What Corporate Sustainability are Institutional Shareholders Expected to Promote via their Engagement Practices? : A Review of the UK Shareholder Stewardship and Sustainable Finance Regulatory Frameworks

Savva, Rafael (2024) What Corporate Sustainability are Institutional Shareholders Expected to Promote via their Engagement Practices? : A Review of the UK Shareholder Stewardship and Sustainable Finance Regulatory Frameworks. In: SMU - Edinburgh Environmental, Social, Governance and Taxation Conference, 2024-04-08 - 2024-04-08, SMU.

Abstract

Through the regulatory framework of shareholder stewardship operating alongside the one aiming to advance sustainable finance, UK policymakers have set their sights on ensuring companies will become more environmentally, socially and economically sustainable by aiming to steer institutional shareholders towards espousing shareholder stewardship’s ideal to the point where their engagement practices will uphold ‘corporate sustainability’. To this end, the 2023 Green Finance Strategy stated that there will be a review of the framework to assess the extent to which it creates an engaging market for effective stewardship accordingly. This paper explores what type of corporate sustainability the shareholder stewardship framework expects institutional shareholders to promote as it will operate with the respective sustainable finance framework. Having in mind typologies of corporate sustainability established by management scholars, the paper argues that the shareholder stewardship framework appears to be agnostic about the governance structures that institutional shareholders should promote through their engagement practices with regard to their relationship with facilitating sustainable development. The framework reinforces engagement practices supportive of sustainable corporate practices to transpire. Yet there is arguably little account or normative expectations about which governance structures should be promulgated or what attributes they should bear, save for the normative expectation that engagement practices should adhere to shareholder stewardship’s ideal. The FCA’s new sustainable disclosure requirements introduced, inter alia, product labelling regulation that is subject to criteria touching upon using shareholder stewardship to reach the goal the product is set to pursue. Albeit being a step in the right direction, the paper argues that on their own, these criteria are not enough. If it is indeed intended to align the shareholder stewardship framework with the aspirations set for shareholder stewardship about sustainable business, the review of the former should be comprised of cogent reflections on this issue.