ESG and Director’s Duties: Defining and Advancing the Interests of the Company

ESG and Director’s Duties: Defining and Advancing the Interests of the Company

Luh Luh Lan, Walter Wan

Series number :

Serial Number: 
737/2023

Date posted :

October 28 2023

Last revised :

October 28 2023
SSRN Share

Keywords

  • ESG • 
  • Corporate governance • 
  • corporate law • 
  • director’s duties • 
  • climate change • 
  • Shell • 
  • ClientEarth • 
  • best interests of the company

It is difficult to advance the ESG agenda using company law, especially in common law legal systems. Cases show that directors’ duties require directors to prioritise the ‘interests of the company’, which is equated with ‘shareholders’ interests as a whole’, whether under the traditional common law or, for the UK, under the codified section 172 of the Companies Act 2006.

In addition, when determining if directors have acted in the interests of the company, judges typically decline to examine the merits of a business decision, focusing instead on the decision-making process. What this means is that even if directors must take ESG considerations into account, courts have held that the duty to act in the company’s best interests does not impose a positive duty for directors to adopt aggressive ESG focused strategies. We argue that this has always been and should continue to be the correct judicial approach.

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Authors

Real name:
Walter Wan