Investor-led Sustainability in Corporate Governance

When: 06 Sep 2021, 14:15-15:30
Where: Zoom
Speaker: Georg Ringe

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Meeting ID: 916 8357 1288
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The transition to a sustainable society also involves a transformation of our financial markets. Frequently, lawmakers take up this challenge by seeking to prescribe and regulate how corporate governance and finance may address ESG concerns. Different from this conceptual starting point, the present paper makes the case for another path towards achieving greater sustainability in capital markets, namely through the empowerment of investors.
This trust in the market itself is grounded in various recent developments both on the supply side and the demand side of financial markets, and also in institutional investors’ increasing move towards common ownership. The need to build coalitions among different types of institutional investors, and to convince fellow investors of your initiative can then act an inbuilt filter—which helps to overcome the pursuit of idiosyncratic motives and will give support only to those campaigns that are seconded by a greater majority of investors. In particular, institutionalized investor platforms have emerged over recent years as a force for investor empowerment, serving to coordinate investor campaigns and to share the costs of engagement.
ESG engagement can be a very powerful driver towards a more sustainable-oriented future in corporate governance. I show that investor-led sustainability indeed has many advantages over a more prescriptive, regulatory approach where legislatures are in the driver’s seat. For example, a focus on investor-led priorities will follow a more flexible, dynamic pattern rather than complying with pre-defined criteria that are slow to change. Also, investor-promoted assessments are likely not to impair welfare creation in the same way as ill-defined legal standards; they will also not trigger regulatory arbitrage and would avoid deadlock situations in corporate decision-making. Any regulatory activity should then be limited to a facilitative, supportive role.

The paper is available on request.