With the adoption of the Action Plan ‘Financing Sustainable Growth’, the European Commission is taking a range of steps towards encouraging listed companies to conduct their business in a more sustainable or long-term oriented manner. While this is not a new policy, we show in our recent paper that many elements of the Action Plan are intended to have an impact on the governance of listed companies and even touch on core company law issues. The Action Plan continues the approach of incentivizing sustainable corporate behaviour, similarly to previous steps such as the Directive on Non-financial Reporting and the revised Shareholder Rights Directive. However, its scope is broader, due to its focus on financial markets as a whole, its regulatory instruments are more diverse and its regulatory intensity is less soft.
The urgency of preventing climate change has obviously contributed to creating a more nuanced regulatory strategy. First, the development of a sustainability taxonomy aims to provide clarity on the traditionally vague notion of sustainability by focusing on specific environmental objectives in particular. By evaluating economic activities (rather than companies or financial products), the taxonomy is likely to foster corporate ring-fencing; however, consequential problems will arise. Second, the Action Plan aims to incentivize shareholders by introducing additional information duties not only with regard to reporting, but also through labelling and an EU Ecolabel framework. Information obligations will also be imposed on investment advisers in order to ensure that investors receive sufficient information on sustainability issues. Specific shareholders, such as institutional investors, will be subjected to further information obligations and a far-reaching requirement to integrate sustainability considerations into their investment decision-making processes. All of these obligations aim to influence investment flows in order to eventually have an impact on corporate behaviour. Third, the Action Plan tries to incentivize corporate managers more directly by requiring a sustainability strategy and considering a modification of the rules according to which directors are expected to act in the company’s long-term interest. The latter proposal has the potential to fundamentally change core company law. Finally, among all other stakeholders, the Action Plan focuses on banks and attempts to influence their financing decisions by proposing steps to include risks associated with climate and other environmental factors in their risk management systems.
With regard to existential environmental threats, fundamental modifications of the corporate governance framework might be inevitable, but they require a broad discussion among company law scholars. In this discussion, one important consideration should relate to the tailoring of the regulatory scope. Since the Action Plan’s focus is on capital and financial markets, its proposals primarily concern listed companies. However, there might be potential spillovers to non-listed companies due to, for example, banks’ modified financing strategies. In order to avoid potential discriminatory effects between different types of companies – which might in turn give rise to avoidance strategies – one may also consider the alternative approach of more generally tailored company law rules, which also apply to non-listed companies. Moreover, the proposals should be seen in the context of other sustainability-related rules, proposals and developments, such as the Directive on Non-financial Reporting and the revised Shareholder Rights Directive, the current plans of the European Parliament for a Statute for Social and Solidarity-Based Enterprises and the advance of social entrepreneurship, associated with the introduction of new company forms and certification schemes. Potential interactions between these different regulatory developments must be taken into account in future debates about the current Action Plan on Financing Sustainable Growth. For example, the existing corporate certification schemes and the labelling scheme for sustainable financial products as proposed by the Action Plan potentially overlap and interact.
Florian Möslein is professor of law at Philipps Marburg University.
Kasten Engsig Sørensen is professor at Aarhaus School of Business.