From a Financial to an Entity Model of ESG

ESG investing evolved over time from the earlier concept of CSR. The process of evolution moved the focus from the external impact of corporate activities to the risk and return implications for financial investors of failing to address ESG issues in their portfolio selection and corporate engagement. The bridge between the two approaches was the framing of sustainability in the early part of the millennium as an overarching concept that could be mapped onto the supply of capital and the techniques employed by institutional investors. The financial model of ESG investing is now the standard approach around the world and is reflected in ESG ratings, codes, guidance and regulatory rules. It focuses on the role of capital and investors in driving change in sustainability practices and pays much less attention to the role of board decision-making and directors’ fiduciary duties. In this research, we trace the origins and trajectory of this change in emphasis from CSR to ESG and attempt to explain why it occurred. We identify shortcomings in the financial model of ESG investing and propose an alternative ‘entity’ model, which we argue would more effectively promote sustainability in the corporate sector around the world.

The EU Whistleblowing Directive: An Opportunity for (Operationalizing) Corporate Human Rights Grievance Mechanisms?

Despite being an internationally accepted corporate social responsibility framework, the United Nations Guiding Principles on Business and Human Rights have not managed to provide victims of corporate human rights violations with access to remedy. The European Commission has announced plans to introduce an EU-level human rights due diligence directive which may include corporate grievance mechanisms. This article considers potential synergies between the planned directive and the mechanism laid down in the Whistleblowing Directive. Three issues are highlighted. First, stakeholders usually face retaliation after making a complaint about human rights abuses in a company’s operations. By setting formal levels of protection against retaliation, the Whistleblowing Directive offers a regulatory framework to change this reality. Second, conducting effective human rights due diligence must be based on meaningful consultation with all relevant stakeholders. If companies approach this issue in a top-down manner using auditing firms, they risk non-compliance with human rights due diligence requirements. Therefore, the legislation should include corporate grievance mechanisms to match remedies with victims’ expectations. Third, in terms of corporate grievance mechanisms, victims often lack resources to participate in them in a fair and respectful manner. This requires EU Member States to use their legislative power to lay down regulations that effectively enhance cooperation and coordination with independent monitoring bodies. To enhance the development as to access to remedy, the Whistleblowing Directive offers synergies through which to achieve greater accessibility, transparency, and victim empowerment. Corporate grievance mechanisms, facilitated by the Whistleblowing Directive, could take this a step further.

Trustworthy AI and Corporate Governance: The EU’s Ethics Guidelines for Trustworthy Artificial Intelligence from a Company Law Perspective

AI will change many aspects of the world we live in, including the way corporations are governed. Many efficiencies and improvements are likely, but there are also potential dangers, including the threat of harmful impacts on third parties, discriminatory practices, data and privacy breaches, fraudulent practices and even ‘rogue AI’. To address these dangers, the EU published ‘The Expert Group’s Policy and Investment Recommendations for Trustworthy AI’ (the Guidelines). The Guidelines produce seven principles from its four foundational pillars of respect for human autonomy, prevention of harm, fairness, and explicability. If implemented by business, the impact on corporate governance will be substantial. Fundamental questions at the intersection of ethics and law are considered, but because the Guidelines only address the former without (much) reference to the latter, their practical application is challenging for business. Further, while they promote many positive corporate governance principles—including a stakeholder-oriented (‘human-centric’) corporate purpose and diversity, non-discrimination, and fairness—it is clear that their general nature leaves many questions and concerns unanswered. In this paper we examine the potential significance and impact of the Guidelines on selected corporate law and governance issues. We conclude that more specificity is needed in relation to how the principles therein will harmonise with company law rules and governance principles. However, despite their imperfections, until harder legislative instruments emerge, the Guidelines provide a useful starting point for directing businesses towards establishing trustworthy AI.

