The Palgrave Handbook of ESG and Corporate Governance

Foreword
Introduction
Contents
Notes on Contributors
Abbreviations
List of Tables
Part I General Aspects of ESG
1 The Systemic Interaction Between Corporate Governance and ESG
	1 Introduction
	2 Corporate Governance and ESG: Levels of Impact
	3 ESG Scope and Main Components
	4 Investor-Level Relationship of ESG and Corporate Governance
		ESG as a Set of Investment Criteria
		ESG as a Commitment; Optionality Arrangements
		ESG as a Governance Method
		The ‘Cascade Effect’
	5 Redefining Board Duties and Skills; the ‘Know Your Stakeholder Rule’
	6 Redefining Disclosure
		Defective Disclosure (‘Greenwashing’)
		Fragmentation of Information
		Excessive Reliance on ESG External Advice
	7 Redefining Risk
	8 Redefining Remuneration Policies
	9 Conclusion
2 Sustainable Governance and Corporate Due Diligence: The Shifting Balance Between Soft Law and Hard Law
	1 Introduction
	2 Sustainability as a Game Changer
		Corporate Purpose and Sustainability
		Regulatory and Ethical Constraints to Value Maximization
		Non-Financial Disclosure and Incentives
	3 The International Principles on Corporate Responsibility
		The UN Guiding Principles on Business and Human Rights
		The OECD Guiding Principles and the ILO Tripartite Declaration
	4 The European Parliament’s Draft Directive on Corporate Due Diligence and Accountability
		The European Parliament’s Resolution on Corporate Due Diligence
		Due Diligence Strategy
		Adverse Impact, Business Relationships and Value Chain
		Enforcement
	5 Problems and Limits of the Draft Directive
	6 Concluding Remarks
3 Reforming EU Company Law to Secure the Future of European Business
	1 Introduction
	2 The EU Legal Basis for Sustainability Reforms
	3 Integrating Sustainability into EU Company Law
		The Risks of Continued Unsustainability
		The Argument for Reform of EU Company Law
		Redefining Corporate Purpose and the Duties of the Board
	4 Concluding Reflections
4 Towards a Smart Regulation of Sustainable Finance
	1 Nudging or Mandatory Approach to Sustainable Finance?
	2 A Brief Overview of the EU Sustainability-Oriented Securities Regulation
		SFAP 2018: A Nudging Approach
	3 The Sustainable Finance Strategy 2021: Towards Mandating Sustainability
	4 What Do We Know About the Links Between Finance and Sustainability?
		Lack of Expert Consensus
		Lack of Data Linking Sustainability and Finance
		Lack of Consistent Application
	5 Risks of Regulation in the Dark
		Doing Harm to the Sustainability Agenda
		Factoring in Transition Risk
	6 How to Regulate Sustainable Finance in the State of Uncertainty?
		Sustainable Intermediary Set-Up
			Fitness & Properness
			Governance
			Remuneration
		Sustainable Operating Business ?
		Sustainable Prudential Requirements ?
