ESG and Director’s Duties: Defining and Advancing the Interests of the Company

Abstract

It is difficult to advance the ESG agenda using company law, especially in common law legal systems. Cases show that directors’ duties require directors to prioritise the ‘interests of the company’, which is equated with ‘shareholders’ interests as a whole’, whether under the traditional common law or, for the UK, under the codified section 172 of the Companies Act 2006. In addition, when determining if directors have acted in the interests of the company, judges typically decline to examine the merits of a business decision, focusing instead on the decision-making process. What this means is that even if directors must take ESG considerations into account, courts have held that the duty to act in the company’s best interests does not impose a positive duty for directors to adopt aggressive ESG focused strategies. We argue that this has always been and should continue to be the correct judicial approach.