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Article

Will the EU Taxonomy Regulation Foster Sustainable Corporate Governance?

1
Amsterdam Center for Law & Economics (ACLE), University of Amsterdam, 1018 WV Amsterdam, The Netherlands
2
European Corporate Governance Institute (ECGI), 1000 Brussels, Belgium
Academic Editor: Wen-Hsien Tsai
Sustainability 2021, 13(21), 12316; https://doi.org/10.3390/su132112316
Received: 28 September 2021 / Revised: 28 October 2021 / Accepted: 3 November 2021 / Published: 8 November 2021
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 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 depends on greenwashing and undermines sustainable 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 using voice instead of exit. View Full-Text
Keywords: environmental sustainability; law and economics; securities regulation; corporate governance; institutional investors; greenwashing; voice vs. exit environmental sustainability; law and economics; securities regulation; corporate governance; institutional investors; greenwashing; voice vs. exit
MDPI and ACS Style

Pacces, A.M. Will the EU Taxonomy Regulation Foster Sustainable Corporate Governance? Sustainability 2021, 13, 12316. https://doi.org/10.3390/su132112316

AMA Style

Pacces AM. Will the EU Taxonomy Regulation Foster Sustainable Corporate Governance? Sustainability. 2021; 13(21):12316. https://doi.org/10.3390/su132112316

Chicago/Turabian Style

Pacces, Alessio M. 2021. "Will the EU Taxonomy Regulation Foster Sustainable Corporate Governance?" Sustainability 13, no. 21: 12316. https://doi.org/10.3390/su132112316

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