Session 6 Flashcards
How do corporate directors and investors consider human rights and sustainability? (29 cards)
What has been the primary consideration for directors?
Promoting the success of the company for the benefit of its members (shareholders) as a whole, which is often interpreted as maximizing profits.
Who are directors’ duties generally owed to? And where and how is this changing?
The company’s owners, i.e. the shareholders.
There is a growing push, particularly in the EU, for legislation mandating human rights and environmental due diligence, aiming to embed sustainability and stakeholder interests more deeply into corporate governance and directors’ duties (e.g. through duties of care), moving away from a sole focus on shareholder returns.
What are the downsides of outsourcing in terms of negative human rights impacts?
Outsourcing is a central part of modern business models, driving cost savings but also contributing to income inequality and creating significant labor abuse risks due to reduced visibility and power imbalances in supply chains
What type of approach would be better aligned with the UNGPs in respect to investor responsibility to respect human rights?
Adopting a double materiality approach (considering both financial risk and impact on people/planet).
This responsibility applies regardless of whether human rights issues are deemed financially material.
In which ways should investors respect human rights?
Embed human rights in policies; conduct ongoing HRDD (identification, prevention, mitigation, accounting) including meaningful stakeholder engagement; use leverage; track effectiveness; and enable access to remedy.
According to Sjåfell, existing attempts at company law reform or soft law measures are insufficient against shareholder primacy - what does he propose?
Reforming company law is key to securing business respect for human rights as part of a broader transition to sustainability, which requires redefining the purpose of the company (e.g., creating sustainable value within planetary boundaries, respecting all stakeholders).
Directors’ duties must reflect this purpose, including ensuring the business model aligns and conducting sustainability due diligence across the entire business system, engaging with vulnerable groups.
Traditional ESG approaches and screens haven’t proven to deliver superior financial returns - why?
They lack a causal link between social impact and business strategy/ profitability.
What constitutes the “best interests of the company”?
It’s up to interpretation.
While it can include considering stakeholder interests and sustainability, the dominant view, influenced by shareholder primacy, has narrowly focused on short-term financial value.
What tends to be the view/ attitude of corporate directors on human rights in operations?
Often reactive and based on legal compliance or avoiding financial risk to the company (rather than proactive human rights or sustainability impact on people or the environment).
Investor consideration of human rights and sustainability is largely framed through what kind of approach?
ESG (Environmental, Social, and Governance) and sustainability investing approaches.
(These have grown significantly: At the end of 2020, more than $35 trillion was invested worldwide in funds that ESG factors in addition to traditional financial analysis.)
Many investors rely on ESG ratings and data providers to assess companies, why are they not enough?
These ratings are often limited, opaque, and tend to focus on internal company policies, audits, controversies, or other metrics that do not fully capture actual human rights or environmental impact on people and the planet.
Investors can exercise their influence or leverage through what?
Investment decisions, stewardship (= engaging with companies, voting shares), and engagement with policymakers and other actors in the financial ecosystem.
What is the Enlightened Shareholder Value approach?
As seen in company law, directors’ duty is to promote the success of the company for the benefit of its shareholders, but in doing so, they must have regard (among other matters) to the likely consequences of decisions in the long term, the interests of employees, fostering relationships with suppliers and customers, the impact on the community and environment, maintaining reputation, and acting fairly between members.
What is a Derivative action or claim?
A civil claim brought by one or more shareholders on the company’s behalf against directors (or others) for a wrong committed against the company, such as a breach of duty.
What is/ are Sustainable Investing / Sustainable Funds?
Investment strategies that use ESG criteria.
What is an ESG Integration approach?
An asset manager considers ESG issues only as a means to improve financial returns, not as a way to deliver on asset owners’ environmental or social values.
What is Impact Materiality?
How an investee or investor can impact sustainability criteria (for example, impact on people and the planet), e.g. through stakeholder engagement
What is the difference between asst owners and managers?
Asset owners collect and have ownership of the funds, which include public and private pension funds, sovereign wealth funds and endowment funds.
Asset managers manage funds on behalf of asset owners.
What is double materiality?
Combining financial/ single and impact materiality.
What is the intention of impact investing?
To generate positive, measurable social and/or environmental impact alongside a financial return.
What is meant by shared value?
Addressing social needs with a profitable business model.
A concept that offers a fundamentally different approach than ESG rankings or SRI screens by directly tying social impact to competitive advantage.
It is a way to integrate social innovation and economic value through a company’s strategy.
The EU ESG framework has three (3x) disclosure laws that operate together and interact to promote sustainable investment and responsible business conduct, covering both real economy and the financial sector. Which three laws are they?
Corporate Sustainability Reporting Directive (CSRD, 2022) (real economy)
Sustainable Finance Disclosure Regulation (SFDR, 2019) (finance)
(Green) Taxonomy Regulation (2020) (both ‘economic activities’)
Which issues does the CSRD cover?
Environmental
Social and employee matters
Human rights
Anti-corruption
Diversity on company boards (age, gender)
What are the (two) aims of the Sustainable Finance Disclosure Regulation (SFDR, 2019)?
Channel capital toward sustainability and fight green-washing.
