How ESG is weakening the business judgement rule

Thilo Kuntz

Chapter 3 in Research Handbook on Environmental, Social and Corporate Governance, 2024, pp 67-94 from Edward Elgar Publishing

Abstract: This chapter argues that, contrary to what many believe, the BJR is weakening in correlation to the growth of ESG-related positive legal norms, not strengthened. ESG encroaches on the fiduciary relationship of the directors through the duty not to breach any positive law the corporation has to uphold. As a result, international and transnational ESG standards increasingly overlay or modify national and state fiduciary law. Compliance and oversight duties operate as amplifiers. Accordingly, the expanding body of ESG norms has the effect of a two-prong attack on the BJR. Directors operate under the fiduciary obligation to act within the law and must install a compliance system that keeps pace with the accelerating growth of ESG. If they fail, the board members cannot avail themselves of the protection of the BJR. Heightened ESG standards correlate with a more demanding duty of loyalty, resulting in a proportional weakening of the BJR.

Keywords: Economics and Finance; Environment; Law - Academic; Politics and Public Policy (search for similar items in EconPapers)
Date: 2024
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