SUSTAINABLE BUSINESS LAW? THE KEY ROLE OF CORPORATE GOVERNANCE AND FINANCE.

• Author: Myers, Colin

1. INTRODUCTION 992 II. DEFINING SUSTAINABLE BUSINESS 995 III. DEFINING THE ROLE OF THE LAWYER 998 IV. ACHIEVING SUSTAINABILITY THROUGH CORPORATE GOVERNANCE AND 1002 FINANCE A. Corporate Governance and Sustainability 1002 1. Fiduciary Duty and Sustainability 1003 B. Corporate Finance and Sustainability 1008 1. Sustainability Disclosure in the U.S 1009 a. Mandatory Reporting 1009 b. Other Types of Mandatory Sustainability-Related 1015 Disclosures c. Liability for Inadequate and Misleading Disclosures 1015 2. Sustainability Disclosure Outside of the U.S 1017 3. Stock Exchanges 1021 4. Voluntary Reporting 1022 a. Task Force on Climate-Related Financial Disclosures 1022 b. Sustainability Accounting Standards Board and the 1024 International Integrated Reporting Council c. Global Reporting Initiative 1026 d. Carbon Disclosure Project and the Climate 1026 Disclosure Standards Board e. The "Big Five"of Voluntary Reporting's Statement of 1027 Intent f. Stakeholder Capitalism Metrics 1027 g. CFA Institute's ESG Disclosure Standards for 1028 Investment Products h. Other Developments 1028 5. Sustainability in Financial Decision Making 1028 C. The Future of Proactive Sustainability Management 1036 V. CONCLUSION 1040 I. INTRODUCTION

   Lawyers, law schools, and corporate entities have shown an increased interest in sustainable business strategies. This is reflected by the increase in sustainability practice groups, law school courses, (1) and textbooks (2) focusing on the relationship between sustainability and business law; lawyers moving into executive-level sustainability positions in the private sector; and the proliferation of corporate sustainability policies, as well as increased interest in mitigating climate risk and engaging in sustainable finance. For example, of the Am Law 50 law firms, thirty-five have a practice group or a specialty focus on sustainable business; environmental, social, and governance (ESG); or corporate social responsibility (CSR). (3) Also, according to the U.S. News & World Report, of the fourteen law schools tied for the top ten in environmental law specialty programs, at least seven have a course or program on the subject of sustainable business. (4) Even the American Bar Association has adopted a resolution urging lawyers "to advise their clients of the risks and opportunities that climate change provides." (5) Now, the Biden Administration may also be forcing businesses to prepare for new ESG regulations (6) and has named the first-ever senior policy adviser for climate and ESG to the U.S. Securities and Exchange Commission (SEC), underscoring the elevation of ESG issues. (7) This Article serves as an introductory explanation to define and understand the growing subject matter at the intersection of sustainability, business, and the law, as well as explores the key role that corporate governance and finance play in achieving sustainability.

   This Article argues that "sustainable business law" has emerged as a distinct area of law. Vandenbergh, in his now seminal article Private Environmental Governance, asserts that environmental law has "transformed from a positive law field deeply rooted in administrative law to one that is also heavily rooted in private law and private governance." (8) Vandenbergh defines private environmental governances as "actions taken by non-governmental entities that are designed to achieve traditionally governmental ends such as managing the exploitation of common pool resources, increasing the provision of public goods, reducing environmental externalities, or more justly distributing environmental amenities." (9) Meanwhile, Light, in The Law of the Corporation as Environmental Law, rejects any notion of "a division of labor between firms and markets on the one hand, and public environmental law and regulation on the other." (10) "In light of the significant impact that firms can have on the environment... the law governing the corporation throughout its life cycle--corporate law, securities regulation, antitrust law, and bankruptcy law--should be understood as a fundamental part of environmental law." (11) Read together, private environmental governance and corporate law choices impacting the environment combine to create "sustainable business law" as a distinct legal discipline, or, at minimum, a component of environmental law--as "the future of environmental law will depend not upon traditional federal command-and-control legislation or executive branch maneuvering, but instead upon activating environmentalism through expanded substantive areas and innovative regulatory techniques that fall outside the existing, traditional norms of environmental law and legal scholarship." (12)

