Green Dual-Class Shares

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Zoom URL: https://uni-frankfurt.zoom-x.de/j/69363692925?pwd=raeHHfR5C2kN3MvqqP6n1deH8kwLUW.1
Meeting ID: 693 6369 2925
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Abstract:

Governments are slow to implement effective climate policies, leaving corporate governance as a potential second-best response to climate change. This paper proposes green dual-class shares as a corporate governance mechanism to foster breakthrough, low-carbon innovation by securing mutual commitment between controlling shareholders and climate-conscious investors.

Green dual-class shares are a contractual structure whereby the control enhancement is conditional on verifiable, but beyond state of the art, decarbonization targets. Controlling shareholders receive indefinite time to implement their low-carbon vision but retain control—and may cash in a control premium upon relinquishing it—only if the innovation succeeds. Conversely, by accepting inferior voting rights, climate-conscious investors credibly commit to finance long-term climate innovation that can convert climate ‘values’ into financial ‘value’.

To compensate investors for reduced voting power, this paper proposes state-contingent charter clauses—including target-contingent transfer sunsets, divestment sunsets, and unequal treatment provisions— as default and menu rules in corporate law. These clauses can balance control power and investor protection also in light of recent developments in Delaware law on controlling shareholders. Compared with alternative commitment devices suggested in the literature on corporate governance and climate change—such as green pills, climate-linked executive pay, or public benefit corporations—green dual-class shares generate stronger incentives for public companies to scale low-carbon innovation.

Finally, this paper integrates two heretofore separate literatures on sustainable finance and control-enhancing mechanisms. It argues that green dual-class shares can institutionalize ‘superlongtermism’ whereby climate-conscious investors subsidize firm-level climate innovation by committing to a controller’s vision over an indefinite, as opposed to generically ‘long’, time horizon.