiarities of Nordic stewardship before concentrating on Norway and Norwegian stewardship, which is dominated by the state and the municipalities, but also to some extent by private investors. The structure of the paper is the following. In Part II we discuss the Nordic stewardship in light of international stewardship discussion, before concentrating on Norway and the current regulatory framework of stewardship there in Part III. In Part III, we reflect on the Norwegian choices on stewardship against global trends and especially jurisdictions in Asia with similar shareholder structures, with strong state and family shareholders. Part IV concludes with some reflections on why a stewardship code is not needed in Norway. What Norway does need, is a clear and mandatory regulation to ensure that Norwegian business and finance contribute to the transition to sustainability. A stewardship code would not be a sufficiently strong measure. Conversely, it could hold Norwegian business and finance back in the face of the rapid developments on EU and international level.Peer reviewe

Corporate Governance for Sustainability

The current model of corporate governance needs reform. There is mounting evidence that the practices of shareholder primacy drive company directors and executives to adopt the same short time horizon as financial markets. Pressure to meet the demands of the financial markets drives stock buybacks, excessive dividends and a failure to invest in productive capabilities. The result is a ‘tragedy of the horizon’, with corporations and their shareholders failing to consider environmental, social or even their own, long-term, economic sustainability. With less than a decade left to address the threat of climate change, and with consensus emerging that businesses need to be held accountable for their contribution, it is time to act and reform corporate governance in the EU. The statement puts forward specific recommendations to clarify the obligations of company boards and directors and make corporate governance practice significantly more sustainable and focused on the long term

How company law has failed human rights - And what to do about it

This article discusses three questions. First, what drives business to ignore human rights, or even worse, consciously undermine the achievement of human rights? Second, given the state of affairs of business and human rights, why is there not a quick regulatory fix to the problems that we see? Third, in light of the failure of business and of regulation so far, what can be done? The article posits that reform of company law is key to ensuring business respect for human rights, as an intrinsic element of the transition to sustainability. The article outlines how company law can facilitate sustainable business. It concludes with some reflections on the drivers for change that make it possible to envisage that the necessary reform of company law will be enacted

The Courts as Environmental Champions: The Norwegian Hempel Cases

This article presents the Hempel cases from the Norwegian courts, where a Danish parent company (Hempel AS) first was ordered to pay the costs for investigating the extent of pollution in ground previously owned by its Norwegian subsidiary, and then to pay the costs for cleaning up the pollution. The article argues that these decisions, although formally based on provisions in the Norwegian Pollution Control Act, de facto are innovative examples of case-law based liability, where society’s interest in environmental protection is prioritised over society’s and shareholders’ interest in protecting shareholders’ limited liability. Enhanced due diligence may be the result

Achieving Corporate Sustainability: What is the Role of the Shareholder?

We cannot achieve environmental, social and economic sustainability of our societies without the contribution of business and finance. A fundamental transition away from ‘business as usual’ and onto a sustainable path is necessary. The dominant business form is the company, and the role of shareholders, the investors in this business form, is therefore highly topical. Concentrating in this chapter on the influence of the shareholders through the general meeting of European listed companies, we see that while the focus of the mainstream corporate governance debate for a long time has been on strengthening shareholder rights, an emerging and important debate is that on whether shareholders also have duties. This chapter contributes to that debate with a discussion of the potential role of shareholders in achieving corporate sustainability, including whether shareholders have or should have any duties to contribute towards such a goal. Corporate sustainability is here defined as when businesses (or more broadly, economic actors) in aggregate create value in a manner that is (a) environmentally sustainable in the sense that it ensures the long-term stability and resilience of the ecosystems that support human life, (b) socially sustainable in the sense that it facilitates the respect and promotion of human rights, and (c) economically sustainable in the sense that it satisfies the economic needs necessary for stable and resilient societies. In the European Union (EU), we see a tentative recognition of the broader role of shareholders, especially as regards economic sustainability. We also see a rising recognition of the significance of shareholders’ role in promoting environmental and social aspects of sustainability, in part inspired by the debate on ‘stewardship’ originating in Europe with the UK Stewardship Code. We see a reflection of this in the European Parliament’s revisions to the Commission’s proposal to changes in the Shareholders’ Rights Directive, which suggest to broaden the scope to include societal issues. Similarly, the so-called non-financial reporting requirements introduced in 2014 aim to ensure that the largest listed companies disclose ‘the impact of [their] activity, relating to, as a minimum, environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters’, also with the view to facilitating responsible investment. These are examples that illustrate a growing EU interest in encouraging shareholders to contribute to long-term successful business, environmentally, socially and economically. After the introduction of the topic in section 1, this chapter outlines in section 2 the research findings that indicate a strong negative impact of shareholders, in aggregate, on corporate sustainability. Section 3 discusses the role of shareholders in the general meeting as a matter of law. After a short overview of the competence the controlling shareholder has in a general meeting, this focuses on the possibilities for and likelihood of shareholder influence in the general meeting being used to promote corporate sustainability. Section 3 concludes with a brief discussion of shareholder influence outside the general meeting. This is a trend that is encouraged by corporate governance codes and stewardship codes alike, without – as I will argue in this chapter – proper appreciation of the potential negative impacts of this approach. Section 4 discusses shareholders’ emerging and potential duties towards corporate sustainability, including a brief discussion of the stewardship codes, while section 5 outlines tentative ideas on how to reform the role of shareholders in company law as an intrinsic part of a tentative reform proposal

Sustainable value creation within planetary boundaries-Reforming corporate purpose and duties of the corporate board

Business, and the dominant legal form of business, that is, the corporation, must be involved in the transition to sustainability, if we are to succeed in securing a safe and just space for humanity. The corporate board has a crucial role in determining the strategy and the direction of the corporation. However, currently, the function of the corporate board is constrained through the social norm of shareholder primacy, reinforced through the intermediary structures of capital markets. This article argues that an EU law reform is key to integrating sustainability into mainstream corporate governance, into the corporate purpose and the core duties of the corporate board, to change corporations from within. While previous attempts at harmonizing core corporate law at the EU level have failed, there are now several drivers for reform that may facilitate a change, including the EU Commission’s increased emphasis on sustainability. Drawing on this momentum, this article presents a proposal to reform corporate purpose and duties of the board, based on the results of the EU-funded research project, Sustainable Market Actors for Responsible Trade (SMART, 2016–2020)