Deciding on ESG : the business judgment rule in Canada, Germany, and Delaware and its impact on corporate adoption of ESG
Publisher
University of British Columbia
Date Issued
2024
Document Type
Thesis
Degree
Master of Laws - LLM
Program
Law
Description
Environmental, social and governance (“ESG”) is one of the corporate-level responses to the sustainability challenges prevalent across the globe. ESG introduces an expanded framework for risk management and strategy development. It calls on directors to consider a corporation’s ESG risks and opportunities impacting corporate financial performance and society-at-large over the long term for the purpose of developing a more sustainable and resilient corporation. However, the boundaries of existing corporate governance mechanisms are likely to impact integration of ESG at the corporate level. Through a comparative analysis of the business judgment rule (the “BJR”) in Canadian, German, and Delaware corporate governance, this thesis examines how the level of deference and protection the court affords to a director’s decisions will influence the corporate adoption and integration of ESG. This thesis finds: (i) the Delaware BJR affords the greatest deference, resulting in the fewest obligations towards how a director responds to ESG risks while creating the largest space to pursue ESG opportunities; (ii) the Canadian BJR affords less deference, increasing a director’s obligations towards how they respond to ESG risks, but creating less space to pursue ESG opportunities; (iii) the German BJR affords a director the least amount of deference, creating more obligations for a director to respond to ESG risks and less space to pursue ESG opportunities; and (iv) across all three jurisdictions, a director receives the greatest protection from liability when addressing ESG risks and opportunities that are material to a corporation from a financial perspective than when addressing ESG risks and opportunities that are material from a societal perspective. The comparison undertaken demonstrates an inherent trade off between obligating a director to respond to a corporation’s ESG risks and creating the leeway for a director to exercise their entrepreneurial discretion to pursue ESG opportunities. Without additional regulation and amendments to the Canadian corporate governance framework focusing on ESG from a financial and societal perspective the BJR, regardless of its formulation, will prevent a director from fully integrating ESG into their decision-making and corporate strategy.
Date Available
2024-04-12
Rights
http://creativecommons.org/licenses/by-nc-nd/4.0/
Affiliation
Law, Peter A. Allard School of