		Towards a Smart Regulation of Sustainable Finance
	7 Conclusion
	References
5 The Duty of Societal Responsibility and Learning Anxiety
	1 Introduction
	2 The Heart of the Matter: The Modern Corporation Has Become Amoral
	3 Proposals for Change
	4 Resistance and Learning Anxiety
	References
6 ESG and Shareholder Primacy: Why They Can Go Together
	1 Introduction
	2 What Friedman Said
	3 Missing from Friedman’s Picture: The Shareholders
	4 Conclusion
7 Climate Finance
	1 Introduction
	2 Data and Methodology
		Sample and Variables
		Summary Statistics
		Methodology
	3 Results
		Main Results
		Mechanisms
			Labor Supply and Productivity
			Financial Constraints and Adaptability
			Supplier-Client Relationship
		Extreme Weather Events
		Extensive Margin
	4 Conclusion
	References
8 The New ESG Bond Markets
	1 SGD’s, Paris Agreement, and Sustainable Finance
	2 The Green Bonds: Definition and Origins
	3 Private Governance of the ESG Bond Markets and Its Limitations
	4 Public Governance of the ESG Bond Markets
	5 Hybridization Approach and Contractual Approach
	6 Information Duties
	7 Blue Bonds
	8 Conclusion
9 The Role of Companies in Promoting Human Rights
	1 The Interaction Between Corporate Governance and Human Rights
	2 Regulatory Policy Approaches Related to Corporate Governance—Human Rights Interaction
		International Initiatives
			OECD Initiatives
			United Nations Initiatives
			EU Initiatives
			Other International Initiatives
		Some Domestic Initiatives
	3 Integration of Human Rights in the Companies’ Agenda
		Board Duties (Consideration of Human Rights Issues Ate Board Level)
		Corporate Actions Towards Human Rights
			Due Diligence
			Self-Regulation
			Leverage Power
			Beyond Human Rights Rules and Standards
	4 Companies and Human Rights in COVID-19 Times
	5 Conclusions
	References
Part II ESG Regulatory Developments
10 ESG and EU Law: From the Cradle of Mandatory Disclosure to More Forceful Steps
	1 Introduction: Two Decades of Declarations of Intent
	2 The Mandatory Disclosure Trinity as the Cradle of a European ESG Framework
		Mandatory Disclosure of ESG Information Under the Non-Financial Reporting Directive
		The Sustainable Finance Disclosures Regulation
		The Taxonomy Regulation
		Assessment: A Sensible Approach or an Unholy Trinity?
	3 Out of the Cradle of Disclosure and Next (First Steps)
	4 Concluding Remarks
11 Sustainability and Sustainable Finance: A Regulator’s Perspective and Beyond
	1 The Transition Framework
	2 Sustainable Finance—Is There a Role for Financial Regulation and Supervision?
	3 Information and Communication in/for Sustainable Finance
	4 Sustainable Finance Reporting and Disclosure: A Burden or an Opportunity?
	5 Sustainability and firm’s Culture in Capital Markets
		Board and Oversight Functions
		Fitness and Propriety | Suitability
		Fiduciary Duty
		Sustainability
		The Business Models’ Analysis (BMA)
		Organizational Issues
	6 Conclusion
12 ESG Reporting
	1 Calls for Consistency, Quality and Reliability in Reporting and Provision of Comparable Information
		A Buzzword Does not Suffice
		Enhancements to a Scattered Framework
		State of Play—Materiality Seems to Fit All
	2 How the EU Agenda is Accelerating the Move from Voluntary Approaches to Mandatory Regulatory Regimes
		A Challenging European Policy Issuing Process
		The Sustainable Finance Disclosure Regulation
		Other Regulatory Initiatives
		En Route to a Global Standardised Sustainability Reporting
	3 Future of Sustainability Reporting(s)
13 The EU Taxonomy Regulation and Its Implications for Companies
	1 Introduction
	2 The Taxonomy and Its Functions
		Concept
		Economic Activities
		Scope of Application
		Functions
	3 Corporate Disclosure—The Comply or Explain
	4 Conclusions
14 Business Judgement Rule as a Safeguard for ESG Minded Directors and a Warning for Others
	1 Introduction
	2 Brief Overview of Directors’ Duties
	3 Duty of Care and the Business Judgement Rule
		General Notes on the Duty of Care
		Director’s Accountability and Business Judgement Rule
	4 ESG’s Impact on the director’s Duty of Care
	5 Conclusions—the Business Judgement Rule as a Safeguard for ESG Minded Directors and a Warning for Others
15 ESG and Executive Remuneration
	1 Introduction
	2 Banking as a Promoter of ESG Factors
	3 The Renewed Interest in the Issue of Remuneration
	4 Thinking Ahead: Remuneration Policy and Good Practices on ESG
		The Remuneration Policy: A Strong Incentive?
