The Role of EU Securities Regulation in Sustainable Corporate Governance

The debate on sustainable finance seldom includes the perspective of shareholders. However, shareholders are important for the governance of publicly held corporations today because their holdings are concentrated in the hands of a few institutional investors. Institutional investors can therefore have an impact on the sustainability of the largest companies in the world. The question is whether institutional investors actually have such an impact. Recent changes in EU securities regulation can bring more clarity on this matter. For instance, the revised Shareholder Rights Directive requires companies, on a comply-or-explain basis, to disclose voting policies and behaviours concerning sustainability. More in general, EU law is increasing the supply of standard measures of sustainable investment, to be used in institutional investors’ communications with their beneficiaries. This chapter discusses how EU securities regulation can align the incentives of institutional investors to pursue sustainable corporate governance with the sustainability preferences of their beneficiaries.