   Accepting the existence of sustainable business law (like other emerging fields, such as food law) is a realization and acknowledgment "that these barriers to traditional environmental regulation have and will continue to force an expansion in the boundaries of environmental law and legal scholarship, and in our approaches to environmental regulation." (13) Todd Aagaard writes: "If it is to succeed in protecting human health and the environment, the environmental law of this new century may need to evolve into something that looks quite different from the extant environmental law canon." (14) Sustainable business looks quite different and is a viable part of the next generation of environmental laws as it can be implemented in an antagonistic political climate, is amenable to integration with other non-environmental law, and can make inroads against the monumental peril of global climate change. (15)

   In recognition of the existence and potential of sustainable business law, this Article focuses on proactive rather than reactive (16) sustainable business initiatives that seek to avoid and mitigate environmental and social risk. (17) In doing so, Part II defines terms that are currently used in sustainable business: CSR, the three pillars of sustainability (environmental, social, and economic welfare), ESG, and the triple bottom line (people, profit, and planet) (TBL). Part III explores the role of the lawyer in promoting sustainable business. Part IV argues that corporate governance and finance provide the foundation for lawyers to successfully meet their obligations in fostering sustainable business practices. Part V concludes by tying together these theoretical and practical claims--that sustainable business law is part of the future of the environmental law canon with initial implementation by lawyers developing sustainable corporate governance and finance mechanisms.

2. DEFINING SUSTAINABLE BUSINESS

   The private sector is pursuing a number of goals in the sustainability space, including, but not limited to, the Sustainable Development Goals (SDG), a low carbon economy, decarbonization, diversity and inclusion, employee engagement, long-term value, and innovation. (18) The list goes on. In response to consumer demand, to avoid financial risks, and in anticipation of the benefits of a greener future economy, businesses are pursuing these goals to take a proactive approach to mitigate environmental and social risk. But what exactly is a "sustainable business"? Sustainable business can be defined both formally (i.e., definitionally), as this Part seeks to do, and functionally (e.g., what is the goal of business and what actions can be taken to be more sustainable), as discussed in Parts III and IV. The terms used below are complex and vary in meaning depending on geography, jurisdiction, and context, and, as such, this Part merely offers a useful, while imperfect, primer on the terms often used when discussing sustainability in the business context. (19) The term "sustainability" has been a buzzword for the past thirty years, yet there is still no precise, authoritative definition of the term, (20) although, "sustainability" and "sustainable development" are said to rest upon the three pillars of environmental, economic, and social welfare. (21) This lack of a precise definition has led to sustainability becoming a "container term" (22) and susceptible to greenwashing. (23) Furthermore, sustainability is often used interchangeably with ESG, CSR, or TBL, all three of which add an aspect of economic viability to the term (as opposed to economic welfare or equality), in addition to environmental and social considerations. (24)

   In 1987, the World Commission on Environment and Development (the Brundtland Commission) defined sustainable development as "meet[ing] the needs of the present without compromising the ability of future generations to meet their own needs." (25) This definition draws on intergenerational equity, balancing resources usage and supplies over time. (26) Business sustainability has its roots in this definition, but due to the definition's focus on resources, many think it only pertains to environmental issues. (27) However, this is an incorrect interpretation, sustainability relates to time. (28) Thus, business sustainability shifts the business's focus to the future and can be described "as a business strategy that creates long-term stakeholder value by addressing social, economic, and environmental opportunities and risks material to a company." (29)

   Although sustainability and CSR are often used synonymously, the two should not be confused. CSR is "[a] responsibility among firms to meet the needs of their stakeholders and a responsibility among stakeholders to hold firms to account for their actions." (30) CSR focuses on the process a firm uses and the actions it takes to respond to its stakeholders' collective set of needs. (31) Importantly, Berger-Walliser and Scott argue that CSR is seen through one of two lenses--the lens of shareholder primacy, or CSR as a voluntary effort above and beyond any legal requirements. (32) Thus, CSR focuses on the actions a firm chooses to take (or not to take) based on shareholder interests, as voluntary activities...