			Remuneration Committee Role
			The Variable Component of Remuneration, the Consideration of ESG Factors, Key Performance Indicators (KPIs) and Key Purpose Indicators
	5 Prospective Reflections: The Difficulties Ahead
16 How Can Compliance Steer Companies to Deliver on ESG Goals?
	1 Introduction
	2 Vertical Compliance
		The Debate Between a Harder or Softer Stance in the Pursue of ESG Goals
		Reporting Initiatives
		Due Diligence Initiatives
	3 Horizontal Compliance
		The Sustainability Self-Regulation Stages
			Compliance Stage
			Efficiency Stage
			Innovation Stage
		Shaping Compliance from Within
		Board Accountability and Delegation of Powers on a Sustainability Committee
		Appointment of a Chief Sustainability Officer (“CSO”)
		Incentives
		Internal Policies and Codes of Conduct
		Behavioural Ethics Nudging
		Companies’ Approach to ESG Disclosure and Reporting
		Companies’ Approach to ESG Due Diligence
		Risk Management
	4 Conclusion
Part III ESG in Particular Types of Companies
17 ESG and Listed Companies
	1 Sustainability: From “Why Not?” to “Must Have”
	2 Sustainability and Capital Markets: A Bridge Too Far?
	3 ESG: Legal Framework
		Overview of European Initiatives
		Taxonomy Regulation
		ESG Ratings
	4 Sustainable Corporate Governance: A Reflection
		EC’s Initiative on Sustainable Corporate Governance
		Ernst & Young “Study on Directors’ Duties and Sustainable Corporate Governance”
			EC’s Consultation on Sustainable Corporate Governance
			The EC’s Initiative on Sustainable Corporate Governance
			A Portuguese Contribution
	5 Board of Directors Involvement
	6 Conclusions
18 ESG in Growth Listed Companies: Closing the Gaps
	1 Introduction
	2 ESG in Small and Mid-Sized Quoted Companies: Key Figures and Initiatives
	3 The London Alternative Investment Market (AIM) and the Aquis Exchange
		The London AIM
		The Aquis Exchange
		The Henley-QCA Study on ESG Adoption in Growth Companies
	4 ESG Adoption Gaps in Growth Companies: A Sectorial Discussion
	5 The Knowledge Gap
	6 The Accountability Gap
	7 The Leadership and Execution Gap
	8 The Disclosure Gap
	9 Closing the Gaps: Recommendations for Boards of Directors
	References
19 ESG and Banks: Towards Sustainable Banking in the European Union
	1 Introduction
	2 The Interaction Between ESG and the Banking Sector
		ESG as a Risk to Banks
		The Role of Banks in ESG
	3 Sustainable Banking Regulation in the EU
		The Need for Regulatory Intervention
		Disclosure Requirements and the Green Asset Ration
		Governance and Risk Management
		Capital Requirements
	4 The Way Forward
	References
20 The EU Asset Managers’ Run for Green
	1 The Rise of ESG
	2 The Role of Asset Managers as Institutional Investors
	3 European Investment Funds Governance and the Fiduciary Duty
	4 The Integration of ESG Factors in European Investment Funds Risk Management
	5 The European Transparency and Metrics Regime
	6 Conclusion
21 ESG, State-Owned Enterprises and Smart Cities
	1 Introduction
	2 ESG Factors, SOEs and Smart Cities
		Origins and Development
		Influence of ESG Factors
			Common Aspects
			Impact of ESG Factors in SOEs
			Impact of ESG Factors in Smart Cities
		ESG Factors’ Ratings
	3 The Role of Technology Regarding ESG Factors
		Risks
		Regulation: The Example of Innovation Zones
	4 Conclusions
	References
Part IV Final Conclusions
22 Conclusion: ESG and the Challenges Ahead
	1 ESG Changing Landscape
	2 Main Ecosystem Gaps
	3 Main Regulatory Gaps
	4 Preparing the Forthcoming ESG Agenda
Index