Abstract
The mounting focus on ESG has forced internal corporate decision-making into the spotlight. Investors are eager to support companies in innovative “green” technologies and scrutinize companies’ transition plans. Activists are targeting boards whose decisions appear too timid or insufficiently explained. Consumers and employees are incorporating companies sustainability credentials in their purchasing and employment decisions. These actors are asking companies for better information, higher quality reports, and granular data. In response, companies are producing lengthy sustainability reports, adopting ambitious purpose statements, and touting their sustainability credentials. Understandably, concerns about greenwashing and accountability abound, and policymakers are preparing for action.
In this Essay, we show how the ESG information system modeled itself after the key corporate governance innovations of the last fifty years. We start with the introduction of the monitoring board in the 1970s, which paved the way for the rise of independent directors in overseeing company activity, providing a counterweight to management, and increasing responsiveness to investor concerns. We argue that ESG’s insistence on board oversight, diversity, and expertise reflects a similar intuition that board members with special expertise can have valuable contributions to decision-making.19 We then turn to the next wave of corporate governance reform, formalized in the Sarbanes-Oxley Act of 2002 (SOX), which made practices
already common in the market mandatory and introduced others. With its emphasis on disclosure accuracy, SOX served as the prime archetype for the ESG information system. The global effort to standardize ESG echoes SOX’s emphasis on standardization, either through market-led initiatives like the Sustainability Accounting Standards Board (SASB) or through government-supported bodies. Similarly, SOX’s reliance on auditor certifications of internal controls a measure heavily criticized by many as overly costly is reproduced through market demands and regulatory mandates for assurance.
Finally, the buildup of sustainability departments emulates SOX’s efforts to boost the independence of internal controls. Finally, by examining ESG disclosure in practice, we show that it offers managers and directors vital information about the social impact of their decisions. This perspective sheds light on the ESG disclosure debate, highlighting it as a logical evolution of (rather than a threat to) traditional corporate governance systems that enhance information flow to managers and the board.
Recommended Citation
Stavros Gadinis and Amelia Miazad, The ESG Information System, 47 SEATTLE U. L. REV. 695 (2024).
Included in
Accounting Law Commons, Administrative Law Commons, Admiralty Commons, Agency Commons, Agriculture Law Commons, Air and Space Law Commons, Animal Law Commons, Antitrust and Trade Regulation Commons, Banking and Finance Law Commons, Bankruptcy Law Commons, Business Organizations Law Commons, Civil Law Commons, Civil Procedure Commons, Civil Rights and Discrimination Commons, Commercial Law Commons, Common Law Commons, Communications Law Commons, Comparative and Foreign Law Commons, Computer Law Commons, Conflict of Laws Commons, Constitutional Law Commons, Construction Law Commons, Consumer Protection Law Commons, Contracts Commons, Courts Commons, Criminal Law Commons, Criminal Procedure Commons, Cultural Heritage Law Commons, Disability Law Commons, Disaster Law Commons, Dispute Resolution and Arbitration Commons, Education Law Commons, Elder Law Commons, Election Law Commons, Energy and Utilities Law Commons, Entertainment, Arts, and Sports Law Commons, Environmental Law Commons, Estates and Trusts Commons, European Law Commons, Evidence Commons, Family Law Commons, First Amendment Commons, Food and Drug Law Commons, Fourteenth Amendment Commons, Fourth Amendment Commons, Gaming Law Commons, Government Contracts Commons, Health Law and Policy Commons, Housing Law Commons, Human Rights Law Commons, Immigration Law Commons, Indigenous, Indian, and Aboriginal Law Commons, Insurance Law Commons, Intellectual Property Law Commons, International Humanitarian Law Commons, International Law Commons, International Trade Law Commons, Internet Law Commons, Judges Commons, Jurisdiction Commons, Jurisprudence Commons, Juvenile Law Commons, Labor and Employment Law Commons, Land Use Law Commons, Law and Economics Commons, Law and Gender Commons, Law and Philosophy Commons, Law and Politics Commons, Law and Psychology Commons, Law and Race Commons, Law and Society Commons, Law Enforcement and Corrections Commons, Law of the Sea Commons, Legal Biography Commons, Legal Education Commons, Legal Ethics and Professional Responsibility Commons, Legal History Commons, Legal Profession Commons, Legal Remedies Commons, Legal Writing and Research Commons, Legislation Commons, Litigation Commons, Marketing Law Commons, Medical Jurisprudence Commons, Military, War, and Peace Commons, National Security Law Commons, Natural Law Commons, Natural Resources Law Commons, Nonprofit Organizations Law Commons, Oil, Gas, and Mineral Law Commons, Organizations Law Commons, Other Law Commons, President/Executive Department Commons, Privacy Law Commons, Property Law and Real Estate Commons, Public Law and Legal Theory Commons, Religion Law Commons, Retirement Security Law Commons, Rule of Law Commons, Science and Technology Law Commons, Second Amendment Commons, Secured Transactions Commons, Securities Law Commons, Sexuality and the Law Commons, Social Welfare Law Commons, State and Local Government Law Commons, Supreme Court of the United States Commons, Taxation-Federal Commons, Taxation-Federal Estate and Gift Commons, Taxation-State and Local Commons, Taxation-Transnational Commons, Tax Law Commons, Torts Commons, Transnational Law Commons, Transportation Law Commons, Water Law Commons, Workers' Compensation Law Commons