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ESG | Commentary

A key manifestation of this is the wave of provisions on ‘corporate purpose’ recently incorporated or being considered for laws and governance codes in France, Germany, and the UK. In essence, these provisions ask boards to define

corporate purpose in the interest of the entire stakeholder community. The direction of this new wave of corporate well-doing has quickly caught the imagination of institutional investors. The recent and widely publicised letter by Larry Fink, BlackRock CEO,

INVESTING IN THE ENVIRONMENT Questions need to be asked about what value investors really get from ESG reports

focusses on the concept of ‘corporate purpose’, with the expectation that boards consider broader stakeholder interests. “Purpose is not a mere tagline or marketing campaign; it is a company’s fundamental reason for being – what it does every day to create value for its stakeholders,” wrote Fink in his annual letter to CEOs. This year, he is also trying to draw what he refers to as an ‘inextricable link’ between purpose and profit to make clear that institutional investors – no matter how well-intentioned – cannot trade-off profit with either E or S or G. Already last year, however, he admitted that BlackRock cannot divest from companies featured in certain indices, engagement remaining the only option. Legally speaking, it’s far from clear how corporate purpose shall be defined to encompass all stakeholder rights and how fiduciary duties of directors will be affected by this broadening of parties whose interests they are to consider and serve. Likewise, stakeholder legal redress rights vis-à-vis institutional investors and corporate boards is an unchartered territory that neither regulators nor Adolph Huxley appear to have considered in his Brave New World of ‘stakeholder capitalism’. While institutional investors and corporate boards have today become ultimately responsible for human rights, environmental policy and corporate social impact, their resources for policing the implementation of this new and vast ‘corporate purpose’ have not increased proportionately. The governance team of Norges – the largest sovereign investor globally – is less than a dozen people, barely the size of an early stage tech start-up, but it is one of the more equipped and vocal investors. The devolvement of duties from policymakers to investors to boards represents a potentially slippery slope. It is premised on a delegation of government prerogatives to actors – some of which, under the present conditions – have neither the incentives nor the resources to do so. Stewardship and governance codes, which regulators are actively promoting, are not going to suffice. Expecting investors and boards to fi ll policymakers’ shoes is at best naïve and at worst risky, especially at a time when trust in state power to protect vulnerable social groups is on the verge of being revoked worldwide.

Spring 2019 | Ethical Boardroom 13

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Ethical Boardroom Spring 2019