EU securities regulation has established a taxonomy of environmentally sustainable activities. This article discusses, from a law and economics standpoint, the potential of this taxonomy to support a sustainable corporate governance.
Corporate governance can be an efficient way to channel investor preferences towards sustainability because the concentration of institutional shareholding has lowered the transaction costs of shareholder action. However, there is a principal-agent problem between institutional investors and their beneficiaries, which may lead to greenwashing and insufficient or excessive concern for sustainability in corporate governance.
This article argues that introducing environmental sustainability into EU mandatory disclosure aligns the institutional investors’ incentives with the interest of their beneficiaries and may foster the efficient inclusion of sustainability in corporate governance. The argument is threefold. Firstly, the EU taxonomy may curb greenwashing by standardizing the disclosure of environmental sustainability. Secondly, this information may become salient for the beneficiaries as the same standards define the sustainability preferences to be considered in recommending and marketing financial products. Thirdly, sustainability disclosure prompts institutional investors to compete for sustainability-minded beneficiaries. Being unable to avoid unsustainable companies altogether, institutional investors are expected to cater to beneficiaries’ preferences for environmental sustainability by way of voice, instead of exit.
Using natural language processing, we identify and categorize the corporate goals in the shareholder letters of the 150 largest companies in the United...
In this paper, I analyse the main trade-offs between the economic value of the firm and its social value exploring how they are solved through corporate...