Regulating Institutional Shareholders’ Engagement Practices for the Promotion of Corporate Sustainability in the UK - Demanding from Old Dogs New Tricks?

Savva, Rafael (2023) Regulating Institutional Shareholders’ Engagement Practices for the Promotion of Corporate Sustainability in the UK - Demanding from Old Dogs New Tricks? Working Paper. UNSPECIFIED.

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Abstract

Parallel to the EU’s regulatory developments in the area, British policymakers appreciate that institutional shareholders’ engagement practices espousing shareholder stewardship’s ideal for them as perceived in the UK can be a powerful lever for influencing investee companies to adopt decision-making propitious to enabling corporate sustainability. The regulations introduced to transpose the Second Shareholder Rights Directive and follow the Law Commission’s recommendations alongside the 2020 Stewardship Code are aspired to ensure that such engagement practices will uphold corporate sustainability, whereas regulation aiming to advance sustainable finance is projected to supply necessary information. This Article examines the normative imperative about institutional shareholders’ engagement practices deriving from the main regime governing them following the introduction of the former instruments as it will interact with the latter and argues that it may not credibly impress on them that their engagement practices should promulgate corporate sustainability. The regime arguably allows such engagement practices to transpire as being consistent with institutional shareholders’ duties and other responsibilities to clients and beneficiaries. Yet institutional shareholders still retain significant discretion in shaping engagement practices’ objectives, and questioning deviations from a pro-corporate-sustainability standard is elusive. Normative expectations are sought to be imposed through the regulations’ application and the 2020 Stewardship Code, with the most notable being the adherence to shareholder stewardship’s ideals. These expectations offer a proxy for promoting corporate sustainability through engagement whenever it is overall advantageous to shareholder-value creation. Albeit intuitive, the scope given to endorse corporate sustainability by them can prove at odds with its facilitation.