Globalized Cross-Border Insolvency Law: The Roles Played by China

This study empirically investigates China’s participation in the globalized cross-border insolvency collaboration system. It is the first time for the development of China’s cross-border insolvency law to be examined against the background of private international law on foreign judgment recognition and enforcement. The findings of this article reveal that foreign bankruptcy representatives face considerable difficulties in satisfying the treaty and reciprocity requirements when seeking judicial assistance from China, and that local protectionism in favour of China’s state-owned and state-linked companies undermines foreign bankruptcy representatives’ confidence in approaching China’s courts for support. Although there are several court recognitions of foreign bankruptcy judgments in China, this article finds that they are only used to acknowledge the legal status of foreign bankruptcy representatives to meet the demands of government authorities; Chinese courts have not taken a substantial step in recognizing a foreign bankruptcy judgment so as to bar individual creditors’ action in the interest of a foreign bankruptcy proceeding. On the contrary, for Chinese bankruptcy representatives seeking assistance abroad, they could take advantage of the liberal judicial infrastructure, especially of some advanced jurisdictions, to obtain recognition and relief.

A Risk Characterization of Regulatory Arbitrage in Financial Markets

This article analyses regulatory arbitrage in financial markets from a risk-based perspective. It assesses regulatory arbitrage in terms of the risk it may pose to the attainment of a regulatory objective, in this case financial stability. Its most distinct contribution to the literature is the application of the NOAEL approach—thus far mainly used in public health literature and regulatory toxicology—to the legal analysis and management of arbitrage risks. We propose several qualitative parameters relating to the likelihood of regulatory arbitrage and the negative impact if such arbitrage should occur. The article ultimately aims to help frame the ongoing debate about policy-making and the use of risk assessment methodologies to cope with regulatory arbitrage in financial markets.

The Rise of ‘Group Solution’ in Insolvency Law and Bank Resolution

This article traces the emergence of the concept of ‘group solution’ and its manifestations in insolvency law and bank resolution as an alternative to the rigid entity-by-entity approach. The rise of this concept can be linked to the recognition of the specificity of problems related to the insolvency of multinational enterprise groups, arising from group operational and financial interconnectedness. This has not happened at once, but has resulted from the evolution of views and ideas, evident in hard and soft law instruments of the 2000s and the 2010s. In light of this important development the article explores the concept of a group solution, its rationale, scope of application and limitations. It concludes that despite the gradual acceptance of the group phenomenon, a group solution has not been formed as a coherent and well-defined legal principle. Instead, it represents a variety of approaches, tools and practices, which pursue different policy objectives underpinned by different societal values. Among them are asset value maximization, business rescue, the protection of financial stability and the preservation of banks’ critical functions. With all its flexibility, a group solution has one pervasive limitation—it cannot trump the interests of individual group members and their creditors. At the same time, in order to realize the full potential of a group solution, it is necessary to embrace the group-sensitive and forward-looking interpretation of creditors’ interest, facilitating commercially sensible and practical group solutions.

ESMA as a Residual Lawmaker: The Political Economy and Constitutionality of ESMA’s Product Intervention Measures on Complex Financial Products

This article proposes that product intervention constitutes a form of residual lawmaking by ESMA that allows it to tackle aspects of investor protection not addressed by EU incomplete financial laws. Whilst product intervention may bring about certain advantages and may contribute to mitigating regulatory arbitrage problems, it constitutes a highly intrusive regulatory mechanism that raises important questions concerning: (a) ESMA’s rationale and motivations for its use; (b) its compliance with the EU constitutional framework; and (c) its adequacy for the regulation of complex financial products. This article addresses these questions through an analysis of the rationale and consequences of ESMA’s product intervention measures on binary options and contracts for differences of May 2018–July 2019, and of recent reforms of ESMA’s powers. It offers three main contributions to the existing literature. First, it contributes to the literature on administrative discretion and agencies’ rulemaking through an analysis of the political economy of ESMA’s deployment of product intervention powers and, also, of what this reveals about the relationships between ESMA and the EU Institutions, on the one side, and ESMA and National Competent Authorities, on the other. Second, it contributes to the literature on the constitutionality of EU agencies through an examination of the compliance of ESMA’s product intervention measures with EU constitutional law and requirements. Third, it examines whether product intervention constitutes an adequate mechanism to address problems pertaining to investor protection in complex financial products markets and, in doing so, it contributes to the scholarly discussion on complex financial products’ regulation.